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INVESTMENTS
 12 Months Ended
Dec. 31, 2016
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 December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,681,425

 
$
1,648

 
$
(27,004
)
 
$
1,656,069

 
$
—

 
 
Non-U.S. government
613,282

 
2,206

 
(49,654
)
 
565,834

 
—

 
 
Corporate debt
4,633,834

 
42,049

 
(75,140
)
 
4,600,743

 
—

 
 
Agency RMBS(1)
2,487,837

 
13,275

 
(35,977
)
 
2,465,135

 
—

 
 
CMBS(2)
664,368

 
5,433

 
(3,564
)
 
666,237

 
—

 
 
Non-Agency RMBS
57,316

 
1,628

 
(2,023
)
 
56,921

 
(823
)
 
 
ABS(3)
1,221,813

 
3,244

 
(2,843
)
 
1,222,214

 
—

 
 
Municipals(4)
163,441

 
1,510

 
(990
)
 
163,961

 
—

 
 
Total fixed maturities
$
11,523,316

 
$
70,993

 
$
(197,195
)
 
$
11,397,114

 
$
(823
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
379

 
41

 
(342
)
 
78

 
 
 
 
Exchange-traded funds
$
463,936

 
$
53,405

 
$
(2,634
)
 
$
514,707

 
 
 
 
Bond mutual funds
133,051

 
—

 
(9,092
)
 
123,959

 
 
 
 
Total equity securities
$
597,366

 
$
53,446

 
$
(12,068
)
 
$
638,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,673,617

 
$
1,545

 
$
(23,213
)
 
$
1,651,949

 
$
—

 
 
Non-U.S. government
809,025

 
2,312

 
(72,332
)
 
739,005

 
—

 
 
Corporate debt
4,442,315

 
16,740

 
(96,286
)
 
4,362,769

 
—

 
 
Agency RMBS(1)
2,236,138

 
22,773

 
(9,675
)
 
2,249,236

 
—

 
 
CMBS(2)
1,088,595

 
3,885

 
(9,182
)
 
1,083,298

 
—

 
 
Non-Agency RMBS
99,989

 
1,992

 
(973
)
 
101,008

 
(875
)
 
 
ABS(3)
1,387,919

 
952

 
(17,601
)
 
1,371,270

 
—

 
 
Municipals(4)
160,041

 
2,319

 
(1,146
)
 
161,214

 
—

 
 
Total fixed maturities
$
11,897,639

 
$
52,518

 
$
(230,408
)
 
$
11,719,749

 
$
(875
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
—

 
—

 
—

 
—

 
 
 
 
Exchange-traded funds
$
447,524

 
$
31,211

 
$
(4,762
)
 
$
473,973

 
 
 
 
Bond mutual funds
128,252

 
—

 
(4,227
)
 
124,025

 
 
 
 
Total equity securities
$
575,776

 
$
31,211

 
$
(8,989
)
 
$
597,998

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities (RMBS) originated by U.S. government-sponsored 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, maturities and redemptions. 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, direct lending funds, real estate funds and private equity funds) and CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 5(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 therefore 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 December 31, 2016
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
313,287

 
$
305,972

 
2.8
%
 
 
Due after one year through five years
3,906,190

 
3,850,149

 
33.8
%
 
 
Due after five years through ten years
2,546,299

 
2,510,975

 
22.0
%
 
 
Due after ten years
326,206

 
319,511

 
2.8
%
 
 
 
7,091,982

 
6,986,607

 
61.4
%
 
 
Agency RMBS
2,487,837

 
2,465,135

 
21.6
%
 
 
CMBS
664,368

 
666,237

 
5.8
%
 
 
Non-Agency RMBS
57,316

 
56,921

 
0.5
%
 
 
ABS
1,221,813

 
1,222,214

 
10.7
%
 
 
Total
$
11,523,316

 
$
11,397,114

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2015
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
291,368

 
$
289,571

 
2.5
%
 
 
Due after one year through five years
4,217,515

 
4,142,802

 
35.3
%
 
 
Due after five years through ten years
2,263,684

 
2,181,525

 
18.6
%
 
 
Due after ten years
312,431

 
301,039

 
2.6
%
 
 
 
7,084,998

 
6,914,937

 
59.0
%
 
 
Agency RMBS
2,236,138

 
2,249,236

 
19.2
%
 
 
CMBS
1,088,595

 
1,083,298

 
9.2
%
 
 
Non-Agency RMBS
99,989

 
101,008

 
0.9
%
 
 
ABS
1,387,919

 
1,371,270

 
11.7
%
 
 
Total
$
11,897,639

 
$
11,719,749

 
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 December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
54,051

 
$
(2,729
)
 
$
1,340,719

 
$
(24,275
)
 
$
1,394,770

 
$
(27,004
)
 
 
Non-U.S. government
149,360

 
(38,683
)
 
283,796

 
(10,971
)
 
433,156

 
(49,654
)
 
 
Corporate debt
230,218

 
(30,652
)
 
1,948,976

 
(44,488
)
 
2,179,194

 
(75,140
)
 
 
Agency RMBS
76,694

 
(1,101
)
 
1,724,170

 
(34,876
)
 
1,800,864

 
(35,977
)
 
 
CMBS
84,640

 
(749
)
 
193,499

 
(2,815
)
 
278,139

 
(3,564
)
 
 
Non-Agency RMBS
13,642

 
(1,752
)
 
7,194

 
(271
)
 
20,836

 
(2,023
)
 
 
ABS
362,110

 
(1,950
)
 
266,763

 
(893
)
 
628,873

 
(2,843
)
 
 
Municipals
774

 
(29
)
 
68,598

 
(961
)
 
69,372

 
(990
)
 
 
Total fixed maturities
$
971,489

 
$
(77,645
)
 
$
5,833,715

 
$
(119,550
)
 
$
6,805,204

 
$
(197,195
)
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
—

 
$
—

 
$
37

 
$
(342
)
 
$
37

 
$
(342
)
 
 
Exchange-traded funds
4,959

 
(461
)
 
87,760

 
(2,173
)
 
92,719

 
(2,634
)
 
 
Bond mutual funds
—

 
—

 
123,954

 
(9,092
)
 
123,954

 
(9,092
)
 
 
Total equity securities
$
4,959

 
$
(461
)
 
$
211,751

 
$
(11,607
)
 
$
216,710

 
$
(12,068
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
84,179

 
$
(7,622
)
 
$
1,474,202

 
$
(15,591
)
 
$
1,558,381

 
$
(23,213
)
 
 
Non-U.S. government
170,269

 
(50,841
)
 
317,693

 
(21,491
)
 
487,962

 
(72,332
)
 
 
Corporate debt
340,831

 
(33,441
)
 
2,845,375

 
(62,845
)
 
3,186,206

 
(96,286
)
 
 
Agency RMBS
64,792

 
(1,609
)
 
1,073,566

 
(8,066
)
 
1,138,358

 
(9,675
)
 
 
CMBS
75,627

 
(1,579
)
 
659,480

 
(7,603
)
 
735,107

 
(9,182
)
 
 
Non-Agency RMBS
5,283

 
(210
)
 
43,199

 
(763
)
 
48,482

 
(973
)
 
 
ABS
562,599

 
(11,158
)
 
667,448

 
(6,443
)
 
1,230,047

 
(17,601
)
 
 
Municipals
14,214

 
(310
)
 
64,104

 
(836
)
 
78,318

 
(1,146
)
 
 
Total fixed maturities
$
1,317,794

 
$
(106,770
)
 
$
7,145,067

 
$
(123,638
)
 
$
8,462,861

 
$
(230,408
)
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
 
Exchange-traded funds
2,331

 
(313
)
 
110,972

 
(4,449
)
 
113,303

 
(4,762
)
 
 
Bond mutual funds
—

 
—

 
124,025

 
(4,227
)
 
124,025

 
(4,227
)
 
 
Total equity securities
$
2,331

 
$
(313
)
 
$
234,997

 
$
(8,676
)
 
$
237,328

 
$
(8,989
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Fixed Maturities
At December 31, 2016, 1,881 fixed maturities (2015: 2,314) were in an unrealized loss position of $197 million (2015: $230 million) of which $15 million (2015: $39 million) was related to securities below investment grade or not rated.
 
At December 31, 2016, 330 securities (2015: 383) had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $971 million (2015: $1,318 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 December 31, 2016, and were expected to recover in value as the securities approach maturity. Further, at December 31, 2016, 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 December 31, 2016, 23 securities (2015: 35) were in an unrealized loss position of $12 million (2015: $9 million).
At December 31, 2016, 3 securities (2015: 1) 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 December 31, 2016.

b)
Mortgage Loans

The following table provides a breakdown of our mortgage loans held-for-investment:
 
  
December 31, 2016
 
December 31, 2015
 
 
  
Carrying Value
 
% of Total
 
Carrying Value
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Commercial
$
349,969

 
100
%
 
$
206,277

 
100
%
 
 
 
349,969

 
100
%
 
206,277

 
100
%
 
 
Valuation allowances
—

 
—
%
 
—

 
—
%
 
 
Total Mortgage Loans held-for-investment
$
349,969

 
100
%
 
$
206,277

 
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 principal 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.

We have a high quality mortgage loan portfolio with debt service coverage ratios in excess of 1.1x and loan-to-value ratios of less than 70%. There are no credit losses associated with the commercial mortgage loans that we hold at December 31, 2016.

There are no past due amounts at December 31, 2016.

c)
Other Investments

The following tables provide a breakdown of our investments in hedge funds, direct lending funds, private equity funds, real estate funds, CLO-Equities and other privately held investments, together with additional information relating to the liquidity of each category:
 
 
 
 
 
 
 
 
 
 
 
  
Fair Value
 
Redemption Frequency
(if currently eligible)
 
Redemption
Notice Period
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016
 
 
 
 
 
 
 
 
 
Long/short equity funds
$
118,619

 
14
%
 
Semi-annually, Annually
 
45-60 days
 
 
Multi-strategy funds
285,992

 
34
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
93,539

 
11
%
 
Annually
 
45 days
 
 
Leveraged bank loan funds
—

 
—
%
 
n/a
 
n/a
 
 
Direct lending funds
134,650

 
16
%
 
n/a
 
n/a
 
 
Private equity funds
81,223

 
10
%
 
n/a
 
n/a
 
 
Real estate funds
13,354

 
2
%
 
n/a
 
n/a
 
 
CLO-Equities
60,700

 
8
%
 
n/a
 
n/a
 
 
Other privately held investments
42,142

 
5
%
 
n/a
 
n/a
 
 
Total other investments
$
830,219

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2015
 
 
 
 
 
 
 
 
 
Long/short equity funds
$
154,348

 
19
%
 
Quarterly, Semi-annually, Annually
 
45-60 days
 
 
Multi-strategy funds
355,073

 
43
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
147,287

 
18
%
 
Quarterly, Annually
 
45-60 days
 
 
Leveraged bank loan funds
65

 
—
%
 
n/a
 
n/a
 
 
Direct lending funds
90,120

 
11
%
 
n/a
 
n/a
 
 
Private equity funds
—

 
—
%
 
n/a
 
n/a
 
 
Real estate funds
4,929

 
1
%
 
n/a
 
n/a
 
 
CLO-Equities
64,934

 
8
%
 
n/a
 
n/a
 
 
Other privately held investments
—

 
—
%
 
n/a
 
n/a
 
 
Total other investments
$
816,756

 
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.
•
Private equity funds: Seek to achieve attractive risk-adjusted returns by investing in private transactions over the course of several years.
•
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 2016 and 2015, neither of these restrictions impacted our redemption requests. At December 31, 2016, $60 million (2015: $66 million), representing 12% (2015: 10%) of our total hedge funds, relate to holdings where we are still within the lockup period. The expiry of these lockup periods range from September, 2017 to March, 2019.
At December 31, 2016, we had $176 million (2015: $222 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.
At December 31, 2016, we had $12 million (2015: $12 million) of unfunded commitments 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 after 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 December 31, 2016, we had $140 million (2015: $95 million) of unfunded commitments as a limited partner in funds which invest in real estate and real estate securities and businesses. These funds are subject to a three year commitment period and a total fund life of 6-8 years during which time we are not eligible to redeem our investment.

During 2016, we made a commitment as a limited partner in a private equity fund. At December 31, 2016, $24 million of our commitment remains unfunded and the current fair value of the funds called to date are included in the private equity funds line of the table above. The fund invests in underlying private equity funds and the life of the fund is subject to the dissolution of the underlying funds. We expect the overall holding period to be over ten years.

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 December 31, 2016, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.



d) Equity Method Investments

During 2016, we paid $108 million including direct transaction costs to acquire 19% of the common equity of Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capital and The Blackstone Group L.P. ("Blackstone"). Through long-term service agreements, AXIS Capital will serve as Harrington Re's reinsurance underwriting manager and Blackstone will serve as exclusive investment management service provider. As an investor, we expect to benefit from underwriting profit generated by Harrington Re and the income and capital appreciation Blackstone seeks to deliver through its investment management services. In addition, we have entered into an arrangement with Blackstone under which underwriting and investment related fees will be shared equally. Harrington is not a variable interest entity.Given that we exercise significant influence over the operating and financial policies of this investee we account for our ownership in Harrington under the equity method of accounting. The Company's proportionate share of the underlying equity in net assets resulted in a basis difference of $5 million which represents initial transactions costs.

The Company also has investments in other equity method investments with a carrying value of $8 million.

e) Net Investment Income
Net investment income was derived from the following sources:
 
 
 
 
 
 
 
 
 
Year ended December 31,
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
305,459

 
$
294,725

 
$
296,663

 
 
Other investments
42,514

 
20,148

 
57,621

 
 
Equity securities
16,306

 
11,289

 
11,832

 
 
Mortgage loans
7,996

 
1,861

 
—

 
 
Cash and cash equivalents
9,209

 
8,572

 
11,536

 
 
Short-term investments
2,060

 
439

 
725

 
 
Gross investment income
383,544

 
337,034

 
378,377

 
 
Investment expenses
(30,209
)
 
(31,698
)
 
(35,611
)
 
 
Net investment income
$
353,335

 
$
305,336

 
$
342,766

 
 
 
 
 
 
 
 
 

 
f)
Net Realized Investment Gains (Losses)
The following table provides an analysis of net realized investment gains (losses):
 
 
 
 
 
 
 
 
 
Year ended December 31,
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
Gross realized gains
 
 
 
 
 
 
 
Fixed maturities and short-term investments
$
86,267

 
$
60,102

 
$
126,023

 
 
Equities
19,104

 
19,113

 
149,783

 
 
Gross realized gains
105,371

 
79,215

 
275,806

 
 
Gross realized losses
 
 
 
 
 
 
 
Fixed maturities and short-term investments
(134,460
)
 
(143,702
)
 
(86,943
)
 
 
Equities
(16,155
)
 
(8,543
)
 
(15,925
)
 
 
Gross realized losses
(150,615
)
 
(152,245
)
 
(102,868
)
 
 
Net OTTI recognized in earnings
(26,210
)
 
(72,720
)
 
(31,227
)
 
 
Change in fair value of investment derivatives(1)
10,929

 
7,259

 
(9,603
)
 
 
Net realized investment gains (losses)
$
(60,525
)
 
$
(138,491
)
 
$
132,108

 
 
 
 
 
 
 
 
 
(1)
Refer to Note 7 'Derivative Instruments'
The following table summarizes the OTTI recognized in earnings by asset class:
 
 
 
 
 
 
 
 
 
Year ended December 31,
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Non-U.S. government
$
3,557

 
$
3,538

 
$
17,291

 
 
Corporate debt
20,093

 
47,029

 
8,107

 
 
Non-Agency RMBS
—

 
111

 
7

 
 
ABS
—

 
124

 
61

 
 
Municipals
—

 
—

 
418

 
 
 
23,650

 
50,802

 
25,884

 
 
Equity Securities
 
 
 
 
 
 
 
Common stocks
—

 
—

 
741

 
 
Exchange-traded funds
2,560

 
10,732

 
4,602

 
 
Bond mutual funds
—

 
11,186

 
—

 
 
 
2,560

 
21,918

 
5,343

 
 
Total OTTI recognized in earnings
$
26,210

 
$
72,720

 
$
31,227

 
 
 
 
 
 
 
 
 

Fixed Maturities
The following table provides a roll forward of credit losses (“credit loss table”), before income taxes, for which a portion of the OTTI charge was recognized in AOCI:
 
 
 
 
 
 
 
Year ended December 31,
2016
 
2015
 
 
 
 
 
 
 
 
Balance at beginning of period
$
1,506

 
$
1,531

 
 
Credit impairments recognized on securities not previously impaired
—

 
—

 
 
Additional credit impairments recognized on securities previously impaired
20

 
33

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

 
—

 
 
Intent to sell of securities previously impaired
—

 
—

 
 
Securities sold/redeemed/matured
(33
)
 
(58
)
 
 
Balance at end of period
$
1,493

 
$
1,506

 
 
 
 
 
 
 

Credit losses are calculated based on the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to the impairment. The following provides a summary of the credit loss activities by asset class for the above table as well as the significant inputs and the methodology used to estimate these credit losses.
U.S. Government, U.S. Agency and U.S. Agency RMBS:
Unrealized losses on securities issued or backed (either explicitly or implicitly) by the U.S. government are not analyzed for OTTI. We have concluded that the possibility of any credit losses on these securities is highly unlikely due to the explicit U.S. government guarantee on certain securities (e.g. GNMA issuances) and, on others, the implicit guarantee that has been validated by past actions (e.g. U.S. government bailout of FNMA and FHLMC during the 2008 credit crisis). Although not analyzed for credit losses, the securities are still evaluated for intention to sell and likely requirement to sell.
Non-U.S. Government:
Non-U.S. government obligations are evaluated for credit loss primarily through qualitative assessments of the likelihood of credit loss using information such as duration and severity of unrealized losses, as well as credit ratings and price volatility. At December 31, 2016, our holdings in sovereign debt, including $28 million (2015: $21 million) relating to the eurozone countries, were substantially all investment-grade securities. The gross unrealized losses of $50 million at December 31, 2016 were mainly due to pricing and foreign exchange losses on emerging market debt. Based on our analysis, we do not anticipate any credit losses on our non-U.S. government fixed maturities held at December 31, 2016. In 2016, the OTTI charges on non-U.S. government fixed maturities mainly related to unrealized foreign exchange losses on certain securities where forecasted recovery was uncertain.
Corporate Debt:
To estimate credit losses for corporate debt securities, our projected cash flows are primarily driven by our assumptions regarding the probability of default and the severity associated with those defaults. Our default and loss severity rates are based on credit rating, credit analysis, industry analyst reports and forecasts, Moody’s historical default data and any other data relevant to the recoverability of the security. In 2016, the OTTI charges on corporate debt securities were mainly related to significant loss severity, unrealized foreign exchange losses on certain securities where forecasted recovery was uncertain, as well as our intent to sell.
 
CMBS:
Our investments in CMBS are diversified and primarily rated AA or better, with a weighted average estimated subordination percentage of 36% at December 31, 2016 (2015: 32%). Based on discounted cash flows at December 31, 2016, the current level of subordination is sufficient to cover the estimated loan losses on the underlying collateral of the CMBS.
Non-agency RMBS:
For non-agency RMBS, our projected cash flows incorporated underlying data from widely accepted third-party data sources along with certain internal assumptions and judgments regarding the future performance of the security. These assumptions included the following: default, delinquency, loss severity and prepayment rates. The assumptions used to calculate the credit losses in 2016 have not changed significantly since December 31, 2015. At December 31, 2016, the fair value of our non-agency RMBS was $57 million (2015: $101 million), consisting primarily of $40 million (2015: $82 million) of Prime and $10 million (2015: $13 million) of Alt-A MBS. We have concluded there are no credit losses anticipated for any of our non-agency RMBS at December 31, 2016, other than those already recorded.
ABS:

Our investments in ABS at December 31, 2016 consist mainly of CLO debt tranched securities (“CLO Debt”) purchased primarily as new issues during 2013 through 2015.  Of these new issues all had credit ratings of AA or better. We utilize a scenario-based approach to reviewing our CLO Debt portfolio based on the current asset market price. We also review subordination levels of our securities to determine their ability to absorb credit losses of underlying collateral. If losses are forecast to be below the subordination level for the tranche held by us, the security is determined not to be impaired. We have concluded there are no credit losses anticipated for any of our CLO Debt at December 31, 2016.
Equity Securities
The OTTI losses on equity securities in 2016 and 2015 are primarily due to the severity of their unrealized loss positions, for which we concluded the forecast recovery period was uncertain. The recognition of such losses does not necessarily indicate that sales will occur or that sales are imminent or planned. At December 31, 2016, the fair value of our equities was $639 million (2015: $598 million), which included $12 million (2015: $9 million) of gross unrealized losses.
 
g)
Restricted Investments
In order to support our obligations in regulatory jurisdictions where we operate as a non-admitted carrier, we provide collateral in the form of assets held in trust and, to a lesser extent, letters of credit. Refer to Note 10(b) 'Debt and Financing Arrangements' for further information on our collateral requirements upon issuance of certain letters of credit. The fair value of our restricted investments primarily relates to these items, as noted in the table below. Our restricted investments primarily consist of high-quality fixed maturity and short-term investment securities.
 
 
 
 
 
 
 
 
At December 31,
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Collateral in Trust for inter-company agreements
 
$
2,792,776

 
$
2,766,453

 
 
Collateral for secured letter of credit facility
 
445,482

 
481,023

 
 
Collateral in Trust for third party agreements (1)
 
777,076

 
551,985

 
 
Securities on deposit with regulatory authorities
 
50,005

 
57,597

 
 
Total restricted investments
 
$
4,065,339

 
$
3,857,058

 
 
 
 
 
 
 
 
(1)
Includes $376 million (2015: $232 million) of fixed income securities and equities deposited directly with Lloyd's to support the underwriting capacity of the Company's Lloyd's Syndicate, AXIS Syndicate 1686.

h)
Reverse Repurchase Agreements

At December 31, 2016, we held $176 million (2015: $30 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.