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INVESTMENTS
 6 Months Ended
Jun. 30, 2019
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 June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
2,288,204

 
$
30,488

 
$
(1,265
)
 
$
2,317,427

 
$
—

 
 
Non-U.S. government
539,588

 
6,959

 
(8,723
)
 
537,824

 
—

 
 
Corporate debt
4,850,141

 
114,591

 
(19,147
)
 
4,945,585

 
—

 
 
Agency RMBS(1)
1,669,160

 
24,127

 
(6,375
)
 
1,686,912

 
—

 
 
CMBS(2)
1,150,370

 
34,613

 
(715
)
 
1,184,268

 
—

 
 
Non-Agency RMBS
55,985

 
1,308

 
(1,313
)
 
55,980

 
(740
)
 
 
ABS(3)
1,600,846

 
5,871

 
(5,946
)
 
1,600,771

 
—

 
 
Municipals(4)
189,480

 
4,828

 
(120
)
 
194,188

 
—

 
 
Total fixed maturities
$
12,343,774

 
$
222,785

 
$
(43,604
)
 
$
12,522,955

 
$
(740
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 June 30, 2019
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
Common stocks
$
695

 
$
21

 
$
(459
)
 
$
257

 
 
Exchange-traded funds
213,909

 
61,531

 
(2,171
)
 
273,269

 
 
Bond mutual funds
163,291

 
—

 
(3,410
)
 
159,881

 
 
Total equity securities
$
377,895

 
$
61,552

 
$
(6,040
)
 
$
433,407

 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 


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 3(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 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 June 30, 2019
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
388,837

 
$
388,997

 
3.1
%
 
 
Due after one year through five years
5,169,170

 
5,237,935

 
41.8
%
 
 
Due after five years through ten years
1,921,131

 
1,967,360

 
15.7
%
 
 
Due after ten years
388,275

 
400,732

 
3.2
%
 
 
 
7,867,413

 
7,995,024

 
63.8
%
 
 
Agency RMBS
1,669,160

 
1,686,912

 
13.5
%
 
 
CMBS
1,150,370

 
1,184,268

 
9.5
%
 
 
Non-Agency RMBS
55,985

 
55,980

 
0.4
%
 
 
ABS
1,600,846

 
1,600,771

 
12.8
%
 
 
Total
$
12,343,774

 
$
12,522,955

 
100.0
%
 
 
 
 
 
 
 
 
 
 
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
%
 
 
 
 
 
 
 
 
 


 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 June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
111,237

 
$
(1,085
)
 
$
174,271

 
$
(180
)
 
$
285,508

 
$
(1,265
)
 
 
Non-U.S. government
130,187

 
(6,343
)
 
111,035

 
(2,380
)
 
241,222

 
(8,723
)
 
 
Corporate debt
479,376

 
(10,405
)
 
484,354

 
(8,742
)
 
963,730

 
(19,147
)
 
 
Agency RMBS
557,096

 
(6,256
)
 
66,210

 
(119
)
 
623,306

 
(6,375
)
 
 
CMBS
18,034

 
(27
)
 
136,832

 
(688
)
 
154,866

 
(715
)
 
 
Non-Agency RMBS
5,845

 
(973
)
 
15,760

 
(340
)
 
21,605

 
(1,313
)
 
 
ABS
400,246

 
(3,609
)
 
487,791

 
(2,337
)
 
888,037

 
(5,946
)
 
 
Municipals
9,980

 
(120
)
 
—

 
—

 
9,980

 
(120
)
 
 
Total fixed maturities
$
1,712,001

 
$
(28,818
)
 
$
1,476,253

 
$
(14,786
)
 
$
3,188,254

 
$
(43,604
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed Maturities

At June 30, 2019, 1,614 fixed maturities (2018: 3,599) were in an unrealized loss position of $44 million (2018: $215 million), of which $12 million (2018: $49 million) was related to securities below investment grade or not rated.

At June 30, 2019, 958 fixed maturities (2018: 1,656) had been in a continuous unrealized loss position for twelve months or greater and had a fair value of $1,712 million (2018: $3,570 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 June 30, 2019, and were expected to recover in value as the securities approach maturity. At June 30, 2019, 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:
 
  
June 30, 2019
 
December 31, 2018
 
 
  
Carrying value
 
% of Total
 
Carrying value
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Commercial
$
394,179

 
100
%
 
$
298,650

 
100
%
 
 
Total Mortgage Loans held-for-investment
$
394,179

 
100
%
 
$
298,650

 
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 2.1x and weighted average loan-to-value ratios of less than 57%. At June 30, 2019, there are 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 June 30, 2019
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
30,526

 
4
%
 
Annually
 
60 days
 
 
Multi-strategy funds
165,123

 
21
%
 
Quarterly, Semi-annually
 
60-90 days
 
 
Direct lending funds
273,864

 
34
%
 
n/a
 
n/a
 
 
Private equity funds
60,285

 
8
%
 
n/a
 
n/a
 
 
Real estate funds
134,763

 
17
%
 
n/a
 
n/a
 
 
CLO-Equities
17,798

 
1
%
 
n/a
 
n/a
 
 
Other privately held investments
28,452

 
4
%
 
n/a
 
n/a
 
 
Overseas deposits
91,253

 
11
%
 
n/a
 
n/a
 
 
Total other investments
$
802,064

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
26,779

 
3
%
 
Annually
 
60 days
 
 
Multi-strategy funds
167,819

 
22
%
 
Quarterly, Semi-annually, Annually
 
45-95 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
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 primarily includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies.

•
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 the six months ended June 30, 2019 and 2018, neither of these restrictions impacted the Company's redemption requests. At June 30, 2019, $63 million (2018: $27 million), representing 32% (2018: 14%) of total hedge funds, relate to holdings where the Company is still within the lockup period. The expiration of these lockup periods range from October 2020 to March 2022. 

At June 30, 2019, the Company had $193 million (2018: $210 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 June 30, 2019, the Company had $39 million (2018: $84 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 June 30, 2019, the Company had $100 million (2018: $147 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 June 30, 2019, the Company had $15 million (2018: $16 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 June 30, 2019, 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 and 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 that is required to be included in the Company's consolidated financial statements. 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.

e) Net Investment Income

Net investment income was derived from the following sources:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
97,370

 
$
88,320

 
$
188,752

 
$
172,279

 
 
Other investments
31,232

 
14,541

 
38,128

 
28,246

 
 
Equity securities
3,197

 
3,158

 
5,525

 
4,916

 
 
Mortgage loans
3,689

 
3,357

 
6,752

 
6,483

 
 
Cash and cash equivalents
8,138

 
5,627

 
13,940

 
9,779

 
 
Short-term investments
1,108

 
1,645

 
5,002

 
2,520

 
 
Gross investment income
144,734

 
116,648

 
258,099

 
224,223

 
 
Investment expenses
(6,785
)
 
(6,688
)
 
(12,845
)
 
(13,262
)
 
 
Net investment income
$
137,949

 
$
109,960

 
$
245,254

 
$
210,961

 
 
 
 
 
 
 
 
 
 
 


f) Net Investment Gains (Losses)

The following table provides an analysis of net investment gains (losses):
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Gross realized investment gains
 
 
 
 
 
 
 
 
 
Fixed maturities and short-term investments
$
18,971

 
$
5,761

 
$
29,409

 
$
37,389

 
 
Equity securities
154

 
1,147

 
1,598

 
18,662

 
 
Gross realized investment gains
19,125

 
6,908

 
31,007

 
56,051

 
 
Gross realized investment losses
 
 
 
 
 
 
 
 
 
Fixed maturities and short-term investments
(9,978
)
 
(44,442
)
 
(30,257
)
 
(87,977
)
 
 
Equity securities
(29
)
 
—

 
(122
)
 
(1,234
)
 
 
Gross realized investment losses
(10,007
)
 
(44,442
)
 
(30,379
)
 
(89,211
)
 
 
Net OTTI recognized in net income
(834
)
 
(1,674
)
 
(4,870
)
 
(2,088
)
 
 
Change in fair value of investment derivatives(1)
(204
)
 
5,134

 
(2,305
)
 
7,157

 
 
Net unrealized gains (losses) on equity securities
13,145

 
(11,019
)
 
40,543

 
(31,832
)
 
 
Net investment gains (losses)
$
21,225

 
$
(45,093
)
 
$
33,996

 
$
(59,923
)
 
 
 
 
 
 
 
 
 
 
 
(1) Refer to Note 5 'Derivative Instruments'.

The following table summarizes the OTTI recognized in net income by asset class:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
Non-U.S. government
$
—

 
$
22

 
$
60

 
$
22

 
 
Corporate debt
834

 
1,652

 
4,810

 
2,066

 
 
Total OTTI recognized in net income
$
834

 
$
1,674

 
$
4,870

 
$
2,088

 
 
 
 
 
 
 
 
 
 
 


The following table provides a roll forward of the credit losses ("credit loss table") before income taxes, for which a component of the OTTI charge was recognized in AOCI:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
472

 
$
1,484

 
$
510

 
$
1,494

 
 
Credit impairments recognized on securities not previously impaired
—

 
—

 
—

 
—

 
 
Additional credit impairments recognized on securities previously impaired
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
 
Intent to sell of securities previously impaired
—

 
—

 
—

 
—

 
 
Securities sold/redeemed/matured
(79
)
 
(12
)
 
(117
)
 
(22
)
 
 
Balance at end of period
$
393

 
$
1,472

 
$
393

 
$
1,472

 
 
 
 
 
 
 
 
 
 
 


g) Reverse Repurchase Agreements

At June 30, 2019, the Company held no (2018: $189 million) 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.