
a)	Concentrations of Credit Risk

Credit Risk Aggregation

The Company monitors and manages the aggregation of credit risk on a group-wide basis allowing it to consider exposure management strategies for individual companies, countries, regions, sectors and any other relevant inter-dependencies. The Company's credit exposures are aggregated based on the origin of risk. As part of its credit aggregation framework, the Company also assigns aggregate credit limits by single counterparty (a group of companies or country). These limits are based on and adjusted for a variety of factors including the prevailing economic environment and the nature of the underlying credit exposures. The Company's credit aggregation measurement and reporting process is facilitated by its credit risk exposure database, which contains relevant information on counterparty details and credit risk exposures. The Company also licenses third party tools to provide credit risk assessments.

Credit risk aggregation is also managed through minimizing overlaps in underwriting, financing and investing activities.

The assets that potentially subject the Company to concentrations of credit risk consist principally of cash and investments, reinsurance recoverable on unpaid and paid claims and insurance and reinsurance premiums balances receivable, as described below:

(i) Cash and Investments

In order to mitigate concentration and operational risks related to cash and cash equivalents, the Company limits the maximum amount of cash that can be deposited with a single counterparty and limits acceptable counterparties based on current rating, outlook and other relevant factors.

The Company's investment portfolio is managed by external investment managers in accordance with its investment guidelines. The Company limits credit risk through diversification, issuer exposure limits graded by ratings and, with respect to custodians, through contractual and other legal remedies. Excluding U.S. government and agency securities, the Company limits its concentration of credit risk to any single corporate issuer to 2% or less of its investment grade fixed maturities portfolio for securities rated A- or above and 1% or less of its investment grade fixed maturities portfolio for securities rated below A-.

At December 31, 2018, the Company was in compliance with these limits.

(ii) Reinsurance Recoverable on Unpaid and Paid Losses

The Company is exposed to the credit risk associated with reinsurance recoverable on unpaid and paid losses to the extent that any of its reinsurers fail to meet their obligations under reinsurance contracts. To help mitigate this risk, the Company's purchase of reinsurance is subject to financial security requirements specified by its Reinsurance Security Committee. This Committee maintains a list of approved reinsurers, performs credit risk assessments for potential new reinsurers, regularly monitors approved reinsurers with consideration for events which may have a material impact on their creditworthiness, recommends counterparty tolerance levels for different types of ceded business and monitors concentrations of credit risk. This assessment considers a wide range of individual attributes, including a review of the counterparty’s financial strength, industry position and other qualitative factors. Generally, the Committee requires that reinsurers who do not meet specified requirements provide collateral.

At December 31, 2018, the three largest balances by reinsurer accounted for 13%, 10% and 10% (2017: 12%, 11% and 7%) of reinsurance recoverable on unpaid and paid losses.

At December 31, 2018, 89.5% (December 31, 2017: 88.8%) of the Company's reinsurance recoverable on unpaid and paid losses were collectible from reinsurers rated the equivalent of A- or better by internationally recognized rating agencies.

(iii) Insurance and Reinsurance Premium Balances Receivable

The diversity of the Company's client base limits the credit risk associated with its insurance and reinsurance premium balances receivable. In addition, for insurance contracts the Company has contractual rights to cancel cover for non-payment of premiums and for reinsurance contracts the Company has contractual rights to offset premium balances receivable against corresponding payments for losses and loss expenses.

Brokers and other intermediaries collect premiums from customers on behalf of the Company. The Company has procedures in place to manage and monitor credit risk from intermediaries with a focus on day-to-day monitoring of the largest positions.

These contractual rights contribute to the mitigation of credit risk, together with the monitoring of aged premium balances receivable. In light of these mitigating factors, and considering that a significant portion of premium balances receivable are not currently due based on the terms of the underlying contracts, the Company does not utilize specific credit quality indicators to monitor its premium balances receivable.

At December 31, 2018, the Company recorded an allowance for estimated uncollectible premium balances receivable of $4 million (2017: $6 million).

For the year ended December 31, 2018, bad debt expense was $nil (2017: $nil; 2016: $1 million).


b)	Brokers

The Company produces its business through brokers and direct relationships with insurance companies. For the year ended December 31, 2018, three brokers accounted for 43% (2017: 49%; 2016: 52%) of gross premiums written.

Marsh & McLennan Companies Inc. accounted for 17% (2017: 20%; 2016: 21%), Aon plc accounted for 17% (2017: 17%; 2016: 19%), and Willis Tower Watson PLC accounted for 9% (2017: 12%; 2016: 12%).

No other broker and no single insured or reinsured accounted for more than 10% of gross premiums written in any of the last three years.


c)	Lease Commitments

In the ordinary course of business, the Company renews and enters into new leases for office space which expire at various dates. For the year ended December 31, 2018, operating lease expense was $33 million (2017: $29 million; 2016: $25 million).

Future minimum lease payments are expected to be as follows:




Year ended December 31,

2019	$	28,240
2020	25,331
2021	27,025
2022	28,012
2023	23,801
Later years	118,497
Total future minimum lease payments	$	250,906


d)	Reinsurance Purchase Commitment

In the normal course of business, the Company purchases reinsurance and retrocessional (collectively referred to as "reinsurance") protection for its insurance and reinsurance lines of business. Minimum reinsurance premiums are contractually due in advance on a quarterly basis. At December 31, 2018, the Company had outstanding reinsurance purchase commitments of $39 million, all of which is due before March 31, 2022. Actual payments under the reinsurance contracts will depend on the underlying subject premium and may exceed the minimum premium.


e)	Legal Proceedings

From time to time, the Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable related to these proceedings are included in the reserve for losses and loss expenses in the Company's consolidated balance sheets.

The Company is not party to any material legal proceedings arising outside the ordinary course of business.


f)	Investments

At December 31, 2018 the Company has $507 million (2017: $414 million) of unfunded investment commitments related to its other investment portfolio, which are callable by investment managers (refer to Note 6(c) 'Investments'). At December 31, 2018 the Company has $4 million (2017: $16 million) of unfunded investment commitments to purchase commercial mortgage loans.


g)	Funds at Lloyd's

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 Solvency II.

The capital provided to support underwriting or FAL may be satisfied by cash, certain investments and letters of credit provided by approved banks.

At December 31, 2018, investments and cash of $1.3 billion (2017: $1.2 billion) were restricted to satisfy the Company's FAL requirements (refer to Note 6 'Investments' and Note 20 'Statutory Financial Information').