Investments in affiliates

The following table presents the Company's investments in affiliates as at March 31, 2014 and December 31, 2013:



	As at March 31, 2014		As at December 31, 2013
Investment affiliate	$	39,848	$	34,500
Operating affiliates	181,759		106,743
Investments in affiliates	$	221,607	$	141,243


(a)	Investment affiliate

Aquiline Financial Services Fund II L.P.

On December 20, 2011, the Company entered into an Assignment and Assumption Agreement (the "Agreement") with Aquiline Capital Partners LLC, a Delaware limited liability company (the "Assignor") and Aquiline Capital Partners II GP (Offshore) Ltd., a Cayman Islands company limited by shares (the "General Partner") pursuant to which the Company has assumed 100% of the Assignor's interest in Aquiline Financial Services Fund II L.P. (the "Partnership") representing a total capital commitment of $50,000 (the "Commitment"), as a limited partner in the Partnership (the "Transferred Interest"). The Transferred Interest is governed by the terms of an Amended and Restated Exempted Limited Partnership Agreement dated as of July 2, 2010 (the "Limited Partnership Agreement"). Pursuant to the terms of the Limited Partnership Agreement, the Commitment will expire on July 2, 2015.

The Partnership provides quarterly capital account statements with a three-month delay in its valuation. As a result, the Partnership's December 31, 2013 capital account statement was used as the basis for calculating the Company's share of Partnership income for the period.

The following table presents a reconciliation of the beginning and ending investment in the Company's investment affiliate balance for the three months ended March 31, 2014 and 2013:



	Three Months Ended
	March 31, 2014		March 31, 2013
Investment affiliate, beginning of period	$	34,500	$	15,218
Capital contributions	—		1,341
Income from investment affiliate	5,348		1,477
Investment affiliate, end of period	$	39,848	$	18,036

The following table presents the Company's investment in the Partnership as at March 31, 2014:



	Investment in investment affiliate
	Investment at cost		Voting ownership %		Equity Ownership		Carrying Value
Aquiline Financial Services Fund II L.P.	$	32,110	—	%	6.7	%	$	39,848

The following table presents the Company's investment in the Partnership as at December 31, 2013:



	Investment in investment affiliate
	Investment at cost		Voting ownership %		Equity Ownership		Carrying Value
Aquiline Financial Services Fund II L.P.	$	32,110	—	%	6.7	%	$	34,500


(b)	Operating affiliates

AlphaCat Re 2011 Ltd.

On May 25, 2011, the Company joined with other investors in capitalizing AlphaCat Re 2011 Ltd. ("AlphaCat Re 2011"), a special purpose reinsurer formed for the purpose of writing collateralized reinsurance and retrocessional reinsurance. AlphaCat Re 2011 was a market facing entity and the Company's investment in AlphaCat Re 2011 has been treated as an equity method investment.

AlphaCat Re 2011 is now considered "off-risk" as the risk periods for all reinsurance contracts written have expired. As a result, partial returns of investment have been made to the investors of AlphaCat Re 2011.The Company's portion of the returns made during the three months ended March 31, 2014 and 2013 are included in the tables below.

AlphaCat Re 2012 Ltd.

On May 29, 2012, the Company joined with other investors in capitalizing AlphaCat Re 2012 Ltd. ("AlphaCat Re 2012"), a special purpose reinsurer formed for the purpose of writing collateralized reinsurance with a particular focus on windstorm risks for Florida domiciled insurance companies. AlphaCat Re 2012 was a market facing entity and the Company's investment in AlphaCat Re 2012 has been treated as an equity method investment.

AlphaCat Re 2012 is now considered "off-risk" as the risk periods for all reinsurance contracts written have expired. As a result, partial returns of investment have been made to the investors of AlphaCat Re 2012.The Company's portion of the returns made during the three months ended March 31, 2014 and 2013 are included in the tables below.

AlphaCat 2013, Ltd.

On December 17, 2012, the Company joined with other investors in capitalizing AlphaCat 2013, Ltd. ("AlphaCat 2013"), an entity formed for the purpose of investing in collateralized reinsurance and retrocession on a worldwide basis. AlphaCat 2013 deployed its capital through transactions entered into by AlphaCat Reinsurance Ltd. (“AlphaCat Re”) and the Company's investment in AlphaCat 2013 has been treated as an equity method investment.

Partial returns of investment have been made to the investors of AlphaCat 2013.The Company's portion of the returns made during the three months ended March 31, 2014 are included in the tables below.

AlphaCat 2014, Ltd.

On December 20, 2013, the Company joined with other investors in capitalizing AlphaCat 2014, Ltd. (“AlphaCat 2014”), an entity formed for the purpose of investing in collateralized reinsurance and retrocessional contracts for the January 1, 2014 renewal season. AlphaCat 2014 deploys its capital through transactions entered into by AlphaCat Re and the Company's investment in AlphaCat 2014 has been treated as an equity method investment.

AlphaCat ILS funds

The AlphaCat ILS funds invest in instruments with returns linked to property catastrophe reinsurance, retrocession and insurance linked securities ("ILS") contracts. AlphaCat ILS funds all deploy their capital through the AlphaCat Master Fund Ltd. (the “Master Fund”) and AlphaCat Re. All three funds are variable interest entities, with one being consolidated by the Company as the primary beneficiary and one being accounted for as an equity method investment since the Company holds an equity interest of 9.1%. The third fund had been consolidated by the Company as the primary beneficiary from its formation through to December 31, 2013. However, on January 1, 2014 the fund received $35,000 in additional third party subscriptions, resulting in a reduction of the Company’s equity interest below 50%. Since the Company retains significant influence, this fund has been deconsolidated and accounted for as an equity method investment from January 1, 2014. The fair value of the retained interest, based on the fair value of the underlying instruments in Master Fund and AlphaCat Re, amounted to $113,455 at January 1, 2014. The deconsolidation resulted in a gain of $1,372 and is included in the Consolidated Statements of Comprehensive Income as other income. The Company's maximum exposure to any of the funds is the amount of capital invested at any given time.

AlphaCat Master Fund Ltd. and AlphaCat Reinsurance Ltd.

The Company utilizes Master Fund and AlphaCat Re for the purpose of investing in capital market products and writing collateralized reinsurance, respectively, on behalf of certain entities within the AlphaCat operating segment. Master Fund and AlphaCat Re are market facing entities which enter into transactions on behalf of AlphaCat 2013, AlphaCat 2014 and the AlphaCat ILS funds. The Company owns all of the voting equity interest in Master Fund and AlphaCat Re and, as a result, their financial statements are included in the Consolidated Financial Statements of the Company.

The following tables present a reconciliation of the beginning and ending investment in operating affiliates for the three months ended March 31, 2014 and 2013:



	AlphaCat Re 2011			AlphaCat Re 2012			AlphaCat 2013			AlphaCat 2014		AlphaCat ILS funds		Total
As at December 31, 2013	$	9,809		$	1,313		$	51,744		$	21,982	$	21,895	$	106,743
Return of investment	(5,825		)	—			(37,541		)	—		—		(43,366		)
Fair value of retained interest on deconsolidation of AlphaCat ILS fund	—			—			—			—		113,455		113,455
Income (loss) from operating affiliates	193			(36		)	1,475			1,611		1,684		4,927
As at March 31, 2014	$	4,177		$	1,277		$	15,678		$	23,593	$	137,034	$	181,759



	Three Months Ended March 31, 2013
	AlphaCat Re 2011			AlphaCat Re 2012			AlphaCat 2013		AlphaCat ILS fund		Total
As at December 31, 2012	$	62,792		$	29,319		$	45,000	$	20,000	$	157,111
Return of investment	(46,436		)	(3,786		)	—		—		(50,222		)
Income from operating affiliates	449			1,825			1,100		149		3,523
As at March 31, 2013	$	16,805		$	27,358		$	46,100	$	20,149	$	110,412

The following table presents the Company's investments in AlphaCat Re 2011, AlphaCat Re 2012, AlphaCat 2013, AlphaCat 2014 and the AlphaCat ILS funds in the Consolidated Financial Statements as at March 31, 2014:



	Investment in operating affiliates
	Cost		Voting ownership %		Equity ownership %		Carrying value
AlphaCat Re 2011	$	4,178	43.7	%	22.3	%	$	4,177
AlphaCat Re 2012	654		49.0	%	37.9	%	1,277
AlphaCat 2013	16,454		40.9	%	19.7	%	15,678
AlphaCat 2014	22,000		42.3	%	19.6	%	23,593
AlphaCat ILS funds (a)	133,455		n/a		n/a		137,034
Total	$	176,741					$	181,759


(a)	Equity ownerships in the two funds were 9.1% and 49.7% respectively as at March 31, 2014.

The following table presents the Company's investments in AlphaCat Re 2011, AlphaCat Re 2012, AlphaCat 2013, AlphaCat 2014 and the AlphaCat ILS fund in the Consolidated Financial Statements as at December 31, 2013:



	Investment in operating affiliates
	Cost		Voting ownership %		Equity ownership %		Carrying value
AlphaCat Re 2011	$	9,882	43.7	%	22.3	%	$	9,809
AlphaCat Re 2012	654		49.0	%	37.9	%	1,313
AlphaCat 2013	45,000		40.9	%	19.7	%	51,744
AlphaCat 2014	22,000		42.3	%	19.6	%	21,982
AlphaCat ILS fund	20,000		—	%	9.1	%	21,895
Total	$	97,536					$	106,743


(c)	Notes payable and (income) attributable to operating affiliates

Notes are issued during the course of a year by Master Fund and AlphaCat Re to AlphaCat 2013, AlphaCat 2014 and the AlphaCat ILS funds (collectively the “feeder funds”) in order to fund the purchase of capital market products and to write collateralized reinsurance on their behalf. These notes are subsequently redeemed as the underlying transactions are settled. The Company’s investments in the feeder funds, together with investments made by third parties, are provided as consideration for these notes to Master Fund and AlphaCat Re, which are consolidated in the Company’s Consolidated Financial Statements. The effective economic interest in Master Fund and AlphaCat Re that results from these transactions is represented on the Consolidated Balance Sheet as notes payable to operating affiliates. The subsequent income or loss generated by the relevant capital market products or collateralized reinsurance is transferred to the operating affiliates as (income) loss attributable to operating affiliate investors in the Company’s Consolidated Statements of Comprehensive Income. To the extent that the (income) loss attributable to operating affiliate investors has not been returned to investors, it is included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

Notes issued during the three months ended March 31, 2014 amounted to $334,444 (2013: $294,349). The underlying capital market products and collateralized reinsurance typically have at least a twelve month duration. The notes do not have any principal amount, since the final amount payable is dependent on the income or loss as discussed above. They also do not have any stated maturity date, since repayment is dependent on the settlement of the underlying transactions. During the three months ended March 31, 2014 there have been repayments of these notes amounting to $391,115 (2013: $nil).

The following tables present a reconciliation of the beginning and ending notes payable to operating affiliates for the three months ended March 31, 2014 and 2013:



	AlphaCat 2013			AlphaCat 2014		AlphaCat ILS funds			Total
As at December 31, 2013	$	223,809		$	—	$	215,463		$	439,272
Notes payable to operating affiliates recognized on deconsolidation of AlphaCat ILS fund	—			—		178,837			178,837
Issuance of notes payable to operating affiliates	—			149,707		184,737			334,444
Redemption of notes payable to operating affiliates	(175,349		)	—		(215,766		)	(391,115		)
Foreign exchange (gain) loss	(297		)	109		123			(65		)
As at March 31, 2014	$	48,163		$	149,816	$	363,394		$	561,373



	AlphaCat 2013			AlphaCat ILS funds			Total
As at December 31, 2012	$	—		$	—		$	—
Issuance of notes payable to operating affiliates	162,506			131,843			294,349
Foreign exchange gain	(1,067		)	(2,694		)	(3,761		)
As at March 31, 2013	$	161,439		$	129,149		$	290,588

The portion of notes payable to operating affiliates that were due to the Company, as an investor in the affiliates, and third party investors as at March 31, 2014 amounted to $141,343 and $420,030, respectively (December 31, 2013: $63,654 and $375,618).

The following table presents the (income) attributable to operating affiliate investors for the three months ended March 31, 2014 and 2013:



	March 31, 2014			March 31, 2013
AlphaCat 2013	$	(10,476	)	$	(8,141	)
AlphaCat 2014	(10,789		)	—
AlphaCat ILS funds	(10,445		)	(1,936		)
(Income) attributable to operating affiliate investors	$	(31,710	)	$	(10,077	)

The portion of income attributable to operating affiliate investors that was due to the Company, as an investor in the affiliates, and third party investors for the three months ended March 31, 2014 amounted to $6,472 and $25,238, respectively (2013: $1,847 and $8,230).