Variable interest entities

The Company consolidates all VIEs in which it is considered to be the primary beneficiary. The Company’s VIEs are primarily entities in the AlphaCat segment.


(a)	Consolidated VIEs

AlphaCat sidecars

Beginning on May 25, 2011, the Company joined with other investors in capitalizing a series of reinsurance and investment entities, referred to as “sidecars,” for the purpose of investing in collateralized reinsurance and retrocessional contracts. Certain of these sidecars deployed their capital through transactions entered into by AlphaCat Reinsurance Ltd. (“AlphaCat Re”). Each of these entities returns capital once the risk period expires and all losses have been paid out. The AlphaCat sidecars are VIEs and are consolidated by the Company. The Company’s maximum exposure to any of these sidecars is the amount of capital invested at any given time.

AlphaCat ILS funds

The AlphaCat ILS funds received third party subscriptions beginning on December 17, 2012. The Company and third party investors invest in the AlphaCat ILS funds for the purpose of investing in instruments with returns linked to property catastrophe reinsurance, retrocession and ILS contracts. The AlphaCat ILS funds have varying risk profiles and are categorized by the maximum permitted portfolio expected loss of the fund. The maximum permitted portfolio expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit. Lower risk ILS funds are defined as having a maximum permitted portfolio expected loss of less than 7%, whereas higher risk ILS funds have a maximum permitted portfolio expected loss of 7% or greater. The AlphaCat ILS funds primarily deploy their capital through transactions entered into by AlphaCat Re and AlphaCat Master Fund Ltd. (“AlphaCat Master Fund”). All of the AlphaCat ILS funds are VIEs and were consolidated by the Company through May 31, 2017. However, on June 1, 2017, the Company redeemed its investment in one of the lower risk AlphaCat ILS funds. As a result, the Company was no longer deemed to be the primary beneficiary and therefore this fund was deconsolidated effective June 1, 2017. The Company recognized a loss upon redemption of $402, which has been included in the Consolidated Statements of Comprehensive (Loss) Income within other insurance related income for the year ended December 31, 2017.

The Company’s maximum exposure to any of the funds is the amount of capital invested at any given time and any remaining capital commitments.

AlphaCat Re and AlphaCat Master Fund

The Company utilizes AlphaCat Re and AlphaCat Master Fund (collectively the “Master Funds”), both market facing entities, for the purpose of writing collateralized reinsurance and investing in capital markets products, respectively, on behalf of certain entities within the Asset Management segment and direct third party investors. AlphaCat Re enters into transactions on behalf of the AlphaCat sidecars and ILS funds (collectively the “Feeder Funds”) and direct third party investors, whereas AlphaCat Master Fund only enters into transactions on behalf of certain AlphaCat ILS funds. All of the risks and rewards of the underlying transactions are allocated to the Feeder Funds and direct third party investors using variable funding notes. The Master Funds are VIEs and are consolidated by the Company.

Notes Payable to AlphaCat Investors

The Master Funds issue variable funding notes to the Feeder Funds, and direct to third party investors, in order to write collateralized reinsurance and invest in capital markets products on their behalf. The Company’s investments in the Feeder Funds, together with investments made by third parties in the Feeder Funds and on a direct basis, are provided as consideration for the notes to the Master Funds. The duration of the underlying collateralized reinsurance contracts and capital market products is typically twelve months; however, the variable funding notes do not have a stated maturity date or principal amount since repayment is dependent on the settlement and income or loss of the underlying transactions. Therefore, the notes are redeemed as the underlying transactions are settled. The income or loss generated by the underlying transactions is then transferred to the Feeder Funds and direct third party investors via the variable funding notes.

Any notes issued by the Master Funds to the consolidated Feeder Funds are eliminated on consolidation and only variable funding notes issued by AlphaCat Re directly to third party investors and non-consolidated Feeder Funds remain on the Consolidated Balance Sheets as notes payable to AlphaCat investors with the related income or loss included in the Consolidated Statements of Income and Comprehensive Income as loss (income) attributable to AlphaCat investors. To the extent that the income has not been returned to the investors, it is included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

During 2017 and 2016, one of the AlphaCat ILS funds (the “Fund”) issued both common shares and structured notes to the Company and third party investors in order to capitalize the fund. The Fund deploys its capital through AlphaCat Re; therefore, the structured notes do not have a stated maturity date since repayment is dependent on the settlement and income or loss of the variable funding notes with AlphaCat Re. The structured notes rank senior to the common shares of the Fund and earn an interest rate of 7% (2016: 8%) per annum, payable on a cumulative basis in arrears.

As the Fund is consolidated by the Company, the structured notes issued to the Company are eliminated on consolidation and only the structured notes issued to third party investors remain on the Consolidated Balance Sheets as notes payable to AlphaCat investors, with any related interest included in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income as loss (income) attributable to AlphaCat investors. To the extent that the accrued interest on the structured notes has not been returned to the investors, it is included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

The following tables present reconciliations of the beginning and ending notes payable to AlphaCat investors during the years ended December 31, 2017 and 2016:



	Year Ended December 31, 2017
	Variable Funding Notes			Structured Notes			Total
Notes payable to AlphaCat investors, beginning of year	$	278,202		$	—		$	278,202
Notes payable to AlphaCat investors recognized on deconsolidation of AlphaCat ILS fund	423,269			—			423,269
Issuance of notes payable to AlphaCat investors	601,913			172,200			774,113
Redemption of notes payable to AlphaCat investors	(367,733		)	—			(367,733		)
Foreign exchange losses	513			—			513
Notes payable to AlphaCat investors, end of year	$	936,164		$	172,200		$	1,108,364

	Year Ended December 31, 2016
	Variable Funding Notes			Structured Notes			Total
Notes payable to AlphaCat investors, beginning of year	$	75,493		$	—		$	75,493
Issuance of notes payable to AlphaCat investors	311,711			94,326			406,037
Redemption of notes payable to AlphaCat investors	(109,712		)	(94,326		)	(204,038		)
Foreign exchange losses	710			—			710
Notes payable to AlphaCat investors, end of year	$	278,202		$	—		$	278,202

As at December 31, 2016, $1,000 of the structured notes redeemed were payable to AlphaCat investors and included in accounts payable and accrued expenses.

The loss attributable to AlphaCat investors for the year ended December 31, 2017 was $16,929 (2016: income of $23,358). As at December 31, 2017, amounts due to AlphaCat investors totaling $18,054 (December 31, 2016: $17,068) were included in accounts payable and accrued expenses.

BetaCat ILS funds

The BetaCat ILS funds follow a passive buy-and-hold investment strategy, investing exclusively in catastrophe bonds (principal-at-risk variable rate notes and other event-linked securities, referred to collectively as “Cat Bonds”) focused on property and casualty risks and issued under Rule 144A of the Securities Act of 1933, as amended. Two of the three BetaCat ILS funds are VIEs, one of which is consolidated by the Company. The remaining fund is a VOE and is consolidated by the Company as it owns all of the voting equity interests. The Company’s maximum exposure to any of the funds is the amount of capital invested at any given time.

The following table presents the total assets and total liabilities of the Company’s consolidated VIEs, excluding intercompany eliminations, as at December 31, 2017 and 2016:



	December 31, 2017				December 31, 2016
	Total Assets		Total Liabilities		Total Assets		Total Liabilities
AlphaCat sidecars	$	25,975	$	3,267	$	40,041	$	3,206
AlphaCat ILS funds - Lower Risk	1,107,503		259,630		1,498,276		42,457
AlphaCat ILS funds - Higher Risk	1,310,071		912,341		972,633		381,332
AlphaCat Re and AlphaCat Master Fund	3,398,082		3,397,912		2,510,415		2,510,245
BetaCat ILS funds	77,221		261		82,471		30,663

Assets of consolidated VIEs can only be used to settle obligations and liabilities of the consolidated VIEs and do not have recourse to the general credit of the Company. Investments held by these entities are presented separately in Note 7, “Investments,” as non-managed investments.


(a)	Non-Consolidated VIEs

The Company invests in private equity and other investment vehicles as part of the Company’s investment portfolio. The activities of these VIEs are generally limited to holding investments and the Company’s involvement in these entities is passive in nature. The Company’s maximum exposure to the VIEs is the amount of capital invested at any given time, and the Company does not have the power to direct the activities which most significantly impact the VIEs economic performance. The Company is therefore not the primary beneficiary of these VIEs. See Note 7, “Investments,” for further details.