INVESTMENTS

9 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

a)     Fixed Maturities and Equity securities

Fixed maturities

The following table provides the amortized cost and fair values of the Company's fixed maturities classified as available for sale:

	Amortized cost		Allowance for expected credit losses		Gross unrealized gains		Gross unrealized losses		Fair value
At September 30, 2020
Fixed maturities
U.S. government and agency	$	1,929,224	$	—	$	62,872	$	(630)	$	1,991,466
Non-U.S. government	659,744		—		18,099		(4,042)		673,801
Corporate debt	4,607,629		(2,462)		214,924		(23,360)		4,796,731
Agency RMBS(1)	1,630,014		—		48,465		(1,373)		1,677,106
CMBS(2)	1,291,291		—		92,012		(2,565)		1,380,738
Non-agency RMBS	131,937		(36)		2,733		(1,104)		133,530
ABS(3)	1,679,839		—		12,374		(20,038)		1,672,175
Municipals(4)	272,154		—		11,982		(442)		283,694
Total fixed maturities	$	12,201,832	$	(2,498)	$	463,461	$	(53,554)	$	12,609,241
At December 31, 2019
Fixed maturities
U.S. government and agency	$	2,102,849	$	—	$	16,345	$	(6,313)	$	2,112,881
Non-U.S. government	564,505		—		14,535		(2,448)		576,592
Corporate debt	4,797,384		—		140,426		(7,556)		4,930,254
Agency RMBS(1)	1,570,823		—		25,215		(3,454)		1,592,584
CMBS(2)	1,340,156		—		29,838		(4,942)		1,365,052
Non-agency RMBS	84,381		—		1,393		(852)		84,922
ABS(3)	1,599,867		—		4,706		(5,880)		1,598,693
Municipals(4)	203,275		—		4,359		(407)		207,227
Total fixed maturities	$	12,263,240	$	—	$	236,817	$	(31,852)	$	12,468,205

(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 and collateralized loan obligations ("CLOs").

(4)Municipals include bonds issued by states, municipalities and political subdivisions.

Equity Securities

The following table provides the cost and fair values of the Company's equity securities:

	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
At September 30, 2020
Equity securities
Common stocks	$	10,679	$	35	$	(1,419)	$	9,295
Preferred stocks	6,249		1,505		—		7,754
Exchange-traded funds	141,748		51,920		(1,466)		192,202
Bond mutual funds	197,500		11,135		—		208,635
Total equity securities	$	356,176	$	64,595	$	(2,885)	$	417,886
At December 31, 2019
Equity securities
Common stocks	$	504	$	77	$	(388)	$	193
Preferred stocks	—		—		—		—
Exchange-traded funds	215,986		81,444		(105)		297,325
Bond mutual funds	182,466		—		(5,777)		176,689
Total equity securities	$	398,956	$	81,521	$	(6,270)	$	474,207

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 which represent 62% of the Company's other investments. The investments in limited partnerships include hedge funds, direct lending funds, private equity funds and real estate funds as well as CLO equity tranched securities, which are 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 these VIEs therefore the Company is not the primary beneficiary of these VIEs.

The maximum exposure to loss on these interests is limited to the amount of commitment made by the Company. The Company has not provided financial or other support to these structured securities other than the original investment.

Contractual Maturities of Fixed 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 table below provides the contractual maturities of fixed maturities:

	Amortized cost		Fair value		% of Total fair value
At September 30, 2020
Maturity
Due in one year or less	$	367,208	$	371,864	2.8	%
Due after one year through five years	4,318,770		4,446,778		35.3	%
Due after five years through ten years	2,524,796		2,660,506		21.1	%
Due after ten years	257,977		266,544		2.1	%
	7,468,751		7,745,692		61.3	%
Agency RMBS	1,630,014		1,677,106		13.3	%
CMBS	1,291,291		1,380,738		11.0	%
Non-agency RMBS	131,937		133,530		1.1	%
ABS	1,679,839		1,672,175		13.3	%
Total	$	12,201,832	$	12,609,241	100.0	%
At December 31, 2019
Maturity
Due in one year or less	$	438,881	$	443,228	3.6	%
Due after one year through five years	4,810,202		4,884,837		39.2	%
Due after five years through ten years	2,091,486		2,157,157		17.3	%
Due after ten years	327,444		341,732		2.7	%
	7,668,013		7,826,954		62.8	%
Agency RMBS	1,570,823		1,592,584		12.8	%
CMBS	1,340,156		1,365,052		10.9	%
Non-agency RMBS	84,381		84,922		0.7	%
ABS	1,599,867		1,598,693		12.8	%
Total	$	12,263,240	$	12,468,205	100.0	%

 Gross Unrealized Losses

The following table summarizes fixed maturities 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 September 30, 2020
Fixed maturities
U.S. government and agency	$	—	$	—	$	237,349	$	(630)	$	237,349	$	(630)
Non-U.S. government	28,253		(1,675)		99,028		(2,367)		127,281		(4,042)
Corporate debt	57,768		(3,924)		821,430		(19,436)		879,198		(23,360)
Agency RMBS	9,231		(21)		242,263		(1,352)		251,494		(1,373)
CMBS	9,467		(907)		121,193		(1,658)		130,660		(2,565)
Non-agency RMBS	5,048		(873)		22,552		(231)		27,600		(1,104)
ABS	313,666		(9,127)		667,236		(10,911)		980,902		(20,038)
Municipals	—		—		70,036		(442)		70,036		(442)
Total fixed maturities	$	423,433	$	(16,527)	$	2,281,087	$	(37,027)	$	2,704,520	$	(53,554)
At December 31, 2019
Fixed maturities
U.S. government and agency	$	9,536	$	(67)	$	614,705	$	(6,246)	$	624,241	$	(6,313)
Non-U.S. government	99,466		(2,036)		18,361		(412)		117,827		(2,448)
Corporate debt	121,635		(3,847)		375,858		(3,709)		497,493		(7,556)
Agency RMBS	195,395		(1,816)		326,402		(1,638)		521,797		(3,454)
CMBS	24,281		(64)		364,641		(4,878)		388,922		(4,942)
Non-agency RMBS	6,345		(792)		25,816		(60)		32,161		(852)
ABS	535,780		(4,667)		404,641		(1,213)		940,421		(5,880)
Municipals	5,418		(34)		46,684		(373)		52,102		(407)
Total fixed maturities	$	997,856	$	(13,323)	$	2,177,108	$	(18,529)	$	3,174,964	$	(31,852)

Fixed Maturities

At September 30, 2020, 1,365 fixed maturities (2019: 1,190) were in an unrealized loss position of $54 million (2019: $32 million), of which $21 million (2019: $5 million) was related to securities below investment grade or not rated.

At September 30, 2020, 234 fixed maturities (2019: 497) had been in a continuous unrealized loss position for twelve months or greater and had a fair value of $423 million (2019: $998 million). The Company concluded that the unrealized loss on these securities as well as the remaining securities in an unrealized loss position were due to non-credit factors at September 30, 2020, and were expected to recover in value as the securities approach maturity. At September 30, 2020, 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:

	September 30, 2020				December 31, 2019
	Carrying value		% of Total		Carrying value		% of Total
Mortgage Loans held-for-investment:
Commercial	$	544,095	100	%	$	432,748	100	%
Total Mortgage Loans held-for-investment	$	544,095	100	%	$	432,748	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 a weighted average debt service coverage ratio of 2.1x and a weighted average loan-to-value ratio of 59%. At September 30, 2020, 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 September 30, 2020
Long/short equity funds	$	24,815	3	%	Annually	60 days
Multi-strategy funds	111,980		15	%	Quarterly, Semi-annually	60-95 days
Direct lending funds	269,783		35	%	n/a	n/a
Private equity funds	106,701		14	%	n/a	n/a
Real estate funds	153,163		20	%	n/a	n/a
CLO-Equities	9,189		2	%	n/a	n/a
Other privately held investments	39,493		5	%	n/a	n/a
Overseas deposits	45,082		6	%	n/a	n/a
Total other investments	$	760,206	100	%
At December 31, 2019
Long/short equity funds	$	31,248	4	%	Annually	60 days
Multi-strategy funds	136,542		18	%	Quarterly, Semi-annually	60-90 days
Direct lending funds	277,395		36	%	n/a	n/a
Private equity funds	80,412		10	%	n/a	n/a
Real estate funds	130,112		17	%	n/a	n/a
CLO-Equities	14,328		2	%	n/a	n/a
Other privately held investments	36,934		5	%	n/a	n/a
Overseas deposits	63,952		8	%	n/a	n/a
Total other investments	$	770,923	100	%

n/a - not applicable

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 nine months ended September 30, 2020 and 2019, neither of these restrictions impacted the Company's redemption requests. At September 30, 2020, $25 million (2019: $69 million), representing 18% (2019: 41%) 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 2021 to March 2022. 

At September 30, 2020, the Company had $153 million (2019: $170 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 fifteen years and the General Partners of certain funds have the option to extend the term by up to three years.

At September 30, 2020, the Company had $20 million (2019: $24 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 September 30, 2020, the Company had $158 million (2019: $82 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 September 30, 2020, the Company had $163 million (2019: $261 million) of unfunded commitments as a limited partner in private equity funds. The life of the funds is subject to the dissolution of the underlying funds. The Company expects the overall holding period to be over five 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 September 30, 2020, 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 September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Fixed maturities	$	73,992	$	96,311	$	244,394	$	285,062
Other investments	25,125		11,143		(14,574)		49,271
Equity securities	1,871		2,232		6,258		7,757
Mortgage loans	3,609		3,984		11,322		10,735
Cash and cash equivalents	2,491		7,034		9,814		20,974
Short-term investments	440		973		2,303		5,975
Gross investment income	107,528		121,677		259,517		379,774
Investment expenses	(5,572)		(5,914)		(19,419)		(18,760)
Net investment income	$	101,956	$	115,763	$	240,098	$	361,014

f) Net Investment Gains

The following table provides an analysis of net investment gains:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Gross realized investment gains
Fixed maturities and short-term investments	$	39,926	$	32,475	$	130,874	$	61,882
Equity securities	556		1,825		24,514		3,424
Gross realized investment gains	40,482		34,300		155,388		65,306
Gross realized investment losses
Fixed maturities and short-term investments	(10,394)		(14,557)		(88,216)		(44,813)
Equity securities	(37)		(80)		(5,839)		(203)
Gross realized investment losses	(10,431)		(14,637)		(94,055)		(45,016)
Allowance for expected credit losses	3,759		—		(2,498)		—
Impairment losses(1)	(184)		—		(1,486)		—
OTTI losses	—		(1,458)		—		(6,328)
Change in fair value of investment derivatives(2)	(1,346)		2,592		1,970		287
Net unrealized gains (losses) on equity securities	23,329		(6,270)		(13,542)		34,273
Net investment gains	$	55,609	$	14,527	$	45,777	$	48,522

(1) Related to instances where the Company intends to sell securities or it is more likely than not that the Company will be required to sell securities before their anticipated recovery.

(2) Refer to Note 5 'Derivative Instruments'.

The following table provides a reconciliation of the beginning and ending balances of the allowance for expected credit losses on fixed maturities classified as available for sale:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Balance at beginning of period	$	6,257	$	—	$	—	$	—
Expected credit losses on securities where credit losses were not previously recognized	194		—		22,570		—
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	(2,545)		—		(9,424)		—
Impairments of securities which the Company intends to sell or more likely than not will be required to sell	—		—		—		—
Securities sold/redeemed/matured	(1,408)		—		(10,648)		—
Balance at end of period	$	2,498	$	—	$	2,498	$	—

g) Reverse Repurchase Agreements

At September 30, 2020, the Company held $259 million (2019: $nil) 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.