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INVESTMENTS
 6 Months Ended
Jun. 30, 2015
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
a)     Fixed Maturities and Equities

The amortized cost or cost and fair values of our fixed maturities and equities were as follows:
 
 
Amortized
Cost or
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,699,826

 
$
3,731

 
$
(20,448
)
 
$
1,683,109

 
$
—

 
 
Non-U.S. government
958,293

 
6,242

 
(64,000
)
 
900,535

 
—

 
 
Corporate debt
4,444,087

 
32,273

 
(72,408
)
 
4,403,952

 
—

 
 
Agency RMBS(1)
2,114,217

 
30,038

 
(9,279
)
 
2,134,976

 
—

 
 
CMBS(2)
1,093,612

 
9,814

 
(3,856
)
 
1,099,570

 
—

 
 
Non-Agency RMBS
99,590

 
2,667

 
(983
)
 
101,274

 
(839
)
 
 
ABS(3)
1,429,667

 
3,372

 
(5,978
)
 
1,427,061

 
—

 
 
Municipals(4)
254,074

 
3,405

 
(2,220
)
 
255,259

 
—

 
 
Total fixed maturities
$
12,093,366

 
$
91,542

 
$
(179,172
)
 
$
12,005,736

 
$
(839
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
495,590

 
44,153

 
(3,763
)
 
535,980

 
 
 
 
Bond mutual funds
123,279

 
—

 
(78
)
 
123,201

 
 
 
 
Total equity securities
$
618,869

 
$
44,153

 
$
(3,841
)
 
$
659,181

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,645,068

 
$
3,337

 
$
(28,328
)
 
$
1,620,077

 
$
—

 
 
Non-U.S. government
1,080,601

 
7,383

 
(54,441
)
 
1,033,543

 
—

 
 
Corporate debt
4,386,432

 
40,972

 
(66,280
)
 
4,361,124

 
—

 
 
Agency RMBS(1)
2,241,581

 
40,762

 
(4,235
)
 
2,278,108

 
—

 
 
CMBS(2)
1,085,618

 
13,289

 
(2,019
)
 
1,096,888

 
—

 
 
Non-Agency RMBS
71,236

 
2,765

 
(915
)
 
73,086

 
(889
)
 
 
ABS(3)
1,475,026

 
2,748

 
(16,188
)
 
1,461,586

 
—

 
 
Municipals(4)
200,411

 
5,282

 
(832
)
 
204,861

 
—

 
 
Total fixed maturities
$
12,185,973

 
$
116,538

 
$
(173,238
)
 
$
12,129,273

 
$
(889
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
416,063

 
43,583

 
(4,756
)
 
454,890

 
 
 
 
Bond mutual funds
115,585

 
—

 
(2,768
)
 
112,817

 
 
 
 
Total equity securities
$
531,648

 
$
43,583

 
$
(7,524
)
 
$
567,707

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities (RMBS) originated by U.S. agencies.
(2)
Commercial mortgage-backed securities (CMBS).
(3)
Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit cards, and other asset types. This asset class also includes collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs).
(4)
Municipals include bonds issued by states, municipalities and political subdivisions.
(5)
Represents the non-credit component of the other-than-temporary impairment (OTTI) losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by VIEs. These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we also invest in limited partnerships (hedge funds) and CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 4(c)). For these variable interests, we do not have the power to direct the activities that are most significant to the economic performance of the VIEs and accordingly we are not the primary beneficiary for any of these VIEs. Our maximum exposure to loss on these interests is limited to the amount of our investment. We have not provided financial or other support with respect to these structured securities other than our original investment.

Contractual Maturities

The contractual maturities of fixed maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
 
 
 
 
 
 
 
 
 
At June 30, 2015
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
553,743

 
$
543,896

 
4.5
%
 
 
Due after one year through five years
4,407,166

 
4,373,414

 
36.4
%
 
 
Due after five years through ten years
2,069,297

 
2,005,587

 
16.7
%
 
 
Due after ten years
326,074

 
319,958

 
2.7
%
 
 
 
7,356,280

 
7,242,855

 
60.3
%
 
 
Agency RMBS
2,114,217

 
2,134,976

 
17.8
%
 
 
CMBS
1,093,612

 
1,099,570

 
9.2
%
 
 
Non-Agency RMBS
99,590

 
101,274

 
0.8
%
 
 
ABS
1,429,667

 
1,427,061

 
11.9
%
 
 
Total
$
12,093,366

 
$
12,005,736

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
424,077

 
$
423,265

 
3.5
%
 
 
Due after one year through five years
4,925,780

 
4,892,411

 
40.3
%
 
 
Due after five years through ten years
1,755,248

 
1,695,641

 
14.0
%
 
 
Due after ten years
207,407

 
208,288

 
1.7
%
 
 
 
7,312,512

 
7,219,605

 
59.5
%
 
 
Agency RMBS
2,241,581

 
2,278,108

 
18.8
%
 
 
CMBS
1,085,618

 
1,096,888

 
9.0
%
 
 
Non-Agency RMBS
71,236

 
73,086

 
0.6
%
 
 
ABS
1,475,026

 
1,461,586

 
12.1
%
 
 
Total
$
12,185,973

 
$
12,129,273

 
100.0
%
 
 
 
 
 
 
 
 
 


 Gross Unrealized Losses

The following table summarizes fixed maturities and equities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
  
12 months or greater
 
Less than 12 months
 
Total
 
 
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
128,916

 
$
(6,688
)
 
$
881,631

 
$
(13,760
)
 
$
1,010,547

 
$
(20,448
)
 
 
Non-U.S. government
163,690

 
(46,219
)
 
298,542

 
(17,781
)
 
462,232

 
(64,000
)
 
 
Corporate debt
229,078

 
(19,633
)
 
2,326,826

 
(52,775
)
 
2,555,904

 
(72,408
)
 
 
Agency RMBS
65,726

 
(1,740
)
 
763,509

 
(7,539
)
 
829,235

 
(9,279
)
 
 
CMBS
64,037

 
(784
)
 
297,266

 
(3,072
)
 
361,303

 
(3,856
)
 
 
Non-Agency RMBS
4,963

 
(600
)
 
44,753

 
(383
)
 
49,716

 
(983
)
 
 
ABS
495,889

 
(5,090
)
 
336,672

 
(888
)
 
832,561

 
(5,978
)
 
 
Municipals
14,478

 
(405
)
 
148,681

 
(1,815
)
 
163,159

 
(2,220
)
 
 
Total fixed maturities
$
1,166,777

 
$
(81,159
)
 
$
5,097,880

 
$
(98,013
)
 
$
6,264,657

 
$
(179,172
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
—

 
—

 
115,026

 
(3,763
)
 
115,026

 
(3,763
)
 
 
Bond mutual funds
—

 
—

 
16,692

 
(78
)
 
16,692

 
(78
)
 
 
Total equity securities
$
—

 
$
—

 
$
131,718

 
$
(3,841
)
 
$
131,718

 
$
(3,841
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
388,551

 
$
(24,319
)
 
$
786,850

 
$
(4,009
)
 
$
1,175,401

 
$
(28,328
)
 
 
Non-U.S. government
143,602

 
(29,171
)
 
435,670

 
(25,270
)
 
579,272

 
(54,441
)
 
 
Corporate debt
26,708

 
(2,221
)
 
2,199,672

 
(64,059
)
 
2,226,380

 
(66,280
)
 
 
Agency RMBS
259,914

 
(3,084
)
 
333,288

 
(1,151
)
 
593,202

 
(4,235
)
 
 
CMBS
68,624

 
(925
)
 
256,225

 
(1,094
)
 
324,849

 
(2,019
)
 
 
Non-Agency RMBS
6,689

 
(613
)
 
13,442

 
(302
)
 
20,131

 
(915
)
 
 
ABS
425,663

 
(10,325
)
 
750,679

 
(5,863
)
 
1,176,342

 
(16,188
)
 
 
Municipals
34,462

 
(644
)
 
25,284

 
(188
)
 
59,746

 
(832
)
 
 
Total fixed maturities
$
1,354,213

 
$
(71,302
)
 
$
4,801,110

 
$
(101,936
)
 
$
6,155,323

 
$
(173,238
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange-traded funds
—

 
—

 
91,275

 
(4,756
)
 
91,275

 
(4,756
)
 
 
Bond mutual funds
—

 
—

 
112,817

 
(2,768
)
 
112,817

 
(2,768
)
 
 
Total equity securities
$
—

 
$
—

 
$
204,092

 
$
(7,524
)
 
$
204,092

 
$
(7,524
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed Maturities

At June 30, 2015, 1,525 fixed maturities (2014: 1,388) were in an unrealized loss position of $179 million (2014: $173 million), of which $19 million (2014: $36 million) was related to securities below investment grade or not rated.

At June 30, 2015, 285 (2014: 223) securities had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $1,167 million (2014: $1,354 million). Following our credit impairment review, we concluded that these securities as well as the remaining securities in an unrealized loss position in the above table were temporarily impaired at June 30, 2015, and were expected to recover in value as the securities approach maturity. Further, at June 30, 2015, we did not intend to sell these securities in an unrealized loss position and it is more likely than not that we will not be required to sell these securities before the anticipated recovery of their amortized costs.

Equity Securities

At June 30, 2015, 38 securities (2014: 9) were in an unrealized loss position of $4 million (2014: $8 million).

At June 30, 2015 and December 31, 2014, there were no securities that had been in a continuous unrealized loss position for 12 months or greater. Based on our impairment review process and our ability and intent to hold these securities for a reasonable period of time sufficient for a full recovery, we concluded that the above equities in an unrealized loss position were temporarily impaired at June 30, 2015.

b) Mortgage Loans

The following table provides a breakdown of our mortgage loans held-for-investment:
 
  
June 30, 2015
 
December 31, 2014
 
 
  
Carrying Value
 
% of Total
 
Carrying Value
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Commercial
$
79,606

 
100
%
 
$
—

 
—
%
 
 
 
79,606

 
100
%
 
—

 
—
%
 
 
Valuation allowances
—

 
—
%
 
—

 
—
%
 
 
Total Mortgage Loans held-for-investment
$
79,606

 
100
%
 
$
—

 
—
%
 
 
 
 
 
 
 
 
 
 
 


For commercial mortgage loans, the primary credit quality indicator is the debt service coverage ratio (which compares a property’s net operating income to amounts needed to service the principle and interest due under the loan, generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss) and the loan-to-value ratio (loan-to-value ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral, generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss). The debt service coverage ratio and loan-to-value ratio, as well as the values utilized in calculating these ratios, are updated annually, on a rolling basis.

All commercial mortgage loans have debt service coverage ratios in excess of 1.5x and loan-to-value ratios of less than 65%; there are no credit losses associated with the commercial mortgage loans that we hold at June 30, 2015.

We have a high quality mortgage loan portfolio with no past due amounts at June 30, 2015.
 
c) Other Investments

The following table provides a breakdown of our investments in hedge funds, direct lending funds, real estate funds and CLO Equities, together with additional information relating to the liquidity of each category:
 
 
Fair Value
 
Redemption Frequency
(if currently eligible)
 
  Redemption  
  Notice Period  
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2015
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
192,622

 
23
%
 
Quarterly, Semi-annually, Annually
 
30-60 days
 
 
Multi-strategy funds
345,726

 
41
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
147,236

 
17
%
 
Quarterly, Annually
 
45-60 days
 
 
Leveraged bank loan funds
75

 
—
%
 
n/a
 
n/a
 
 
Direct lending funds
73,628

 
9
%
 
n/a
 
n/a
 
 
Real estate funds
3,000

 
—
%
 
n/a
 
n/a
 
 
CLO - Equities
90,814

 
10
%
 
n/a
 
n/a
 
 
Total other investments
$
853,101

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2014
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
298,907

 
31
%
 
Quarterly, Semi-annually
 
30-60 days
 
 
Multi-strategy funds
324,020

 
34
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
185,899

 
19
%
 
Quarterly, Annually
 
45-60 days
 
 
Leveraged bank loan funds
9,713

 
1
%
 
Quarterly
 
65 days
 
 
Direct lending funds
54,438

 
6
%
 
n/a
 
n/a
 
 
Real estate funds
—

 
—
%
 
n/a
 
n/a
 
 
CLO - Equities
92,488

 
9
%
 
n/a
 
n/a
 
 
Total other investments
$
965,465

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
n/a - not applicable

The investment strategies for the above funds are as follows:

•
Long/short equity funds: Seek to achieve attractive returns primarily by executing an equity trading strategy involving both long and short investments in publicly-traded equities.

•
Multi-strategy funds: Seek to achieve above-market returns by pursuing multiple investment strategies to diversify risks and reduce volatility. This category includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies.

•
Event-driven funds: Seek to achieve attractive returns by exploiting situations where announced or anticipated events create opportunities.

•
Leveraged bank loan funds: Seek to achieve attractive returns by investing primarily in bank loan collateral that has limited interest rate risk exposure.

•
Direct lending funds: Seek to achieve attractive risk-adjusted returns, including current income generation, by investing in funds which provide financing directly to borrowers.

•
Real estate funds: Seek to achieve attractive risk-adjusted returns by making and managing investments in real estate and real estate securities and businesses.

Two common redemption restrictions which may impact our ability to redeem our hedge funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. During 2015 and 2014, neither of these restrictions impacted our redemption requests. At June 30, 2015, $98 million (2014: $87 million), representing 14% (2014: 11%) of our total hedge funds, relate to holdings where we are still within the lockup period. The expiration of these lockup periods range from September 2015 to April 2018. 

At June 30, 2015, we have $138 million (2014: $88 million) of unfunded commitments within our other investments portfolio relating to our future investments in direct lending funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until the completion of the fund's investment term. These funds have investment terms ranging from 5-10 years and the General Partners of certain funds have the option to extend the term by up to three years.
During 2013, we made a $60 million commitment as a limited partner in a multi-strategy hedge fund. Once the full amount of committed capital has been called by the General Partner, the assets will not be fully returned until the completion of the fund's investment term which ends in March, 2019. The General Partner then has the option to extend the term by up to three years. At June 30, 2015, $23 million of our commitment remains unfunded and the current fair value of the funds called to date are included in the multi-strategy funds line of the table above.
During 2015, we made a $100 million commitment as a limited partner in a fund which invests in real estate and real estate securities and businesses. The fund is subject to a three year commitment period and a total fund life of eight years during which time we are not eligible to redeem our investment. At June 30, 2015, $97 million of our commitment remains unfunded and the current fair value of the funds called to date are included in the real estate funds line of the table above.

During 2015, we made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund is subject to an investment term of seven years and the General Partners have the option to extend the term by up to two years. At June 30, 2015 this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.

d) Net Investment Income

Net investment income was derived from the following sources:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
77,998

 
$
78,523

 
$
144,086

 
$
151,480

 
 
Other investments
14,102

 
32,492

 
45,037

 
49,252

 
 
Equity securities
2,674

 
5,301

 
4,350

 
7,587

 
 
Mortgage loans
281

 
—

 
294

 
—

 
 
Cash and cash equivalents
1,678

 
6,183

 
2,777

 
7,046

 
 
Short-term investments
125

 
246

 
194

 
459

 
 
Gross investment income
96,858

 
122,745

 
196,738

 
215,824

 
 
Investment expenses
(8,314
)
 
(7,878
)
 
(16,087
)
 
(18,214
)
 
 
Net investment income
$
88,544

 
$
114,867

 
$
180,651

 
$
197,610

 
 
 
 
 
 
 
 
 
 
 


e) Net Realized Investment Gains (Losses)

The following table provides an analysis of net realized investment gains (losses):
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
Gross realized gains
 
 
 
 
 
 
 
 
 
Fixed maturities and short-term investments
$
17,066

 
$
26,650

 
$
32,727

 
$
60,420

 
 
Equities
177

 
32,609

 
215

 
51,876

 
 
Gross realized gains
17,243

 
59,259

 
32,942

 
112,296

 
 
Gross realized losses
 
 
 
 
 
 
 
 
 
Fixed maturities and short-term investments
(13,474
)
 
(14,392
)
 
(56,565
)
 
(48,096
)
 
 
Equities
(270
)
 
(2,546
)
 
(394
)
 
(4,984
)
 
 
Gross realized losses
(13,744
)
 
(16,938
)
 
(56,959
)
 
(53,080
)
 
 
Net OTTI recognized in earnings
(12,893
)
 
(1,905
)
 
(30,461
)
 
(2,690
)
 
 
Change in fair value of investment derivatives(1)
(1,716
)
 
(7,155
)
 
816

 
(12,644
)
 
 
Net realized investment gains (losses)
$
(11,110
)
 
$
33,261

 
$
(53,662
)
 
$
43,882

 
 
 
 
 
 
 
 
 
 
 
(1) Refer to Note 6 – Derivative Instruments

The following table summarizes the OTTI recognized in earnings by asset class:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
Non-U.S. government
$
—

 
$
1,774

 
$
1,422

 
$
1,812

 
 
Corporate debt
1,689

 
67

 
17,808

 
81

 
 
Non-Agency RMBS
—

 
—

 
4

 
—

 
 
ABS
18

 
—

 
41

 
56

 
 
 
1,707

 
1,841

 
19,275

 
1,949

 
 
Equity Securities
 
 
 
 
 
 
 
 
 
Common stocks
—

 
64

 
—

 
741

 
 
Bond mutual funds

11,186

 
—

 
11,186

 
—

 
 
 
11,186

 
64

 
11,186

 
741

 
 
Total OTTI recognized in earnings
$
12,893

 
$
1,905

 
$
30,461

 
$
2,690

 
 
 
 
 
 
 
 
 
 
 


The following table provides a roll forward of the credit losses, before income taxes, for which a portion of the OTTI was recognized in AOCI:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
1,541

 
$
1,590

 
$
1,531

 
$
1,594

 
 
Credit impairments recognized on securities not previously impaired
—

 
—

 
—

 
—

 
 
Additional credit impairments recognized on securities previously impaired
23

 
—

 
33

 
—

 
 
Change in timing of future cash flows on securities previously impaired
—

 
—

 
—

 
—

 
 
Intent to sell of securities previously impaired
—

 
—

 
—

 
—

 
 
Securities sold/redeemed/matured
—

 
(9
)
 
—

 
(13
)
 
 
Balance at end of period
$
1,564

 
$
1,581

 
$
1,564

 
$
1,581

 
 
 
 
 
 
 
 
 
 
 


f) Reverse Repurchase Agreements

At June 30, 2015, we held $177 million (2014: $110 million) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of cash and cash equivalents on our consolidated balance sheet. The required collateral for these loans is either cash or U.S. Treasuries at a minimum rate of 102% of the loan principal. Upon maturity, we receive principal and interest income. We monitor the estimated fair value of the securities loaned and borrowed on a daily basis with additional collateral obtained as necessary throughout the duration of the transaction.