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Investments
 12 Months Ended
Dec. 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 OTTI recorded in AOCI of the Company's AFS investments at December 31, 2017 and 2016 were as follows:
 
 
 
Included in AOCI
 
 
 
 
December 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-Related/Supported ("U.S. Government")
$
4,358,503

 
$
37,782

 
$
(33,545
)
 
$
4,362,740

 
$
—

U.S. States, municipalities and political subdivisions
1,977,796

 
87,832

 
(988
)
 
2,064,640

 
—

Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported ("Non-U.S. Government")
5,135,526

 
114,918

 
(48,863
)
 
5,201,581

 
—

Corporate
9,644,799

 
207,668

 
(57,334
)
 
9,795,133

 
(18
)
Residential mortgage-backed securities ("RMBS")
4,717,542

 
41,983

 
(35,123
)
 
4,724,402

 
(8,795
)
Commercial mortgage-backed securities ("CMBS")
1,246,406

 
7,468

 
(9,857
)
 
1,244,017

 
(817
)
Other asset-backed securities
1,488,958

 
26,877

 
(6,472
)
 
1,509,363

 
(34,016
)
Total fixed maturities - AFS - Excluding Life Funds Withheld Assets
$
28,569,530

 
$
524,528

 
$
(192,182
)
 
$
28,901,876

 
$
(43,646
)
Total short-term investments - Excluding Life Funds Withheld Assets
816,638

 
744

 
(1,901
)
 
815,481

 
—

Total equity securities - Excluding Life Funds Withheld Assets
638,455

 
80,679

 
(5,167
)
 
713,967

 
—

Total investments - AFS - Excluding Life Funds Withheld Assets
$
30,024,623

 
$
605,951

 
$
(199,250
)
 
$
30,431,324

 
$
(43,646
)
 
 
 
Included in AOCI
 
 
 
 
December 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 - Life Funds Withheld Assets
 

 
 

 
 

 
 

 
 

U.S. Government
$
9,050

 
$
2,266

 
$
—

 
$
11,316

 
$
—

Non-U.S. Governments
433,664

 
150,870

 
—

 
584,534

 
—

Corporate
909,589

 
227,624

 
—

 
1,137,213

 
—

RMBS
448

 
67

 
—

 
515

 
—

CMBS
97,356

 
24,916

 
—

 
122,272

 
—

Other asset-backed securities
137,944

 
33,318

 
—

 
171,262

 
—

Total fixed maturities - AFS - Life Funds Withheld Assets
$
1,588,051

 
$
439,061

 
$
—

 
$
2,027,112

 
$
—

Total investments - AFS
$
31,612,674

 
$
1,045,012

 
$
(199,250
)
 
$
32,458,436

 
$
(43,646
)
 
____________
(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 amortized cost and fair value of trading investments at December 31, 2017 and 2016 were as follows:
December 31, 2017
(U.S. dollars in thousands)
Amortized
Cost
 
Fair Value
Fixed maturities - Trading - Life Funds Withheld Assets
 

 
 

U.S. Government
$
11,640

 
$
11,042

U.S. States, municipalities and political subdivisions
30

 
31

Non-U.S. Governments
473,849

 
485,171

Corporate
1,412,846

 
1,460,292

RMBS
1,020

 
932

CMBS
7,345

 
7,580

Other asset-backed securities
39,771

 
41,337

Total fixed maturities - Trading - Life Funds Withheld Assets
$
1,946,501

 
$
2,006,385

Total short-term investments - Trading - Life Funds Withheld Assets
$
14,969

 
$
14,965

Total investments - Trading - Life Funds Withheld Assets
$
1,961,470

 
$
2,021,350

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 December 31, 2017 and 2016, approximately 3.3% and 2.5%, respectively, of the Company's fixed income investment portfolio at fair value, excluding Life Funds Withheld Assets, was invested in securities that were below investment grade or not rated. Approximately 4.2% and 4.1% of the gross unrealized losses in the Company's fixed income investment portfolio, excluding cash and Life Funds Withheld Assets, at December 31, 2017 and 2016, respectively, related to securities that were below investment grade or not rated.
Contractual Maturities Summary
The contractual maturities of AFS and Trading fixed income securities at December 31, 2017 and 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.
(U.S. dollars in thousands)
December 31, 2017
 
December 31, 2016
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
 
 
 
 
 
 
 
Due less than one year
$
1,556,688

 
$
1,564,360

 
$
2,121,088

 
$
2,135,262

Due after 1 through 5 years
12,243,590

 
12,309,732

 
12,400,798

 
12,463,844

Due after 5 through 10 years
6,268,217

 
6,362,314

 
5,509,194

 
5,531,402

Due after 10 years
1,048,129

 
1,187,688

 
1,335,687

 
1,406,853

 
$
21,116,624

 
$
21,424,094

 
$
21,366,767

 
$
21,537,361

(U.S. dollars in thousands)
December 31, 2017
 
December 31, 2016
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
RMBS
$
4,717,542

 
$
4,724,402

 
$
4,479,722

 
$
4,492,625

CMBS
1,246,406

 
1,244,017

 
670,005

 
665,186

Other asset-backed securities
1,488,958

 
1,509,363

 
1,252,435

 
1,253,388

Total mortgage and asset-backed securities
$
7,452,906

 
$
7,477,782

 
$
6,402,162

 
$
6,411,199

Total fixed maturities - AFS - Excluding Life Funds Withheld Assets
$
28,569,530

 
$
28,901,876

 
$
27,768,929

 
$
27,948,560

Fixed maturities - AFS - Life Funds Withheld Assets
 
 
 
 
 
 
 
Due less than one year
$
47,143

 
$
49,233

 
$
71,207

 
$
80,749

Due after 1 through 5 years
286,524

 
313,227

 
289,710

 
318,605

Due after 5 through 10 years
168,897

 
205,536

 
274,727

 
324,759

Due after 10 years
849,739

 
1,165,067

 
1,001,189

 
1,365,749

 
$
1,352,303

 
$
1,733,063

 
$
1,636,833

 
$
2,089,862

RMBS
$
448

 
$
515

 
$
19,591

 
$
22,380

CMBS
97,356

 
122,272

 
77,762

 
94,240

Other asset-backed securities
137,944

 
171,262

 
84,541

 
101,560

Total mortgage and asset-backed securities
$
235,748

 
$
294,049

 
$
181,894

 
$
218,180

Total fixed maturities - AFS - Life Funds Withheld Assets
$
1,588,051

 
$
2,027,112

 
$
1,818,727

 
$
2,308,042

Total fixed maturities - AFS
$
30,157,581

 
$
30,928,988

 
$
29,587,656

 
$
30,256,602

Fixed maturities - Trading - Life Funds Withheld Assets
 
 
 
 
 
 
 
Due less than one year
$
59,962

 
$
59,605

 
$
59,138

 
$
59,553

Due after 1 through 5 years
486,847

 
492,998

 
322,574

 
328,997

Due after 5 through 10 years
645,573

 
657,093

 
507,631

 
521,505

Due after 10 years
705,983

 
746,840

 
614,315

 
661,026

 
$
1,898,365

 
$
1,956,536

 
$
1,503,658

 
$
1,571,081

RMBS
$
1,020

 
$
932

 
$
936

 
$
961

CMBS
7,345

 
7,580

 
5,242

 
5,526

Other asset-backed securities
39,771

 
41,337

 
38,342

 
39,446

Total mortgage and asset-backed securities
$
48,136

 
$
49,849

 
$
44,520

 
$
45,933

Total fixed maturities - Trading - Life Funds Withheld Assets
$
1,946,501

 
$
2,006,385

 
$
1,548,178

 
$
1,617,014


Pledged Assets
Certain of the Company's invested assets are pledged in support of insurance and reinsurance liabilities as well as to collateralize our 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 in pledged assets are Life Funds Withheld Assets, as noted in Note 1(a), "Significant Accounting Policies - Basis of Preparation and Consolidation." Additionally, certain deposit liabilities and annuity contracts require the use of pledged assets. As of December 31, 2017 and 2016, the Company had $18.8 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 December 31, 2017 and 2016 had been in a continual unrealized loss position:
December 31, 2017
(U.S. dollars in thousands)
Less than 12 months
 
Equal to or greater
than 12 months
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
Fixed maturities and short-term investments - AFS
 
 
 
 
 
 
 
U.S. Government
$
2,687,083

 
$
(21,514
)
 
$
727,246

 
$
(13,902
)
U.S. States, municipalities and political subdivisions
88,235

 
(622
)
 
19,583

 
(366
)
Non-U.S. Governments
1,527,323

 
(14,959
)
 
560,648

 
(33,931
)
Corporate
2,959,416

 
(25,757
)
 
543,973

 
(31,577
)
RMBS
2,198,391

 
(14,030
)
 
925,191

 
(21,093
)
CMBS
583,656

 
(4,117
)
 
138,065

 
(5,740
)
Other asset-backed securities
256,823

 
(1,111
)
 
175,146

 
(5,364
)
Total fixed maturities and short-term investments - AFS
$
10,300,927

 
$
(82,110
)
 
$
3,089,852

 
$
(111,973
)
Total equity securities
$
58,632

 
$
(5,167
)
 
$
—

 
$
—

 
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 $199.3 million on 2,950 securities out of a total of 7,822 held at December 31, 2017 in its AFS - Excluding Life Funds Withheld Assets portfolio, which either it considers to be temporarily impaired or 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 Investment Income
Net investment income for the years ended December 31, 2017, 2016 and 2015 is derived from the following sources:
(U.S. dollars in thousands)
2017
 
2016
 
2015
Fixed maturities, short term investments and cash equivalents - Excluding Life Funds Withheld Assets
$
738,435

 
$
713,237

 
$
726,161

Fixed maturities, short term investments and cash equivalents - Life Funds Withheld Assets
127,047

 
154,751

 
187,489

Equity securities and other investments
37,496

 
34,620

 
28,200

Interest on funds withheld
15,167

 
10,276

 
10,835

Total gross investment income
$
918,145

 
$
912,884

 
$
952,685

Investment expenses
(88,422
)
 
(85,751
)
 
(80,315
)
Total net investment income
$
829,723

 
$
827,133

 
$
872,370


(d) Net Realized and Unrealized Gains (Losses)
The following represents an analysis of net realized gains (losses), the change in unrealized gains (losses) on trading securities and net realized and unrealized gains (losses) on investment related derivative instruments for the years ended December 31, 2017, 2016 and 2015:
(U.S. dollars in thousands)
2017
 
2016
 
2015
Fixed maturities, short term investments, cash and cash equivalents - Excluding Life Funds Withheld Assets:
 
 
 
 
 
Gross realized gains
$
153,519

 
$
192,119

 
$
187,523

Gross realized losses on investments sold
(136,204
)
 
(151,013
)
 
(134,441
)
OTTI on investments, net of amounts transferred to other comprehensive income
(7,579
)
 
(48,432
)
 
(54,346
)
Net realized gains (losses)
$
9,736

 
$
(7,326
)
 
$
(1,264
)
Equity securities:
 
 
 
 
 
Gross realized gains
$
96,426

 
$
140,864

 
$
79,556

Gross realized losses on investments sold
(8,082
)
 
(11,882
)
 
(49,223
)
OTTI on investments, net of amounts transferred to other comprehensive income
(665
)
 
(30,126
)
 
(15,954
)
Net realized gains (losses)
$
87,679

 
$
98,856

 
$
14,379

Other investments:
 
 
 
 
 
Gross realized gains
$
38,970

 
$
37,596

 
$
39,198

Gross realized losses on investments sold
(9,080
)
 
(16,437
)
 
(19,656
)
OTTI on investments, net of amounts transferred to other comprehensive income
(5,101
)
 
—

 
(12,660
)
Net realized gains (losses)
$
24,789

 
$
21,159

 
$
6,882

Net realized gains (losses) on investments - Excluding Life Funds Withheld Assets
$
122,204

 
$
112,689

 
$
19,997

Fixed maturities, short term investments, cash and cash equivalents - Life Funds Withheld Assets:
 
 
 
 
 
Gross realized gains
$
120,922

 
$
185,487

 
$
259,798

Gross realized losses on investments sold
(5,011
)
 
(32,898
)
 
(36,526
)
Net unrealized gains (losses) on investments, Trading - Life Funds Withheld Assets
(14,805
)
 
109,458

 
(27,734
)
OTTI on investments, net of amounts transferred to other comprehensive income
(1,434
)
 
(2,598
)
 
(13,357
)
Net realized gains (losses) on investments - Life Funds Withheld Assets
$
99,672

 
$
259,449

 
$
182,181

Net realized gains (losses) on investments
$
221,876

 
$
372,138

 
$
202,178

Net realized and unrealized gains (losses) on investment related derivative instruments
$
(4,886
)
 
$
2,521

 
$
(8,616
)
Net realized gains (losses) on investments and net realized and unrealized gains (losses) on investment related derivative instruments
$
216,990

 
$
374,659

 
$
193,562

Change in unrealized gains (losses):
 
 
 
 
 
Fixed maturities – AFS - Excluding Life Funds Withheld Assets
$
152,507

 
$
(84,721
)
 
$
(486,140
)
Fixed maturities – AFS - Life Funds Withheld Assets
(50,254
)
 
14,244

 
(405,155
)
Equity securities
34,791

 
(4,119
)
 
(59,619
)
Other investments
12,598

 
(63,096
)
 
(6,072
)
Net change in unrealized gains (losses) on investments
$
149,642

 
$
(137,692
)
 
$
(956,986
)
Total net realized gains (losses) on investments, net realized and unrealized gains (losses) on investment related derivative instruments, and net change in unrealized gains (losses) on investments
$
366,632

 
$
236,967

 
$
(763,424
)

The components of OTTI charges for the years ended December 31, 2017, 2016 and 2015, as defined in Note 1(g), "Significant Accounting Policies - Other-Than-Temporary Impairments of Available for Sale," for investments excluding Life Funds Withheld Assets were:
 
Year ended December 31,
(U.S. dollars in thousands)
2017
 
2016
 
2015
Fixed maturities:
 
 
 
 
 
Credit loss impairments
$
1,177

 
$
15,100

 
$
11,928

No longer intend to hold to recovery
—

 
3,425

 
18,759

Equities and other investments:
 
 
 
 
 
Impaired more than 11 months or more than 50%
5,766

 
15,277

 
21,756

No longer intend to hold to recovery
—

 
14,849

 
6,858

Currency Losses
6,402

 
29,907

 
23,659

OTTI on investments, net of amounts transferred to other comprehensive income
$
13,345

 
$
78,558

 
$
82,960


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 December 31, 2017, 2016 and 2015 and the corresponding changes in such amounts.
Credit Loss Impairments
(U.S. dollars in thousands)
2017
 
2016
 
2015
Opening balance at beginning of indicated period
$
61,595

 
$
73,469

 
$
131,942

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

 
12,867

 
9,698

Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period
(12,257
)
 
(18,178
)
 
(54,648
)
Credit loss impairments previously recognized on securities impaired to fair value during the period
—

 
—

 
(2,629
)
Additional credit loss impairments recognized in the current period on securities previously impaired
1,053

 
2,233

 
2,230

Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected
(7,183
)
 
(8,796
)
 
(13,124
)
Closing balance at end of indicated period
$
43,332

 
$
61,595

 
$
73,469