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INVESTMENTS
 12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
a)
Fixed Maturities and Equity Securities

Fixed Maturities
The amortized cost and fair values of the Company's fixed maturities classified as available for sale were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,520,142

 
$
4,232

 
$
(8,677
)
 
$
1,515,697

 
$
—

 
 
Non-U.S. government
507,550

 
1,586

 
(16,120
)
 
493,016

 
—

 
 
Corporate debt
4,990,279

 
15,086

 
(128,444
)
 
4,876,921

 
—

 
 
Agency RMBS(1)
1,666,684

 
6,508

 
(29,884
)
 
1,643,308

 
—

 
 
CMBS(2)
1,103,507

 
2,818

 
(13,795
)
 
1,092,530

 
—

 
 
Non-Agency RMBS
40,732

 
1,237

 
(1,282
)
 
40,687

 
(857
)
 
 
ABS(3)
1,651,350

 
1,493

 
(15,240
)
 
1,637,603

 
—

 
 
Municipals(4)
136,068

 
914

 
(1,397
)
 
135,585

 
—

 
 
Total fixed maturities
$
11,616,312

 
$
33,874

 
$
(214,839
)
 
$
11,435,347

 
$
(857
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 card receivables, collateralized debt obligations ("CDOs") and collateralized loan obligations ("CLOs").
(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.
 
Equity Securities

The cost and fair values of the Company's equity securities were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair
value
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
Common stocks
$
790

 
$
112

 
$
(375
)
 
$
527

 
 
Exchange-traded funds
213,420

 
33,498

 
(10,079
)
 
236,839

 
 
Bond mutual funds
151,695

 
—

 
(7,428
)
 
144,267

 
 
Total equity securities
$
365,905

 
$
33,610

 
$
(17,882
)
 
$
381,633

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 


In the normal course of investing activities, the Company actively manages allocations to non-controlling tranches of structured securities which are variable interests issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS. The Company also invests in limited partnerships including hedge funds, direct lending funds, private equity funds and real estate funds as well as CLO equity tranched securities, which are all variable interests issued by VIEs (refer to Note 6(c) 'Other Investments'). 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 made 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
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. The contractual maturities of fixed maturities are shown below:
 
 
 
 
 
 
 
 
 
 
Amortized
cost
 
Fair
value
 
% of Total
fair value
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
430,390

 
$
426,142

 
3.7
%
 
 
Due after one year through five years
4,751,064

 
4,691,263

 
41.0
%
 
 
Due after five years through ten years
1,762,452

 
1,697,737

 
14.8
%
 
 
Due after ten years
210,133

 
206,077

 
1.8
%
 
 
 
7,154,039

 
7,021,219

 
61.3
%
 
 
Agency RMBS
1,666,684

 
1,643,308

 
14.4
%
 
 
CMBS
1,103,507

 
1,092,530

 
9.6
%
 
 
Non-Agency RMBS
40,732

 
40,687

 
0.4
%
 
 
ABS
1,651,350

 
1,637,603

 
14.3
%
 
 
Total
$
11,616,312

 
$
11,435,347

 
100.0
%
 
 
 
 
 
 
 
 
 
 
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
%
 
 
 
 
 
 
 
 
 

 
Gross Unrealized Losses
The following table summarizes fixed maturities and equity securities 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, 2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
374,030

 
$
(7,659
)
 
$
424,439

 
$
(1,018
)
 
$
798,469

 
$
(8,677
)
 
 
Non-U.S. government
44,339

 
(2,004
)
 
303,376

 
(14,116
)
 
347,715

 
(16,120
)
 
 
Corporate debt
1,439,378

 
(58,915
)
 
2,547,135

 
(69,529
)
 
3,986,513

 
(128,444
)
 
 
Agency RMBS
940,645

 
(29,255
)
 
117,181

 
(629
)
 
1,057,826

 
(29,884
)
 
 
CMBS
455,582

 
(11,430
)
 
353,802

 
(2,365
)
 
809,384

 
(13,795
)
 
 
Non-Agency RMBS
9,494

 
(1,170
)
 
11,432

 
(112
)
 
20,926

 
(1,282
)
 
 
ABS
237,237

 
(2,755
)
 
1,150,692

 
(12,485
)
 
1,387,929

 
(15,240
)
 
 
Municipals
68,814

 
(1,373
)
 
9,894

 
(24
)
 
78,708

 
(1,397
)
 
 
Total fixed maturities
$
3,569,519

 
$
(114,561
)
 
$
4,917,951

 
$
(100,278
)
 
$
8,487,470

 
$
(214,839
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Effective January 1, 2018, the Company adopted ASU No. 2016-01, which requires equity securities to be measured at fair value with changes in fair value recognized in net income therefore equity securities at fair value are excluded from the table above at December 31, 2018.

Fixed Maturities

At December 31, 2018, 3,599 fixed maturities (2017: 2,424) were in an unrealized loss position of $215 million (2017: $91 million) of which $49 million (2017: $7 million) was related to securities below investment grade or not rated.
At December 31, 2018, 1,656 fixed maturities (2017: 627) had been in a continuous unrealized loss position for twelve months or greater and had a fair value of $3,570 million (2017: $1,533 million). Following a credit impairment review, it was concluded that these securities as well as the remaining securities in an unrealized loss position were temporarily impaired at December 31, 2018, and were expected to recover in value as the securities approach maturity. At December 31, 2018, the Company did not intend to sell the 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.

b)
Mortgage Loans

The following table provides details of the Company's mortgage loans held-for-investment:
 
  
December 31, 2018
 
December 31, 2017
 
 
  
Carrying value
 
% of Total
 
Carrying value
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Commercial
$
298,650

 
100
%
 
$
325,062

 
100
%
 
 
Total Mortgage Loans held-for-investment
$
298,650

 
100
%
 
$
325,062

 
100
%
 
 
 
 
 
 
 
 
 
 
 


The primary credit quality indicator for commercial mortgage loans 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 which compares 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 2.2x and weighted average loan-to-value ratios of less than 60%. At December 31, 2018 and 2017, there were no credit losses or past due amounts associated with the commercial mortgage loans held by the Company.



c)
Other Investments
The following tables provide a summary 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, 2018
 
 
 
 
 
 
 
 
 
Long/short equity funds
$
26,779

 
3
%
 
Annually
 
60 days
 
 
Multi-strategy funds
153,883

 
20
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
13,936

 
2
%
 
Annually
 
45 days
 
 
Direct lending funds
274,478

 
35
%
 
n/a
 
n/a
 
 
Private equity funds
64,566

 
8
%
 
n/a
 
n/a
 
 
Real estate funds
84,202

 
11
%
 
n/a
 
n/a
 
 
CLO-Equities
21,271

 
2
%
 
n/a
 
n/a
 
 
Other privately held investments
44,518

 
6
%
 
n/a
 
n/a
 
 
Overseas deposits
104,154

 
13
%
 
n/a
 
n/a
 
 
Total other investments
$
787,787

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 long and short investments in publicly-traded equity securities.
•
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 2018 and 2017, neither of these restrictions impacted the Company's redemption requests. At December 31, 2018, $27 million (2017: $38 million), representing 14% (2017: 11%) 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 2019 to March 2021.
At December 31, 2018, the Company had $210 million (2017: $137 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 five to ten years and the General Partners of certain funds have the option to extend the term by up to three years.
At December 31, 2018, the Company had $84 million (2017: $16 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 two years to the dissolution of the underlying fund.
At December 31, 2018, the Company had $147 million (2017: $115 million) of unfunded commitments as a limited partner in funds which invest in real estate and real estate securities and businesses. These funds include an open-ended fund and funds with investment terms ranging from seven years to the dissolution of the underlying fund.

At December 31, 2018, the Company had $16 million (2017: $21 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 ten years.

During 2015, the Company made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund has 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, 2018, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.

Syndicate 2007 holds overseas deposits which include investments in private funds where the underlying investments are primarily U.S. government, Non-U.S. government and corporate debt securities. 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 VIE. Given that the Company exercises significant influence over the operating and financial policies of this investee, the Company accounts for its ownership interest 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 was included in interest in income (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,
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
356,273

 
$
312,662

 
$
305,459

 
 
Other investments
48,959

 
76,858

 
42,514

 
 
Equity securities
10,077

 
14,919

 
16,306

 
 
Mortgage loans
13,566

 
10,780

 
7,996

 
 
Cash and cash equivalents
27,566

 
10,057

 
9,209

 
 
Short-term investments
9,365

 
2,718

 
2,060

 
 
Gross investment income
465,806

 
427,994

 
383,544

 
 
Investment expenses
(27,299
)
 
(27,189
)
 
(30,209
)
 
 
Net investment income
$
438,507

 
$
400,805

 
$
353,335

 
 
 
 
 
 
 
 
 

 
f)
Net Investment Gains (Losses)
The following table provides an analysis of net investment gains (losses):
 
 
 
 
 
 
 
 
 
Year ended December 31,
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
Gross realized investment gains
 
 
 
 
 
 
 
Fixed maturities and short-term investments
$
46,067

 
$
72,046

 
$
86,267

 
 
Equity securities
20,435

 
78,343

 
19,104

 
 
Gross realized investment gains
66,502

 
150,389

 
105,371

 
 
Gross realized investment losses
 
 
 
 
 
 
 
Fixed maturities and short-term investments
(142,153
)
 
(98,442
)
 
(134,460
)
 
 
Equity securities
(3,389
)
 
(959
)
 
(16,155
)
 
 
Gross realized investment losses
(145,542
)
 
(99,401
)
 
(150,615
)
 
 
Net OTTI charge recognized in net income
(9,733
)
 
(14,493
)
 
(26,210
)
 
 
Change in fair value of investment derivatives(1)
5,445

 
(8,269
)
 
10,929

 
 
Change in fair value of equity securities(2)
(66,890
)
 
—

 
—

 
 
Net investment gains (losses)
$
(150,218
)
 
$
28,226

 
$
(60,525
)
 
 
 
 
 
 
 
 
 
(1)
Refer to Note 8 'Derivative Instruments'
(2)
Effective January 1, 2018, the Company adopted ASU No. 2016-01. The change in fair value of equity securities is now recognized in net income.
The following table summarizes the OTTI charge recognized in net income by asset class:
 
 
 
 
 
 
 
 
 
Year ended December 31,
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Non-U.S. government
$
4,697

 
$
8,187

 
$
3,557

 
 
Corporate debt
4,995

 
6,306

 
20,093

 
 
Non-Agency CMBS
41

 
—

 
—

 
 
 
9,733

 
14,493

 
23,650

 
 
Equity Securities
 
 
 
 
 
 
 
Exchange-traded funds
—

 
—

 
2,560

 
 
 
—

 
—

 
2,560

 
 
Total OTTI recognized in net income
$
9,733

 
$
14,493

 
$
26,210

 
 
 
 
 
 
 
 
 

Fixed Maturities
The following table provides a roll forward of credit losses ("credit loss table") before income taxes, for which a component of the OTTI charge was recognized in AOCI:
 
 
 
 
 
 
 
Year ended December 31,
2018
 
2017
 
 
 
 
 
 
 
 
Balance at beginning of period
$
1,494

 
$
1,493

 
 
Credit impairments recognized on securities not previously impaired
—

 
—

 
 
Additional credit impairments recognized on securities previously impaired
8

 
13

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

 
—

 
 
Intent to sell of securities previously impaired
—

 
—

 
 
Securities sold/redeemed/matured
(992
)
 
(12
)
 
 
Balance at end of period
$
510

 
$
1,494

 
 
 
 
 
 
 

The credit loss component of an OTTI charge recognized in net income is 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. A summary of credit loss activities by asset class as well as the significant inputs and the methodology used to estimate these credit losses are described below.
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 has concluded that the possibility of a credit losses on these securities is highly unlikely due to the explicit U.S. government guarantee on certain securities (e.g. GNMA issuances) and the implicit guarantee on other securities that has been validated by past actions (e.g. U.S. government bailout of FNMA and FHLMC during the 2008 credit crisis). Although these securities are not analyzed for credit losses, they are still evaluated for intention to sell and likely requirement to sell.
Non-U.S. Government:
Non-U.S. government securities are evaluated for credit losses primarily through qualitative assessment of the likelihood of credit losses using information such as duration and severity of unrealized losses, as well as credit ratings and price volatility. At December 31, 2018, the Company's holdings in sovereign debt, including $29 million (2017: $185 million) relating to the eurozone countries, were substantially all investment-grade securities. At December 31, 2018, the gross unrealized investment losses of $16 million 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, 2018. In 2018, the OTTI charge 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 2018, the OTTI charge on corporate debt securities 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. At December 31, 2018, CMBS had a weighted average estimated subordination percentage of 31% (2017: 29%). Based on discounted cash flows at December 31, 2018, 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 default, delinquency, loss severity and prepayment rates. The assumptions used to calculate the credit losses in 2018 have not changed significantly since December 31, 2017.
At December 31, 2018, the fair value of the Company's non-agency RMBS was $41 million (2017: $47 million), consisting primarily of $31 million (2017: $34 million) of Prime and $5 million (2017: $8 million) of Alt-A MBS. At December 31, 2018, the Company concluded that there are no credit losses anticipated for any of its non-agency RMBS other than those already recorded.
ABS:

The Company's investments in ABS at December 31, 2018 consist mainly of CLO debt tranched securities ("CLO Debt") purchased primarily as new issues during 2017 through 2018. Substantially all of these new issues had credit ratings of AA or better. The Company utilizes a scenario-based approach to reviewing its CLO Debt portfolio based on the current asset market price. The Company also reviews subordination levels of these securities to determine their ability to absorb credit losses of underlying collateral. If losses are forecast to be below the subordination level for a tranche held by the Company, the security is determined not to be impaired. At December 31, 2018, the Company concluded that there are no credit losses anticipated for any of its CLO Debt. 

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 (refer to Note 11(c) '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 (refer to Note 12 'Commitments and Contingencies' and Note 20 'Statutory Financial Information').
At December 31, 2018 collateral in trust for third party agreements included $403 million (2017: $1,120 million) of fixed maturities and equity securities, and cash of $39 million (2017: $55 million) held on deposit to support the underwriting activities of Syndicate 2007. At December 31, 2018 collateral in trust for third party agreements included cash of $154 million (2017: $140 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,
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Collateral in Trust for inter-company agreements
 
$
2,121,522

 
$
3,310,180

 
 
Collateral for secured letter of credit facility
 
470,051

 
386,451

 
 
Funds at Lloyd's
 
1,307,945

 
1,192,717

 
 
Collateral in Trust for third party agreements
 
1,510,416

 
2,085,443

 
 
Securities on deposit with regulatory authorities
 
64,360

 
53,925

 
 
Total restricted investments
 
$
5,474,294

 
$
7,028,716

 
 
 
 
 
 
 
 

h)
Reverse Repurchase Agreements

At December 31, 2018, the Company held $189 million (2017: $37 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 in the Company's consolidated balance sheets. 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.