INVESTMENTS

6 Months Ended

Jun. 30, 2023

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

a)     Fixed Maturities, Available for Sale

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 June 30, 2023
Available for sale
U.S. government and agency	$	2,889,184	$	—	$	421	$	(97,593)	$	2,792,012
Non-U.S. government	621,702		(17)		2,560		(37,633)		586,612
Corporate debt	4,655,745		(10,397)		9,342		(327,082)		4,327,608
Agency RMBS(1)	1,496,299		—		3,975		(96,620)		1,403,654
CMBS(2)	950,340		—		38		(79,271)		871,107
Non-agency RMBS	149,827		(100)		274		(15,900)		134,101
ABS(3)	1,347,053		(37)		568		(47,028)		1,300,556
Municipals(4)	162,108		—		219		(13,580)		148,747
Total fixed maturities, available for sale	$	12,272,258	$	(10,551)	$	17,397	$	(714,707)	$	11,564,397
At December 31, 2022
Available for sale
U.S. government and agency	$	2,731,733	$	—	$	5,386	$	(97,789)	$	2,639,330
Non-U.S. government	612,546		—		2,395		(52,912)		562,029
Corporate debt	4,680,798		(11,521)		5,269		(418,990)		4,255,556
Agency RMBS(1)	1,297,423		—		4,663		(99,301)		1,202,785
CMBS(2)	1,029,863		—		60		(82,145)		947,778
Non-agency RMBS	151,907		(123)		275		(18,525)		133,534
ABS(3)	1,499,728		(35)		555		(70,721)		1,429,527
Municipals(4)	172,475		(54)		139		(16,205)		156,355
Total fixed maturities, available for sale	$	12,176,473	$	(11,733)	$	18,742	$	(856,588)	$	11,326,894

(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.

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 table below provides the contractual maturities of fixed maturities classified as available for sale:

	Amortized cost		Fair value		% of Total fair value
At June 30, 2023
Maturity
Due in one year or less	$	608,109	$	591,621	5.2	%
Due after one year through five years	5,408,673		5,166,273		44.7	%
Due after five years through ten years	2,139,206		1,936,227		16.7	%
Due after ten years	172,751		160,858		1.4	%
	8,328,739		7,854,979		68.0	%
Agency RMBS	1,496,299		1,403,654		12.1	%
CMBS	950,340		871,107		7.5	%
Non-agency RMBS	149,827		134,101		1.2	%
ABS	1,347,053		1,300,556		11.2	%
Total	$	12,272,258	$	11,564,397	100.0	%
At December 31, 2022
Maturity
Due in one year or less	$	422,039	$	409,972	3.7	%
Due after one year through five years	5,349,123		5,078,273		44.8	%
Due after five years through ten years	2,192,344		1,919,450		16.9	%
Due after ten years	234,046		205,575		1.8	%
	8,197,552		7,613,270		67.2	%
Agency RMBS	1,297,423		1,202,785		10.6	%
CMBS	1,029,863		947,778		8.4	%
Non-agency RMBS	151,907		133,534		1.2	%
ABS	1,499,728		1,429,527		12.6	%
Total	$	12,176,473	$	11,326,894	100.0	%

Gross Unrealized Losses

The following table summarizes fixed maturities, available for sale 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, 2023
Fixed maturities, available for sale
U.S. government and agency	$	875,378	$	(62,863)	$	1,776,604	$	(34,730)	$	2,651,982	$	(97,593)
Non-U.S. government	232,887		(30,092)		288,238		(7,541)		521,125		(37,633)
Corporate debt	2,448,366		(288,978)		1,359,957		(38,104)		3,808,323		(327,082)
Agency RMBS	512,098		(72,058)		693,467		(24,562)		1,205,565		(96,620)
CMBS	750,801		(72,713)		105,984		(6,558)		856,785		(79,271)
Non-agency RMBS	95,695		(15,256)		28,298		(644)		123,993		(15,900)
ABS	1,038,046		(44,731)		172,761		(2,297)		1,210,807		(47,028)
Municipals	108,560		(12,520)		28,255		(1,060)		136,815		(13,580)
Total fixed maturities, available for sale	$	6,061,831	$	(599,211)	$	4,453,564	$	(115,496)	$	10,515,395	$	(714,707)
At December 31, 2022
Fixed maturities, available for sale
U.S. government and agency	$	467,032	$	(41,365)	$	1,414,181	$	(56,424)	$	1,881,213	$	(97,789)
Non-U.S. government	207,637		(33,027)		298,048		(19,885)		505,685		(52,912)
Corporate debt	1,562,355		(268,289)		2,350,504		(150,701)		3,912,859		(418,990)
Agency RMBS	220,595		(40,469)		771,191		(58,832)		991,786		(99,301)
CMBS	343,494		(40,888)		599,877		(41,257)		943,371		(82,145)
Non-agency RMBS	75,137		(14,691)		53,484		(3,834)		128,621		(18,525)
ABS	685,990		(48,913)		686,190		(21,808)		1,372,180		(70,721)
Municipals	52,994		(10,120)		96,003		(6,085)		148,997		(16,205)
Total fixed maturities, available for sale	$	3,615,234	$	(497,762)	$	6,269,478	$	(358,826)	$	9,884,712	$	(856,588)

At June 30, 2023, 4,491 fixed maturities (2022: 4,525) were in an unrealized loss position of $715 million (2022: $857 million), of which $33 million (2022: $64 million) was related to securities below investment grade or not rated.

At June 30, 2023, 3,089 fixed maturities (2022: 1,842) had been in a continuous unrealized loss position for twelve months or greater and had a fair value of $6,062 million (2022: $3,615 million).

The unrealized losses of $715 million (2022: $857 million) were due to non-credit factors and were expected to be recovered as the related securities approach maturity.

At June 30, 2023, 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)     Fixed Maturities, Held to Maturity

The following table provides the amortized cost and fair values of the Company's fixed maturities classified as held to maturity:

	Amortized cost		Allowance for expected credit losses		Net carrying value		Gross unrealized gains		Gross unrealized losses		Fair value
At June 30, 2023
Held to maturity
Corporate debt	$	90,200	$	—	$	90,200	$	—	$	(11,411)	$	78,789
ABS(1)	627,110		—		627,110		41		(8,245)		618,906
Total fixed maturities, held to maturity	$	717,310	$	—	$	717,310	$	41	$	(19,656)	$	697,695
At December 31, 2022
Held to maturity
Corporate debt	$	85,200	$	—	$	85,200	$	—	$	(11,428)	$	73,772
ABS(1)	613,151		—		613,151		—		(12,180)		600,971
Total fixed maturities, held to maturity	$	698,351	$	—	$	698,351	$	—	$	(23,608)	$	674,743

(1)Asset-backed securities ("ABS") include debt tranched securities collateralized primarily by collateralized loan obligations ("CLOs").

At June 30, 2023, fixed maturities, held to maturity of $717 million (2022: $698 million) were presented net of an allowance for expected credit losses of $nil (2022: $nil).

The Company's ABS, held to maturity consist of CLO debt tranched securities. The Company uses a scenario-based approach to review its CLO debt portfolio and reviews subordination levels of these securities to determine their ability to absorb credit losses of the 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 have a credit loss. At June 30, 2023, the allowance for credit losses expected to be recognized over the life of the Company's ABS, held to maturity was $nil.

To estimate expected credit losses for corporate debt securities, held to maturity, the Company's projected cash flows are primarily driven by assumptions regarding the severity of loss, which is a function of the probability of default and projected recovery rates. The Company's default and recovery rates are based on credit ratings, credit analysis and macroeconomic forecasts. At June 30, 2023, the allowance for credit losses expected to be recognized over the life of the Company's corporate debt, held to maturity was $nil.

Contractual Maturities

ABS classified as held to maturity with a net carrying value of $627 million (2022: $613 million) do not have a single maturity date and cannot be allocated over several maturity groupings.

Corporate debt classified as held to maturity with a net carrying value of $86 million (2022: $81 million) is due between 3 years and 10 years and corporate debt classified as held to maturity with a net carrying value of $4 million (2022: $4 million) is due after ten years.

c)     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 June 30, 2023
Equity securities
Common stocks	$	3,130	$	322	$	(406)	$	3,046
Preferred stocks	5,115		—		(131)		4,984
Exchange-traded funds	198,244		103,126		(2,205)		299,165
Bond mutual funds	358,476		269		(69,248)		289,497
Total equity securities	$	564,965	$	103,717	$	(71,990)	$	596,692
At December 31, 2022
Equity securities
Common stocks	$	7,279	$	636	$	(442)	$	7,473
Preferred stocks	115		—		(43)		72
Exchange-traded funds	207,505		68,058		(5,757)		269,806
Bond mutual funds	279,457		—		(71,555)		207,902
Total equity securities	$	494,356	$	68,694	$	(77,797)	$	485,253

d)     Mortgage Loans

The following table provides details of the Company's mortgage loans, held for investment:

	June 30, 2023				December 31, 2022
	Carrying value		% of Total		Carrying value		% of Total
Mortgage loans, held for investment:
Commercial	$	612,912	101	%	$	627,437	100	%
Allowance for expected credit losses	(3,638)		(1	%)	—		—	%
Total mortgage loans, held for investment	$	609,274	100	%	$	627,437	100	%

The primary credit quality indicators for commercial mortgage loans are 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 quarterly.

The Company has a high quality mortgage loan portfolio with a weighted average debt service coverage ratio of 2.0x (2022: 2.3x) and a weighted average loan-to-value ratio of 66% (2022: 60%). At June 30, 2023, and 2022 there were no past due amounts associated with the commercial mortgage loans held by the Company.

On a quarterly basis, collateral dependent mortgage loans (e.g, when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable) are evaluated individually for credit losses. The allowance for expected credit losses for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan's underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent

loans, which are evaluated individually for credit losses, is recognized as a change in the allowance for expected credit losses which is recorded in net investment gains (losses).

At June 30, 2023, there are two collateral dependent loans with estimated loan-to-value ratios in excess of 100%, resulting in an allowance for expected credit loss of $4 million.

e)     Other Investments

The following table provides a summary of the Company's other investments, together with additional information relating to the liquidity of each category:

	Fair value		% of Total		Redemption frequency (if currently eligible)	Redemption     notice period
At June 30, 2023
Multi-strategy funds	$	26,126	3	%	Quarterly	60-90 days
Direct lending funds	248,834		26	%	Quarterly(1)	90 days
Private equity funds	272,249		28	%	n/a	n/a
Real estate funds	302,945		31	%	Quarterly(2), Annually(3)	45-90 days
CLO-Equities	4,877		—	%	n/a	n/a
Other privately held investments	115,048		12	%	n/a	n/a
Total other investments	$	970,079	100	%
At December 31, 2022
Multi-strategy funds	$	32,616	3	%	Quarterly	60-90 days
Direct lending funds	258,626		26	%	Quarterly(1)	90 days
Private equity funds	265,836		27	%	n/a	n/a
Real estate funds	298,499		30	%	Quarterly(2), Annually(3)	45-90 days
CLO-Equities	5,016		—	%	n/a	n/a
Other privately held investments	136,158		14	%	n/a	n/a
Total other investments	$	996,751	100	%

n/a - not applicable

(1) Applies to one fund with a fair value of $30 million (2022: $39 million).

(2) Applies to one fund with a fair value of $68 million (2022: $73 million).

(3) Applies to one fund with a fair value of $25 million (2022: $27 million).

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, 2023 and 2022, neither of these restrictions impacted the Company's redemption requests. At June 30, 2023, there were no hedge fund holdings (2022: $nil) where the Company is still within the lockup period. 

At June 30, 2023, the Company had $28 million (2022: $26 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, 2023, the Company had $192 million (2022: $183 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 four to twelve years and the General Partners of certain funds have the option to extend the term by up to three years.

At June 30, 2023, the Company had $161 million (2022: $158 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.

At June 30, 2023, the Company had $129 million (2022: $141 million) of unfunded commitments as a limited partner in real estate funds. These funds include an open-ended fund and funds with investment terms ranging from two years to the dissolution of the underlying fund.

f)     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 the Company and The Blackstone Group L.P. ("Blackstone"). Through long-term service agreements, the Company 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 Entities ("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.

g)     Variable Interest Entities

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 73% of the Company's other investments. The investments in limited partnerships include hedge funds, direct lending funds, private equity funds and real estate funds and CLO equity tranched securities, which are variable interests issued by VIEs (refer to Note 3(e) '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.

h)     Net Investment Income

Net investment income was derived from the following sources:

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Fixed maturities	$	124,390	$	72,607	$	242,652	$	137,416
Other investments	(5,341)		14,327		(4,855)		40,377
Equity securities	2,990		2,688		5,445		4,860
Mortgage loans	8,880		4,903		17,266		9,067
Cash and cash equivalents	11,161		3,679		21,174		4,797
Short-term investments	2,129		402		3,789		567
Gross investment income	144,209		98,606		285,471		197,084
Investment expenses	(7,380)		(6,392)		(14,870)		(13,515)
Net investment income	$	136,829	$	92,214	$	270,601	$	183,569

i)     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,
	2023		2022		2023		2022
Gross realized investment gains
Fixed maturities and short-term investments	$	11,460	$	1,127	$	23,829	$	11,549
Equity securities	17		—		1,535		—
Gross realized investment gains	11,477		1,127		25,364		11,549
Gross realized investment losses
Fixed maturities and short-term investments	(43,695)		(87,601)		(97,343)		(150,747)
Equity securities	—		—		(396)		(224)
Gross realized investment losses	(43,695)		(87,601)		(97,739)		(150,971)
(Increase) decrease in allowance for expected credit losses, fixed maturities, available for sale	2,094		(6,911)		1,182		(6,981)
(Increase) decrease in allowance for expected credit losses, mortgage loans	(1,740)		—		(3,638)		—
Impairment losses(1)	(9,083)		(473)		(9,083)		(582)
Change in fair value of investment derivatives(2)	(528)		4,822		(1,474)		7,063
Net unrealized gains (losses) on equity securities	17,105		(84,227)		40,830		(127,849)
Net investment losses	$	(24,370)	$	(173,263)	$	(44,558)	$	(267,771)

(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 June 30,				Six months ended June 30,
	2023		2022		2023		2022
Balance at beginning of period	$	12,645	$	383	$	11,733	$	313
Expected credit losses on securities where credit losses were not previously recognized	3,742		6,899		4,355		6,908
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized	(1,223)		14		(304)		92
Impairments of securities which the Company intends to sell or more likely than not will be required to sell	—		—		—		—
Securities sold/redeemed/matured	(4,613)		(2)		(5,233)		(19)
Balance at end of period	$	10,551	$	7,294	$	10,551	$	7,294

j)     Reverse Repurchase Agreements

At June 30, 2023, the Company held $24 million (2022: $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.