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Investments
 3 Months Ended
Mar. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
Investments
Investments
(a) Fixed Maturities, Short-Term Investments and Equity Securities
Classification of Fixed Maturity Securities
In an effort to improve operational efficiency, the Company has undergone an initiative to transform its investment operations and related reporting. As a result of this initiative, the Company has simplified the classification of its fixed maturity securities by investment type to align its internal and external reporting processes. Corporate securities previously separated into two classifications have been merged into one. Residential mortgage-backed securities have also been merged into a single classification. Collateralized debt obligations are now reported under Other asset-backed securities. Comparative period amounts have been re-presented to conform to the new classification system.
Amortized Cost and Fair Value Summary
The cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains and gross unrealized (losses), including non-credit related Other-Than-Temporary Impairments ("OTTI") recorded in accumulated other comprehensive income ("AOCI"), of the Company’s Available for Sale ("AFS") investments at March 31, 2017 and December 31, 2016 were as follows:
 
 
 
Included in AOCI
 
 
 
 
March 31, 2017
(U.S. dollars in thousands)
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses
 
Fair Value
 
Non-credit Related OTTI (1)
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
 
 
 
 
 
 
 
 
 
U.S. Government and Government Agencies ("U.S. Government")
$
4,175,513

 
$
53,626

 
$
(25,786
)
 
$
4,203,353

 
$
—

U.S. States, municipalities and political subdivisions
2,259,820

 
95,624

 
(4,585
)
 
2,350,859

 
—

Non-U.S. Governments
4,962,157

 
113,776

 
(96,025
)
 
4,979,908

 
—

Corporate
10,465,866

 
214,671

 
(101,171
)
 
10,579,366

 
(18
)
Residential mortgage-backed securities ("RMBS")
4,370,380

 
65,045

 
(57,990
)
 
4,377,435

 
(46,495
)
Commercial mortgage-backed securities ("CMBS")
705,158

 
5,694

 
(10,655
)
 
700,197

 
(1,172
)
Other asset-backed securities
1,244,057

 
14,126

 
(8,492
)
 
1,249,691

 
(1,995
)
Total fixed maturities - AFS - Excluding Life Funds Withheld Assets
$
28,182,951

 
$
562,562

 
$
(304,704
)
 
$
28,440,809

 
$
(49,680
)
Total short-term investments - Excluding Life Funds Withheld Assets
260,407

 
208

 
(462
)
 
260,153

 
—

Total equity securities - Excluding Life Funds Withheld Assets
1,017,172

 
83,845

 
(6,508
)
 
1,094,509

 
—

Total investments - AFS - Excluding Life Funds Withheld Assets
$
29,460,530

 
$
646,615

 
$
(311,674
)
 
$
29,795,471

 
$
(49,680
)
Fixed maturities - AFS - Life Funds Withheld Assets
 

 
 

 
 

 
 

 
 

U.S. Government
$
8,542

 
$
2,190

 
$
—

 
$
10,732

 
$
—

Non-U.S. Governments
440,648

 
147,974

 
—

 
588,622

 
—

Corporate
1,116,300

 
279,251

 
—

 
1,395,551

 
—

RMBS
19,267

 
3,071

 
—

 
22,338

 
—

CMBS
75,554

 
18,256

 
—

 
93,810

 
—

Other asset-backed securities
80,650

 
19,278

 
—

 
99,928

 
—

Total fixed maturities - AFS - Life Funds Withheld Assets
$
1,740,961

 
$
470,020

 
$
—

 
$
2,210,981

 
$
—

Total investments - AFS
$
31,201,491

 
$
1,116,635

 
$
(311,674
)
 
$
32,006,452

 
$
(49,680
)
 
____________
(1)
Represents the non-credit component of OTTI losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

 
 
 
Included in AOCI
 
 
 
 
December 31, 2016
(U.S. dollars in thousands)
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses
 
Fair Value
 
Non-credit Related OTTI (1)
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
 

 
 

 
 

 
 

 
 

U.S. Government
$
3,874,038

 
$
53,172

 
$
(32,822
)
 
$
3,894,388

 
$
—

U.S. States, municipalities and political subdivisions
2,399,490

 
86,041

 
(7,419
)
 
2,478,112

 
—

Non-U.S. Governments
5,037,482

 
112,772

 
(120,122
)
 
5,030,132

 
—

Corporate
10,055,757

 
198,082

 
(119,110
)
 
10,134,729

 
(36
)
RMBS
4,479,722

 
71,045

 
(58,142
)
 
4,492,625

 
(47,879
)
CMBS
670,005

 
5,955

 
(10,774
)
 
665,186

 
(1,191
)
Other asset-backed securities
1,252,435

 
13,195

 
(12,242
)
 
1,253,388

 
(2,029
)
Total fixed maturities - AFS - Excluding Life Funds Withheld Assets
$
27,768,929

 
$
540,262

 
$
(360,631
)
 
$
27,948,560

 
$
(51,135
)
Total short-term investments - Excluding Life Funds Withheld Assets
626,142

 
227

 
(1,176
)
 
625,193

 
—

Total equity securities - Excluding Life Funds Withheld Assets
996,610

 
48,931

 
(8,210
)
 
1,037,331

 
—

Total investments - AFS - Excluding Life Funds Withheld Assets
$
29,391,681

 
$
589,420

 
$
(370,017
)
 
$
29,611,084

 
$
(51,135
)
Fixed maturities - AFS - Life Funds Withheld Assets
 
 
 
 
 
 
 
 
 
U.S. Government
$
8,468

 
$
2,109

 
$
—

 
$
10,577

 
$
—

Non-U.S. Governments
454,695

 
169,982

 
—

 
624,677

 
—

Corporate
1,173,670

 
280,938

 
—

 
1,454,608

 
—

RMBS
19,591

 
2,789

 
—

 
22,380

 
—

CMBS
77,762

 
16,478

 
—

 
94,240

 
—

Other asset-backed securities
84,541

 
17,019

 
—

 
101,560

 
—

Total fixed maturities - AFS - Life Funds Withheld Assets
$
1,818,727

 
$
489,315

 
$
—

 
$
2,308,042

 
$
—

Total investments - AFS
$
31,210,408

 
$
1,078,735

 
$
(370,017
)
 
$
31,919,126

 
$
(51,135
)
 ____________
(1)
Represents the non-credit component of OTTI losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.
The cost (amortized cost for fixed maturities and short-term investments) and fair value of the trading investments at March 31, 2017 and December 31, 2016 were as follows:
March 31, 2017
(U.S. dollars in thousands)
Amortized
Cost
 
Fair Value
Fixed maturities - Trading - Life Funds Withheld Assets
 

 
 

U.S. Government
$
16,179

 
$
16,340

U.S. States, municipalities and political subdivisions
127

 
126

Non-U.S. Governments
454,585

 
469,597

Corporate
1,115,185

 
1,167,081

RMBS
919

 
930

CMBS
5,194

 
5,550

Other asset-backed securities
38,856

 
40,484

Total fixed maturities - Trading - Life Funds Withheld Assets
$
1,631,045

 
$
1,700,108

Total short-term investments - Trading - Life Funds Withheld Assets
$
742

 
$
754

Total investments - Trading - Life Funds Withheld Assets
$
1,631,787

 
$
1,700,862

December 31, 2016
(U.S. dollars in thousands)
Amortized
Cost
 
Fair Value
Fixed maturities - Trading - Life Funds Withheld Assets
 

 
 

U.S. Government
$
14,361

 
$
14,708

U.S. States, municipalities and political subdivisions
219

 
224

Non-U.S. Governments
426,225

 
444,944

Corporate
1,062,853

 
1,111,205

RMBS
936

 
961

CMBS
5,242

 
5,526

Other asset-backed securities
38,342

 
39,446

Total fixed maturities - Trading - Life Funds Withheld Assets
$
1,548,178

 
$
1,617,014

Total short-term investments - Trading - Life Funds Withheld Assets
$
9,536

 
$
9,563

Total investments - Trading - Life Funds Withheld Assets
$
1,557,714

 
$
1,626,577


At March 31, 2017 and December 31, 2016, approximately 2.7% and 2.5%, respectively, of the Company's fixed income investment portfolio at fair value, excluding cash and Life Funds Withheld Assets, was invested in securities that were below investment grade or not rated. Approximately 4.4% and 4.1% of the gross unrealized losses in the Company's fixed income investment portfolio, excluding cash and Life Funds Withheld Assets, at March 31, 2017 and December 31, 2016, respectively, related to securities that were below investment grade or not rated.
Contractual Maturities Summary
The contractual maturities of AFS fixed income securities at March 31, 2017 and December 31, 2016 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2017

December 31, 2016
(U.S. dollars in thousands)
Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
 


 


 


 

Due less than one year
$
2,033,484

 
$
2,061,553

 
$
2,121,088

 
$
2,135,262

Due after 1 through 5 years
12,842,652

 
12,927,078

 
12,400,798

 
12,463,844

Due after 5 through 10 years
5,674,580

 
5,722,780

 
5,509,194

 
5,531,402

Due after 10 years
1,312,640

 
1,402,075

 
1,335,687

 
1,406,853

 
$
21,863,356

 
$
22,113,486

 
$
21,366,767

 
$
21,537,361

RMBS
4,370,380

 
4,377,435

 
4,479,722

 
4,492,625

CMBS
705,158

 
700,197

 
670,005

 
665,186

Other asset-backed securities
1,244,057

 
1,249,691

 
1,252,435

 
1,253,388

Total mortgage and asset-backed securities
$
6,319,595

 
$
6,327,323

 
$
6,402,162

 
$
6,411,199

Total fixed maturities - AFS - Excluding Life Funds Withheld Assets
$
28,182,951

 
$
28,440,809

 
$
27,768,929

 
$
27,948,560

Fixed maturities - AFS - Life Funds Withheld Assets
 

 
 

 
 

 
 

Due less than one year
$
58,836

 
$
68,442

 
$
71,207

 
$
80,749

Due after 1 through 5 years
289,495

 
318,498

 
289,710

 
318,605

Due after 5 through 10 years
251,139

 
299,963

 
274,727

 
324,759

Due after 10 years
966,020

 
1,308,002

 
1,001,189

 
1,365,749

 
$
1,565,490

 
$
1,994,905

 
$
1,636,833

 
$
2,089,862

RMBS
19,267

 
22,338

 
19,591

 
22,380

CMBS
75,554

 
93,810

 
77,762

 
94,240

Other asset-backed securities
80,650

 
99,928

 
84,541

 
101,560

Total mortgage and asset-backed securities
$
175,471

 
$
216,076

 
$
181,894

 
$
218,180

Total fixed maturities - AFS - Life Funds Withheld Assets
$
1,740,961

 
$
2,210,981

 
$
1,818,727

 
$
2,308,042

Total fixed maturities - AFS
$
29,923,912

 
$
30,651,790

 
$
29,587,656

 
$
30,256,602

 
 
 
 
 
 
 
 

March 31, 2017

December 31, 2016
(U.S. dollars in thousands)
Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
Fixed maturities - Trading - Life Funds Withheld Assets
 

 
 

 
 

 
 

Due less than one year
$
61,523

 
$
61,845

 
$
59,138

 
$
59,553

Due after 1 through 5 years
358,658

 
365,639

 
322,574

 
328,997

Due after 5 through 10 years
565,720

 
581,916

 
507,631

 
521,505

Due after 10 years
600,175

 
643,744

 
614,315

 
661,026

 
$
1,586,076

 
$
1,653,144

 
$
1,503,658

 
$
1,571,081

RMBS
919

 
930

 
936

 
961

CMBS
5,194

 
5,550

 
5,242

 
5,526

Other asset-backed securities
38,856

 
40,484

 
38,342

 
39,446

Total mortgage and asset-backed securities
$
44,969

 
$
46,964

 
$
44,520

 
$
45,933

Total fixed maturities - Trading - Life Funds Withheld Assets
$
1,631,045

 
$
1,700,108

 
$
1,548,178

 
$
1,617,014


Pledged Assets
Certain of the Company's invested assets are held in trust and pledged in support of insurance and reinsurance liabilities as well as credit facilities. Such pledges are largely required by the Company's operating subsidiaries that are "non-admitted" under U.S. state insurance regulations, in order for the U.S. cedant to receive statutory credit for reinsurance. Also included are Life Funds Withheld Assets as noted in Note 1, "Significant Accounting Policies." Additionally, certain deposit liabilities and annuity contracts require the use of pledged assets. At March 31, 2017 and December 31, 2016, the Company had $17.6 billion and $17.1 billion in pledged assets, respectively.
(b) Gross Unrealized Losses
The following is an analysis of how long the AFS securities at March 31, 2017 and December 31, 2016 had been in a continual unrealized loss position:
 
Less than 12 months
 
Equal to or greater
than 12 months
March 31, 2017
(U.S. dollars in thousands)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Fixed maturities and short-term investments - AFS
 

 
 

 
 

 
 

U.S. Government
$
2,311,525

 
$
(25,010
)
 
$
34,778

 
$
(821
)
U.S. States, municipalities and political subdivisions
332,688

 
(4,193
)
 
4,296

 
(392
)
Non-U.S. Governments
1,414,226

 
(32,896
)
 
394,173

 
(63,538
)
Corporate
2,765,752

 
(55,262
)
 
292,269

 
(45,917
)
RMBS
2,448,601

 
(41,934
)
 
304,302

 
(16,056
)
CMBS
469,048

 
(9,325
)
 
6,180

 
(1,330
)
Other asset-backed securities
347,535

 
(2,712
)
 
32,078

 
(5,780
)
Total fixed maturities and short-term investments - AFS
$
10,089,375

 
$
(171,332
)
 
$
1,068,076

 
$
(133,834
)
Total equity securities
$
147,786

 
$
(6,508
)
 
$
—

 
$
—

 
Less than 12 months
 
Equal to or greater
than 12 months
December 31, 2016
(U.S. dollars in thousands)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Fixed maturities and short-term investments - AFS
 

 
 

 
 

 
 

U.S. Government
$
2,456,685

 
$
(30,640
)
 
$
43,873

 
$
(2,237
)
U.S. States, municipalities and political subdivisions
457,288

 
(6,983
)
 
4,287

 
(437
)
Non-U.S. Governments
1,797,405

 
(75,596
)
 
288,490

 
(45,480
)
Corporate
3,414,252

 
(81,594
)
 
264,920

 
(37,595
)
RMBS
2,459,545

 
(41,194
)
 
302,810

 
(16,948
)
CMBS
467,757

 
(9,470
)
 
9,665

 
(1,304
)
Other asset-backed securities
777,435

 
(3,888
)
 
37,535

 
(8,441
)
Total fixed maturities and short-term investments - AFS
$
11,830,367

 
$
(249,365
)
 
$
951,580

 
$
(112,442
)
Total equity securities
$
130,487

 
$
(8,210
)
 
$
—

 
$
—


The Company had gross unrealized losses totaling $311.7 million on 2,848 securities out of a total of 8,324 held at March 31, 2017 in its AFS - Excluding Life Funds Withheld Assets portfolio, which either it considers to be temporarily impaired or with respect to which it reflects non-credit losses on other-than-temporarily impaired assets. Individual security positions comprising this balance have been evaluated by management, in conjunction with our investment managers, to determine the severity of these impairments and whether they should be considered other-than-temporary. Management believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.
(c) Net Realized and Unrealized Gains (Losses)
The following represents an analysis of net realized and unrealized gains (losses) on investments
Net Realized Gains (Losses) on Investments
Three months ended March 31,
(U.S. dollars in thousands)
2017
 
2016
Net realized gains (losses) on investments - excluding Life Funds Withheld Assets:
 
 
 
Gross realized gains
$
39,397

 
$
61,227

Gross realized losses on investments sold
(28,305
)
 
(50,063
)
OTTI on investments, net of amounts transferred to other comprehensive income
(6,874
)
 
(19,580
)
 
$
4,218

 
$
(8,416
)
Net realized gains (losses) on investments and net unrealized gains (losses) on investments, Trading - Life Funds Withheld Assets:
 
 
 
Gross realized gains
$
35,151

 
$
62,850

Gross realized losses on investments sold
(677
)
 
(28,434
)
OTTI on investments, net of amounts transferred to other comprehensive income
—

 
(2,346
)
Net unrealized gains (losses) on trading securities
$
(1,406
)
 
$
69,096

 
$
33,068

 
$
101,166

Total net realized gains (losses) on investments
$
37,286

 
$
92,750


The components of OTTI charges of $6.9 million for three months ended March 31, 2017, compared to $19.6 million for the three months ended March 31, 2016 for investments excluding Life Funds Withheld Assets were:
▪
$5.0 million related to other investments, compared to nil for the three months ended March 31, 2016.
▪
$0.1 million related to investments that we no longer intend to hold for a period sufficient to recover their fair value to cost, compared to $9.8 million for the three months ended March 31, 2016.
▪
$0.1 million for structured securities where we determined that the likely recovery on these securities was below the carrying value and, accordingly, recorded an impairment of the securities to the discounted value of the cash flows expected to be received on these securities. The charges for the three months ended March 31, 2016 were $0.9 million.
▪
Nil related to equity investments that were in a loss position for more than 11 months or impaired by more than 50%, compared to $7.0 million for the three months ended March 31, 2016.
▪
$1.7 million related to foreign exchange losses, compared to $1.9 million for the three months ended March 31, 2016.
The following table sets forth the amount of credit loss impairments on fixed income securities, for which a portion of the OTTI loss was recognized in Other Comprehensive Income ("OCI"), held by the Company at the dates or for the periods indicated and the corresponding changes in such amounts.
Credit Loss Impairments
Three months ended March 31,
(U.S. dollars in thousands)
2017
 
2016
Opening balance at beginning of indicated period
$
61,595

 
$
73,469

Credit loss impairment recognized in the current period on securities not previously impaired
124

 
10,567

Credit loss impairments previously recognized on securities that matured or were paid down, prepaid or sold during the period
(836
)
 
(4,877
)
Additional credit loss impairments recognized in the current period on securities previously impaired
102

 
230

Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected
(2,357
)
 
(2,410
)
Closing balance at end of indicated period
$
58,628

 
$
76,979