Investments

During the fourth quarter of 2015, the Company enhanced disclosures around the allocation of invested assets and the related returns between managed and non-managed investments. Managed investments represent assets governed by the Company’s investment policy statement (“IPS”), whereas non-managed investments represent assets held in support of consolidated AlphaCat VIEs which are not governed by the Company’s IPS. Refer to Note 5, "Variable interest entities," for further details. As such, prior period disclosures have been revised to conform to current period presentation.

The Company classifies its fixed maturity and short-term investments as trading and accounts for its other investments in accordance with U.S. GAAP guidance for "Financial Instruments." As such, all investments are carried at fair value with interest and dividend income and realized and unrealized gains and losses included in net income for the period.

The amortized cost (or cost), gross unrealized gains and (losses) and fair value of the Company's investments as at June 30, 2016 were as follows:



	Amortized Cost (or Cost)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Managed investments
U.S. government and government agency	$	924,350	$	7,536	$	(83	)	$	931,803
Non-U.S. government and government agency	217,796		2,146		(4,692		)	215,250
U.S. states, municipalities, political subdivisions	278,756		7,049		(393		)	285,412
Agency residential mortgage-backed securities	662,468		14,713		(398		)	676,783
Non-agency residential mortgage-backed securities	23,858		271		(740		)	23,389
U.S. corporate	1,539,711		20,350		(4,014		)	1,556,047
Non-U.S. corporate	367,473		3,264		(6,331		)	364,406
Bank loans	613,414		574		(16,926		)	597,062
Asset-backed securities	429,890		2,352		(2,902		)	429,340
Commercial mortgage-backed securities	308,712		6,048		(727		)	314,033
Total fixed maturities	5,366,428		64,303		(37,206		)	5,393,525
Short-term investments	189,678		—		(50		)	189,628
Other investments
Fund of hedge funds	1,457		—		(498		)	959
Hedge funds	12,463		6,162		—			18,625
Private equity investments	62,119		14,457		(3,270		)	73,306
Investment funds	203,128		743		—			203,871
Overseas deposits	55,301		—		—			55,301
Mutual funds	4,201		3,263		—			7,464
Total other investments	338,669		24,625		(3,768		)	359,526
Total managed investments	$	5,894,775	$	88,928	$	(41,024	)	$	5,942,679
Non-managed investments
Catastrophe bonds	$	157,599	$	2,114	$	(1,652	)	$	158,061
Short-term investments	2,180,026		—		—			2,180,026
Total non-managed investments	2,337,625		2,114		(1,652		)	2,338,087
Total investments	$	8,232,400	$	91,042	$	(42,676	)	$	8,280,766

The amortized cost (or cost), gross unrealized gains and (losses) and fair value of the Company's investments as at December 31, 2015 were as follows:



	Amortized Cost (or Cost)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Managed investments
U.S. government and government agency	$	940,428	$	333	$	(3,559	)	$	937,202
Non-U.S. government and government agency	241,549		257		(3,838		)	237,968
U.S. states, municipalities, political subdivisions	299,929		2,322		(962		)	301,289
Agency residential mortgage-backed securities	606,676		6,361		(2,455		)	610,582
Non-agency residential mortgage-backed securities	27,025		310		(415		)	26,920
U.S. corporate	1,503,614		1,594		(15,257		)	1,489,951
Non-U.S. corporate	453,178		797		(7,405		)	446,570
Bank loans	592,981		275		(17,045		)	576,211
Asset-backed securities	440,363		344		(3,583		)	437,124
Commercial mortgage-backed securities	263,310		131		(3,306		)	260,135
Total fixed maturities	5,369,053		12,724		(57,825		)	5,323,952
Short-term investments	237,349		20		—			237,369
Other investments
Fund of hedge funds	1,457		—		(40		)	1,417
Hedge funds	14,018		6,962		—			20,980
Private equity investments	53,489		12,751		(2,469		)	63,771
Investment funds	188,121		600		—			188,721
Overseas deposits	54,484		—		—			54,484
Mutual funds	4,394		3,089		—			7,483
Total other investments	315,963		23,402		(2,509		)	336,856
Total managed investments	$	5,922,365	$	36,146	$	(60,334	)	$	5,898,177
Non-managed investments
Catastrophe bonds	$	187,847	$	635	$	(2,103	)	$	186,379
Short-term investments	1,704,266		—		—			1,704,266
Total non-managed investments	1,892,113		635		(2,103		)	1,890,645
Total investments	$	7,814,478	$	36,781	$	(62,437	)	$	7,788,822


(a)	Fixed maturity investments

The following table sets forth certain information regarding the investment ratings of the Company’s fixed maturity investments as at June 30, 2016 and December 31, 2015.



	June 30, 2016				December 31, 2015
	Fair Value		% of Total		Fair Value		% of Total
Managed fixed maturities
AAA	$	2,446,839	44.1	%	$	2,367,642	43.0	%
AA	508,086		9.2	%	569,386		10.3	%
A	1,045,965		18.8	%	1,031,326		18.7	%
BBB	741,800		13.4	%	691,538		12.6	%
Total investment grade managed fixed maturities	4,742,690		85.5	%	4,659,892		84.6	%

BB	227,436		4.0	%	235,724		4.3	%
B	183,127		3.3	%	179,069		3.2	%
CCC	8,331		0.2	%	5,706		0.1	%
CC	113		0.0	%	1,015		0.0	%
NR	231,828		4.2	%	242,546		4.4	%
Total non-investment grade managed fixed maturities	650,835		11.7	%	664,060		12.0	%
Total managed fixed maturities	$	5,393,525	97.2	%	$	5,323,952	96.6	%

Non-managed catastrophe bonds
BBB	$	—	0.0	%	$	1,911	0.0	%
Total investment grade non-managed catastrophe bonds	—		0.0	%	1,911		0.0	%

BB	41,412		0.7	%	70,962		1.3	%
B	6,161		0.1	%	30,698		0.6	%
NR	110,488		2.0	%	82,808		1.5	%
Total non-investment grade non-managed catastrophe bonds	158,061		2.8	%	184,468		3.4	%
Total non-managed fixed maturities	158,061		2.8	%	186,379		3.4	%
Total fixed maturities	$	5,551,586	100.0	%	$	5,510,331	100.0	%

The amortized cost and fair value amounts for the Company's fixed maturity investments held at June 30, 2016 and December 31, 2015 are shown below by contractual maturity. Actual maturity may differ from contractual maturity because certain borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.



	June 30, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Managed investments
Due in one year or less	$	349,115	$	348,137	$	367,132	$	366,019
Due after one year through five years	2,990,421		2,996,295		2,965,920		2,936,053
Due after five years through ten years	485,899		492,101		548,183		539,083
Due after ten years	116,065		113,447		150,444		148,036
	3,941,500		3,949,980		4,031,679		3,989,191
Asset-backed and mortgage-backed securities	1,424,928		1,443,545		1,337,374		1,334,761
Total managed fixed maturities	$	5,366,428	$	5,393,525	$	5,369,053	$	5,323,952

Non-managed catastrophe bonds
Due in one year or less	$	28,445	$	29,328	$	7,504	$	7,544
Due after one year through five years	128,614		128,185		165,093		163,575
Due after five years through ten years	540		548		15,250		15,260
Due after ten years	—		—		—		—
Total non-managed fixed maturities	157,599		158,061		187,847		186,379
Total fixed maturities	$	5,524,027	$	5,551,586	$	5,556,900	$	5,510,331


(b)	Other investments

The following tables set forth certain information regarding the Company's other investment portfolio as at June 30, 2016 and December 31, 2015:



Other investments	Fair Value as at June 30, 2016		Investments with redemption restrictions		Investments without redemption restrictions		Redemption frequency (a)	Redemption notice period (a)
Fund of hedge funds	$	959	$	959	$	—
Hedge funds	18,625		18,625		—
Private equity investments	73,306		73,306		—
Investment funds	203,871		181,536		22,335		Daily	2 days
Overseas deposits	55,301		55,301		—
Mutual funds	7,464		—		7,464		Daily	Daily
Total other investments	$	359,526	$	329,727	$	29,799


(a)	The redemption frequency and notice periods only apply to investments without redemption restrictions.



Other investments	Fair value as at December 31, 2015		Investments with redemption restrictions		Investments without redemption restrictions		Redemption frequency (a)	Redemption notice period (a)
Fund of hedge funds	$	1,417	$	1,417	$	—
Hedge funds	20,980		20,980		—
Private equity investments	63,771		63,771		—
Investment funds	188,721		167,910		20,811		Daily	2 days
Overseas deposits	54,484		54,484		—
Mutual funds	7,483		—		7,483		Daily	Daily
Total other investments	$	336,856	$	308,562	$	28,294


(a)	The redemption frequency and notice periods only apply to investments without redemption restrictions.

Other investments include alternative investments in various funds and pooled investment schemes. These alternative investments employ various investment strategies primarily involving, but not limited to, investments in collateralized obligations, fixed income securities, private equities, distressed debt and equity securities.

Certain securities included in other investments are subject to redemption restrictions and are unable to be redeemed from the funds. Distributions from these funds will be received as the underlying investments of the funds are liquidated. Currently, it is not known to the Company when these underlying assets will be sold by their investment managers; however, it is estimated that the majority of the underlying assets of the investments would liquidate over five to ten years from inception of the funds. In addition, one of the investment funds with a fair value of $171,187 (December 31, 2015: $167,910), has a lock-up period of three years as at June 30, 2016 and may also impose a redemption gate. A lock-up period refers to the initial amount of time an investor is contractually required to remain invested before having the ability to redeem. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash shortly after the redemption date. Furthermore, the underlying investments held in the overseas deposit funds are liquid and will generally trade freely in an open market. However, the Company's ability to withdraw from the overseas deposit funds is restricted by an annual and quarterly funding and release process for Lloyd's market participants.

The Company's maximum exposure to any of these alternative investments is limited to the amount invested and any remaining capital commitments. Refer to Note 15, "Commitments and contingencies," for further details. As at June 30, 2016, the Company does not have any plans to sell any of the other investments listed above.

(c)Net investment income

Net investment income was derived from the following sources:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Managed investments
Fixed maturities and short-term investments	$	30,621		$	29,433		$	58,638		$	57,106
Other investments	8,026			4,014			8,898			7,202
Restricted cash, cash and cash equivalents	380			427			1,245			843
Securities lending income	12			6			17			9
Total gross investment income	39,039			33,880			68,798			65,160
Investment expenses	(2,190		)	(2,026		)	(4,026		)	(3,870		)
Total managed net investment income	$	36,849		$	31,854		$	64,772		$	61,290
Non managed investments
Fixed maturities and short-term investments	$	1,977		$	1,733		$	3,272		$	3,307
Restricted cash, cash and cash equivalents	431			24			674			43
Total non-managed net investment income	2,408			1,757			3,946			3,350
Total net investment income	$	39,257		$	33,611		$	68,718		$	64,640

Managed net investment income from other investments includes distributed and undistributed net income from certain investment funds.


(d)	Net realized gains and change in net unrealized gains (losses) on investments

The following represents an analysis of net realized gains and the change in net unrealized gains (losses) on investments:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Managed fixed maturities, short-term and other investments
Gross realized gains	$	3,306		$	6,140		$	6,523		$	12,449
Gross realized (losses)	(786		)	(4,036		)	(5,089		)	(6,165		)
Net realized gains on investments	2,520			2,104			1,434			6,284
Change in net unrealized gains (losses) on investments	30,052			(33,926		)	77,130			743
Total net realized and change in net unrealized gains (losses) on managed investments	$	32,572		$	(31,822	)	$	78,564		$	7,027
Non-managed fixed maturities, short-term and other investments
Gross realized gains	$	204		$	140		$	715		$	140
Gross realized (losses)	—			—			(9		)	(11		)
Net realized gains on investments	204			140			706			129
Change in net unrealized (losses) on investments	1,376			(750		)	1,742			(2,192		)
Total net realized and change in net unrealized (losses) on non-managed investments	1,580			(610		)	2,448			(2,063		)
Total net realized and change in net unrealized gains (losses) on total investments	$	34,152		$	(32,432	)	$	81,012		$	4,964


(e)	Pledged investments

The following tables outline investments and cash pledged as collateral under the Company's credit facilities. For further details on the credit facilities, please refer to Note 13, “Debt and financing arrangements.”



	June 30, 2016
Description	Commitment		Issued and Outstanding		Investments and cash pledged as collateral
$85,000 syndicated unsecured letter of credit facility	$	85,000	$	—	$	—
$300,000 syndicated secured letter of credit facility	300,000		105,575		151,166
$24,000 secured bi-lateral letter of credit facility	24,000		11,805		48,380
AlphaCat Re secured letter of credit facility	20,000		20,000		30,191
IPC bi-lateral facility	25,000		5,666		—
$236,000 Flagstone bi-lateral facility	236,000		195,622		322,520
Total	$	690,000	$	338,668	$	552,257



	December 31, 2015
Description	Commitment		Issued and Outstanding		Investments and cash pledged as collateral
$85,000 syndicated unsecured letter of credit facility	$	85,000	$	—	$	—
$300,000 syndicated secured letter of credit facility	300,000		235,540		370,909
$24,000 secured bi-lateral letter of credit facility	24,000		10,543		47,607
AlphaCat Re secured letter of credit facility	30,000		30,000		30,153
IPC bi-lateral facility	25,000		9,241		—
$236,000 Flagstone bi-lateral facility	236,000		193,764		377,866
Total	$	700,000	$	479,088	$	826,535

In addition, $4,687,599 of cash and cash equivalents, restricted cash, short-term investments and fixed maturity investments were pledged during the normal course of business as at June 30, 2016 (December 31, 2015: $4,056,788). Of those, $4,564,394 were held in trust (December 31, 2015: $4,007,215). Pledged assets are generally for the benefit of the Company's cedants and policyholders, to support AlphaCat's fully collateralized reinsurance transactions and to facilitate the accreditation of Validus Reinsurance, Ltd., Validus Reinsurance (Switzerland) Ltd. ("Validus Re Swiss") and Talbot as an alien insurer/reinsurer by certain regulators.

During December 2014, Validus Reinsurance, Ltd. established a Multi-Beneficiary Reinsurance Trust ("MBRT") to collateralize its (re)insurance liabilities associated with and for the benefit of U.S. domiciled cedants, and was approved as a trusteed reinsurer in the State of New Jersey. As a result, cedants domiciled in that state will receive automatic credit in their regulatory filings for the reinsurance provided prospectively by the Company. As of June 30, 2016, Validus Reinsurance, Ltd. was approved as a trusteed reinsurer in 48 states as well as Puerto Rico and the District of Columbia. In addition, Validus Re Swiss established a MBRT in December 2015 and was approved as a trusteed reinsurer in 9 states as at June 30, 2016.