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INVESTMENTS
 12 Months Ended
Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
a)
Fixed Maturities and Equities
The amortized cost or cost and fair values of the Company's 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, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,727,643

 
$
1,735

 
$
(16,909
)
 
$
1,712,469

 
$
—

 
 
Non-U.S. government
798,582

 
17,240

 
(9,523
)
 
806,299

 
—

 
 
Corporate debt
5,265,795

 
61,922

 
(29,851
)
 
5,297,866

 
—

 
 
Agency RMBS(1)
2,414,720

 
8,132

 
(27,700
)
 
2,395,152

 
—

 
 
CMBS(2)
776,715

 
4,138

 
(3,125
)
 
777,728

 
—

 
 
Non-Agency RMBS
45,713

 
1,917

 
(799
)
 
46,831

 
(853
)
 
 
ABS(3)
1,432,884

 
5,391

 
(1,994
)
 
1,436,281

 
—

 
 
Municipals(4)
149,167

 
1,185

 
(972
)
 
149,380

 
—

 
 
Total fixed maturities
$
12,611,219

 
$
101,660

 
$
(90,873
)
 
$
12,622,006

 
$
(853
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
22,836

 
$
3,412

 
$
(590
)
 
$
25,658

 
 
 
 
Exchange-traded funds
356,252

 
71,675

 
(294
)
 
427,633

 
 
 
 
Bond mutual funds
173,779

 
9,440

 
(999
)
 
182,220

 
 
 
 
Total equity securities
$
552,867

 
$
84,527

 
$
(1,883
)
 
$
635,511

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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, the Company actively manages allocations to non-controlling tranches of structured securities (variable interests) issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within the other investments portfolio, the Company also invests in limited partnerships (hedge funds, direct lending funds, private equity funds and real estate funds) and CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 6(c) 'Other Investments'). For these variable interests, the Company does not have the power to direct the activities that are most significant to the economic performance of the VIEs therefore the Company is not the primary beneficiary of any of these VIEs. The maximum exposure to loss on these interests is limited to the amount of investment by the Company. The Company has not provided financial or other support with respect to these structured securities other than the 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, 2017
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
486,659

 
$
484,663

 
3.8
%
 
 
Due after one year through five years
4,906,207

 
4,912,189

 
38.9
%
 
 
Due after five years through ten years
2,338,964

 
2,350,433

 
18.6
%
 
 
Due after ten years
209,357

 
218,729

 
1.7
%
 
 
 
7,941,187

 
7,966,014

 
63.0
%
 
 
Agency RMBS
2,414,720

 
2,395,152

 
19.0
%
 
 
CMBS
776,715

 
777,728

 
6.2
%
 
 
Non-Agency RMBS
45,713

 
46,831

 
0.4
%
 
 
ABS
1,432,884

 
1,436,281

 
11.4
%
 
 
Total
$
12,611,219

 
$
12,622,006

 
100.0
%
 
 
 
 
 
 
 
 
 
 
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
%
 
 
 
 
 
 
 
 
 

 
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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
194,916

 
$
(5,963
)
 
$
1,389,792

 
$
(10,946
)
 
$
1,584,708

 
$
(16,909
)
 
 
Non-U.S. government
62,878

 
(6,806
)
 
204,110

 
(2,717
)
 
266,988

 
(9,523
)
 
 
Corporate debt
407,300

 
(11,800
)
 
2,041,845

 
(18,051
)
 
2,449,145

 
(29,851
)
 
 
Agency RMBS
759,255

 
(17,453
)
 
1,172,313

 
(10,247
)
 
1,931,568

 
(27,700
)
 
 
CMBS
31,607

 
(703
)
 
348,943

 
(2,422
)
 
380,550

 
(3,125
)
 
 
Non-Agency RMBS
8,029

 
(788
)
 
4,197

 
(11
)
 
12,226

 
(799
)
 
 
ABS
57,298

 
(570
)
 
392,170

 
(1,424
)
 
449,468

 
(1,994
)
 
 
Municipals
11,230

 
(269
)
 
65,632

 
(703
)
 
76,862

 
(972
)
 
 
Total fixed maturities
$
1,532,513

 
$
(44,352
)
 
$
5,619,002

 
$
(46,521
)
 
$
7,151,515

 
$
(90,873
)
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
—

 
$
—

 
$
3,202

 
$
(590
)
 
$
3,202

 
$
(590
)
 
 
Exchange-traded funds
—

 
—

 
12,323

 
(294
)
 
12,323

 
(294
)
 
 
Bond mutual funds
—

 
—

 
12,184

 
(999
)
 
12,184

 
(999
)
 
 
Total equity securities
$
—

 
$
—

 
$
27,709

 
$
(1,883
)
 
$
27,709

 
$
(1,883
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed Maturities
At December 31, 2017, 2,424 fixed maturities (2016: 1,881) were in an unrealized loss position of $91 million (2016: $197 million) of which $7 million (2016: $15 million) was related to securities below investment grade or not rated.
 
At December 31, 2017, 627 securities (2016: 330) had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $1,533 million (2016: $971 million). Following a credit impairment review, it was 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, 2017, and were expected to recover in value as the securities approach maturity. Further, at December 31, 2017, the Company did not intend to sell these securities in an unrealized loss position and it is more likely than not that the Company will not be required to sell these securities before the anticipated recovery of their amortized costs.
Equity Securities
At December 31, 2017, 29 securities (2016: 23) were in an unrealized loss position of $2 million (2016: $12 million).
At December 31, 2017, there were no securities (2016: 3 securities) in a continuous unrealized loss position for 12 months or greater. Based on the impairment review process and the ability and intent to hold these securities for a reasonable period of time sufficient for a full recovery, the Company concluded that the above equities in an unrealized loss position were temporarily impaired at December 31, 2017.

b)
Mortgage Loans

The following table provides a breakdown of the Company's mortgage loans held-for-investment:
 
  
December 31, 2017
 
December 31, 2016
 
 
  
Carrying Value
 
% of Total
 
Carrying Value
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Commercial
$
325,062

 
100
%
 
$
349,969

 
100
%
 
 
 
325,062

 
100
%
 
349,969

 
100
%
 
 
Valuation allowances
—

 
—
%
 
—

 
—
%
 
 
Total Mortgage Loans held-for-investment
$
325,062

 
100
%
 
$
349,969

 
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.

The Company has a high quality mortgage loan portfolio with weighted average debt service coverage ratios in excess of 3.0x and weighted average loan-to-value ratios of less than 60%. There are no credit losses associated with the commercial mortgage loans held by the Company at December 31, 2017.

There are no past due amounts at December 31, 2017.

c)
Other Investments
The following tables provide a breakdown of the Company's other 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, 2017
 
 
 
 
 
 
 
 
 
Long/short equity funds
$
38,470

 
4
%
 
Annually
 
60 days
 
 
Multi-strategy funds
286,164

 
28
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
39,177

 
4
%
 
Annually
 
45 days
 
 
Direct lending funds
250,681

 
25
%
 
n/a
 
n/a
 
 
Private equity funds
68,812

 
7
%
 
n/a
 
n/a
 
 
Real estate funds
50,009

 
5
%
 
n/a
 
n/a
 
 
CLO-Equities
31,413

 
2
%
 
n/a
 
n/a
 
 
Other privately held investments
46,430

 
5
%
 
n/a
 
n/a
 
 
Overseas deposits
198,217

 
20
%
 
n/a
 
n/a
 
 
Total other investments
$
1,009,373

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
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
 
 
Overseas deposits
—

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

 
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.
•
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 the Company's ability to redeem 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 2017 and 2016, neither of these restrictions impacted the Company's redemption requests. At December 31, 2017, $38 million (2016: $60 million), representing 11% (2016: 12%) of total hedge funds, relate to holdings where the Company is still within the lockup period. The expiration of these lockup periods range from March 2018 to March 2019.
At December 31, 2017, the Company had $137 million (2016: $176 million) of unfunded commitments as a limited partner 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 3 years.
At December 31, 2017, the Company had $16 million (2016: $12 million) of unfunded commitments as a limited partner in multi-strategy hedge 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 after the completion of the funds' investment term. These funds have investment terms ranging from 2 years to the dissolution of the underlying fund.
At December 31, 2017, the Company had $115 million (2016: $140 million) of unfunded commitments as a limited partner in funds which invest in real estate and real estate securities and businesses. These funds have investment terms ranging from 7 years to the dissolution of the underlying fund.

At December 31, 2017, the Company had $21 million (2016: $24 million) of unfunded commitments as a limited partner in a private equity fund. The life of the fund is subject to the dissolution of the underlying funds. The Company expects the overall holding period to be over 10 years.

During 2015, the Company made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund is subject to an investment term of 7 years and the General Partners have the option to extend the term by up to 2 years. At December 31, 2017, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.

During 2017, the Company made a $75 million commitment as a limited partner of an open-ended commercial mortgage income fund. At December 31, 2017, this commitment remains unfunded.

Syndicate 2007 holds overseas deposits which include investments in private funds in which the underlying investments are primarily U.S. government, Non-U.S. government and corporate fixed maturities. The funds do not trade on an exchange therefore are not included within available for sale investments.

d)
Equity Method Investments

During 2016, the Company 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, the Company expects 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, the Company has 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 the Company exercises significant influence over the operating and financial policies of this investee the Company accounts for its 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.

For the year ended December 31, 2017, the Company recorded an impairment charge of $9 million, related to a U.S. based insurance company, which reduced the carrying value of the investment to $nil. This charge is included in interest in loss of equity method investments in the Consolidated Statement of Operations.

e)    Net Investment Income
Net investment income was derived from the following sources:
 
 
 
 
 
 
 
 
 
Year ended December 31,
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
312,662

 
$
305,459

 
$
294,725

 
 
Other investments
76,858

 
42,514

 
20,148

 
 
Equity securities
14,919

 
16,306

 
11,289

 
 
Mortgage loans
10,780

 
7,996

 
1,861

 
 
Cash and cash equivalents
10,057

 
9,209

 
8,572

 
 
Short-term investments
2,718

 
2,060

 
439

 
 
Gross investment income
427,994

 
383,544

 
337,034

 
 
Investment expenses
(27,189
)
 
(30,209
)
 
(31,698
)
 
 
Net investment income
$
400,805

 
$
353,335

 
$
305,336

 
 
 
 
 
 
 
 
 

 
f)
Net Realized Investment Gains (Losses)
The following table provides an analysis of net realized investment gains (losses):
 
 
 
 
 
 
 
 
 
Year ended December 31,
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Gross realized gains
 
 
 
 
 
 
 
Fixed maturities and short-term investments
$
72,046

 
$
86,267

 
$
60,102

 
 
Equities
78,343

 
19,104

 
19,113

 
 
Gross realized gains
150,389

 
105,371

 
79,215

 
 
Gross realized losses
 
 
 
 
 
 
 
Fixed maturities and short-term investments
(98,442
)
 
(134,460
)
 
(143,702
)
 
 
Equities
(959
)
 
(16,155
)
 
(8,543
)
 
 
Gross realized losses
(99,401
)
 
(150,615
)
 
(152,245
)
 
 
Net OTTI recognized in net income
(14,493
)
 
(26,210
)
 
(72,720
)
 
 
Change in fair value of investment derivatives(1)
(8,269
)
 
10,929

 
7,259

 
 
Net realized investment gains (losses)
$
28,226

 
$
(60,525
)
 
$
(138,491
)
 
 
 
 
 
 
 
 
 
(1)
Refer to Note 8 'Derivative Instruments'
The following table summarizes the OTTI recognized in net income by asset class:
 
 
 
 
 
 
 
 
 
Year ended December 31,
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Non-U.S. government
$
8,187

 
$
3,557

 
$
3,538

 
 
Corporate debt
6,306

 
20,093

 
47,029

 
 
Non-Agency RMBS
—

 
—

 
111

 
 
ABS
—

 
—

 
124

 
 
 
14,493

 
23,650

 
50,802

 
 
Equity Securities
 
 
 
 
 
 
 
Exchange-traded funds
—

 
2,560

 
10,732

 
 
Bond mutual funds
—

 
—

 
11,186

 
 
 
—

 
2,560

 
21,918

 
 
Total OTTI recognized in net income
$
14,493

 
$
26,210

 
$
72,720

 
 
 
 
 
 
 
 
 

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,
2017
 
2016
 
 
 
 
 
 
 
 
Balance at beginning of period
$
1,493

 
$
1,506

 
 
Credit impairments recognized on securities not previously impaired
—

 
—

 
 
Additional credit impairments recognized on securities previously impaired
13

 
20

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

 
—

 
 
Intent to sell of securities previously impaired
—

 
—

 
 
Securities sold/redeemed/matured
(12
)
 
(33
)
 
 
Balance at end of period
$
1,494

 
$
1,493

 
 
 
 
 
 
 

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. The Company 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, 2017, the Company's holdings in sovereign debt, including $185 million (2016: $28 million) relating to the eurozone countries, were substantially all investment-grade securities. The gross unrealized losses of $10 million at December 31, 2017 were mainly due to foreign exchange losses. Based on analysis performed, the Company does not anticipate any credit losses on non-U.S. government fixed maturities held at December 31, 2017. In 2017, 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, the Company's projected cash flows are primarily driven by assumptions regarding the probability of default and the severity associated with those defaults. The Company's 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 2017, 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 the Company's intent to sell.
 
CMBS:
The Company's investments in CMBS are diversified and primarily rated AA or better, with a weighted average estimated subordination percentage of 29% at December 31, 2017 (2016: 36%). Based on discounted cash flows at December 31, 2017, 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, the Company's 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 2017 have not changed significantly since December 31, 2016. At December 31, 2017, the fair value of the Company's non-agency RMBS was $47 million (2016: $57 million), consisting primarily of $34 million (2016: $40 million) of Prime and $8 million (2016: $10 million) of Alt-A MBS. The Company has concluded there are no credit losses anticipated for any of its non-agency RMBS at December 31, 2017, other than those already recorded.
ABS:

The Company's investments in ABS at December 31, 2017 consist mainly of CLO debt tranched securities ("CLO Debt") purchased primarily as new issues during 2015 through 2017.  Of these new issues all had credit ratings of AA or better. The Company utilizes a scenario-based approach to reviewing the CLO Debt portfolio based on the current asset market price. The Company also reviews subordination levels of its 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 the Company, the security is determined not to be impaired. The Company has concluded that there are no credit losses anticipated for any CLO Debt at December 31, 2017.
Equity Securities
There were no OTTI losses on equity securities in 2017. The OTTI losses on equity securities in 2016 are primarily due to the severity of their unrealized loss positions, for which the Company 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, 2017, the fair value of the Company's equities was $636 million (2016: $639 million), which included $2 million (2016: $12 million) of gross unrealized losses.
 
g)
Restricted Assets
In order to support the Company's obligations in regulatory jurisdictions where it operates as a non-admitted carrier, the Company provides collateral in the form of assets held in trust and, to a lesser extent, letters of credit (see Note 11(b) 'Debt and Financing Arrangements').
In addition, the Company operates in the Lloyd’s market through its corporate member AXIS Corporate Capital UK Limited, which represents its participation in Syndicate 1686 and Novae Corporate Underwriting Limited, the sole corporate member of Syndicate 2007. Lloyd’s sets capital requirements for corporate members annually through the application of a capital model that is based on regulatory rules pursuant to Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking up and pursuit of business of Insurance and Reinsurance (Solvency II) ("Solvency II").

The capital provided to support underwriting, or Funds at Lloyd’s ("FAL"), may be satisfied by cash, certain investments and letters of credit provided by approved banks (see Note 12 'Commitments and Contingencies' and Note 21 'Statutory Financial Information').
Further, at December 31, 2017 collateral in trust for third party agreements included $1,120 million of fixed maturities and equity securities, and cash of $55 million held on deposit to support the underwriting activities of Syndicate 2007. At December 31, 2017 collateral in trust for third party agreements included cash of $140 million (2016: $84 million) held on deposit to support the underwriting activities of Syndicate 1686.
The Company's restricted investments and cash primarily consist of high-quality fixed maturity and short-term investment securities. The fair value of the Company's restricted investments and cash primarily relates to these items, as noted in the table below.
 
 
 
 
 
 
 
 
At December 31,
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Collateral in Trust for inter-company agreements
 
$
3,310,180

 
$
2,877,823

 
 
Collateral for secured letter of credit facility
 
386,451

 
448,366

 
 
Funds at Lloyd's
 
1,192,717

 
382,611

 
 
Collateral in Trust for third party agreements
 
2,085,443

 
508,262

 
 
Securities on deposit with regulatory authorities
 
53,925

 
50,290

 
 
Total restricted investments
 
$
7,028,716

 
$
4,267,352

 
 
 
 
 
 
 
 

h)
Reverse Repurchase Agreements

At December 31, 2017, the Company held $37 million (2016: $176 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 the Company's 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, the Company receives principal and interest income. The Company monitors 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.