4. INVESTMENTS

Trading

The estimated fair values of the Company’s investments in fixed maturity investments, short-term investments and equities classified as trading securities were as follows:


	March 31,		December 31,
	2014		2013
U.S. government and agency	$	401,584	$	439,946
Non-U.S. government		444,279		476,224
Corporate		2,109,014		2,123,675
Municipal		34,545		41,034
Residential mortgage-backed		233,348		218,457
Commercial mortgage-backed		127,664		114,637
Asset-backed		268,740		248,748

Total fixed maturity and short-term investments		3,619,174		3,662,721
Equities - U.S.		107,341		115,285
Equities - International		51,333		66,748

	$	3,777,848	$	3,844,754

Included within residential and commercial mortgage-backed securities as at March 31, 2014 were securities issued by U.S. governmental agencies with a fair value of $188.3 million (as at December 31, 2013: $177.9 million).

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity and short-term investments classified as trading:


As at March 31, 2014	Fair Value		% of Total Fair Value
AAA	$	517,665		14.3	%
AA		1,417,658		39.1	%
A		1,156,852		32.0	%
BBB or lower		505,664		14.0	%
Not Rated		21,335		0.6	%

	$	3,619,174		100.0	%


As at December 31, 2013	Fair Value		% of Total Fair Value
AAA	$	502,057		13.7	%
AA		1,430,107		39.1	%
A		1,191,142		32.5	%
BBB or lower		461,614		12.6	%
Not Rated		77,801		2.1	%

	$	3,662,721		100.0	%

Held-to-maturity

The Company holds a portfolio of held-to-maturity securities to support the Pavonia annuity business. The amortized cost and estimated fair values of the Company’s fixed maturity securities classified as held-to-maturity were as follows:


					Gross
			Gross		Unrealized
			Unrealized		Holding
	Amortized		Holding		Losses			Fair
	Cost		Gains		Non-OTTI			Value
As at March 31, 2014
U.S. government and agency	$	19,841	$	8	$	(1,227	)	$	18,622
Non-U.S. government		32,253		40		(1,074	)		31,219
Corporate		804,124		1,050		(27,624	)		777,550

	$	856,218	$	1,098	$	(29,925	)	$	827,391


					Gross
			Gross		Unrealized
			Unrealized		Holding
	Amortized		Holding		Losses			Fair
	Cost		Gains		Non-OTTI			Value
As at December 31, 2013
U.S. government and agency	$	19,992	$	6	$	(1,866	)	$	18,132
Non-U.S. government		23,592		19		(1,284	)		22,327
Corporate		815,803		105		(56,808	)		759,100

	$	859,387	$	130	$	(59,958	)	$	799,559

As at March 31, 2014 and December 31, 2013, none of these securities were considered to be other than temporarily impaired.

The contractual maturities of the Company’s fixed maturity securities classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


As at March 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
Due in one year or less	$	22,554	$	22,591		2.7	%
Due after one year through five years		82,988		82,574		10.0	%
Due after five years through ten years		131,317		127,759		15.4	%
Due after ten years		619,359		594,467		71.9	%

	$	856,218	$	827,391		100.0	%


As at December 31, 2013	Amortized Cost		Fair Value		% of Total Fair Value
Due in one year or less	$	17,541	$	17,579		2.2	%
Due after one year through five years		87,698		86,611		10.8	%
Due after five years through ten years		133,102		126,541		15.8	%
Due after ten years		621,046		568,828		71.2	%

	$	859,387	$	799,559		100.0	%

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity investments classified as held-to-maturity:


As at March 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	66,044	$	63,038		7.6	%
AA		191,778		183,635		22.2	%
A		502,994		486,935		58.8	%
BBB or lower		94,975		93,355		11.3	%
Not Rated		427		428		0.1	%

	$	856,218	$	827,391		100.0	%


As at December 31, 2013	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	47,949	$	44,552		5.6	%
AA		259,163		239,188		29.9	%
A		496,986		463,001		57.9	%
BBB or lower		54,759		52,282		6.5	%
Not Rated		530		536		0.1	%

	$	859,387	$	799,559		100.0	%

Available-for-sale

The amortized cost and estimated fair values of the Company’s fixed maturity and short-term investments classified as available-for-sale were as follows:


					Gross
			Gross		Unrealized
			Unrealized		Holding
	Amortized		Holding		Losses			Fair
As at March 31, 2014	Cost		Gains		Non-OTTI			Value
U.S. government and agency	$	13,993	$	266	$	(32	)	$	14,227
Non-U.S. government		81,906		1,608		(616	)		82,898
Corporate		86,697		1,490		(115	)		88,072
Residential mortgage-backed		4,454		97		(3	)		4,548
Asset-backed		51,567		27		(30	)		51,564

	$	238,617	$	3,488	$	(796	)	$	241,309


					Gross
			Gross		Unrealized
			Unrealized		Holding
	Amortized		Holding		Losses			Fair
As at December 31, 2013	Cost		Gains		Non-OTTI			Value
U.S. government and agency	$	28,050	$	303	$	(10	)	$	28,343
Non-U.S. government		84,443		1,871		(22	)		86,292
Corporate		76,942		1,221		(259	)		77,904
Residential mortgage-backed		17,523		102		(118	)		17,507
Asset-backed		36,344		4		(30	)		36,318

	$	243,302	$	3,501	$	(439	)	$	246,364

Included within residential mortgage-backed securities as at March 31, 2014 were securities issued by U.S. governmental agencies with a fair value of $1.1 million (as at December 31, 2013: $12.5 million).

The following tables summarize the Company’s fixed maturity and short-term investments classified as available-for-sale in an unrealized loss position as well as the aggregate fair value and gross unrealized loss by length of time the securities have continuously been in an unrealized loss position:


	12 Months or Greater				Less Than 12 Months					Total
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
As at March 31, 2014	Value		Losses		Value		Losses			Value		Losses
U.S. government and agency	$	—	$	—	$	7,234	$	(32	)	$	7,234	$	(32	)
Non-U.S. government		—		—		21,758		(616	)		21,758		(616	)
Corporate		—		—		35,416		(115	)		35,416		(115	)
Residential mortgage-backed		—		—		1,516		(3	)		1,516		(3	)
Asset-backed		—		—		23,609		(30	)		23,609		(30	)

	$	—	$	—	$	89,533	$	(796	)	$	89,533	$	(796	)


	12 Months or Greater				Less Than 12 Months					Total
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
As at December 31, 2013	Value		Losses		Value		Losses			Value		Losses
U.S. government and agency	$	—	$	—	$	11,416	$	(10	)	$	11,416	$	(10	)
Non-U.S. government		—		—		20,406		(22	)		20,406		(22	)
Corporate		—		—		51,478		(259	)		51,478		(259	)
Residential mortgage-backed		—		—		13,632		(118	)		13,632		(118	)
Asset-backed		—		—		24,898		(30	)		24,898		(30	)

	$	—	$	—	$	121,830	$	(439	)	$	121,830	$	(439	)

As at March 31, 2014 and December 31, 2013, the number of securities classified as available-for-sale in an unrealized loss position was 97 and 135, respectively, with a fair value of $89.5 million and $121.8 million, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was nil. As of March 31, 2014, none of these securities were considered to be other than temporarily impaired.

The contractual maturities of the Company’s fixed maturity and short-term investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


As at March 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
Due in one year or less	$	29,022	$	29,325		12.1	%
Due after one year through five years		147,873		149,441		61.9	%
Due after five years through ten years		2,935		2,912		1.2	%
Due after ten years		2,766		3,519		1.5	%

		182,596		185,197		76.7	%
Residential mortgage-backed		4,454		4,548		1.9	%
Asset-backed		51,567		51,564		21.4	%

	$	238,617	$	241,309		100.0	%


As at December 31, 2013	Amortized Cost		Fair Value		% of Total Fair Value
Due in one year or less	$	45,295	$	45,596		18.5	%
Due after one year through five years		141,400		143,445		58.2	%
Due after five years through ten years		69		70		0.1	%
Due after ten years		2,671		3,428		1.4	%

		189,435		192,539		78.2	%
Residential mortgage-backed		17,523		17,507		7.1	%
Asset-backed		36,344		36,318		14.7	%

	$	243,302	$	246,364		100.0	%

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity and short-term investments classified as available-for-sale:


As at March 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	138,462	$	139,369		57.8	%
AA		53,404		53,980		22.4	%
A		36,834		37,683		15.6	%
BBB or lower		9,917		10,277		4.2	%

	$	238,617	$	241,309		100.0	%


As at December 31, 2013	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	125,729	$	127,433		51.7	%
AA		74,692		75,181		30.5	%
A		33,834		34,607		14.1	%
BBB or lower		8,957		8,963		3.6	%
Not Rated		90		180		0.1	%

	$	243,302	$	246,364		100.0	%

Other-Than-Temporary Impairment Process

The Company assesses whether declines in the fair value of its fixed maturity investments classified as available-for-sale and held-to-maturity represent impairment losses that are other-than-temporary and whether a credit loss exists in accordance with its accounting policies. In assessing whether it is more likely than not that the Company will be required to sell a fixed maturity investment before its anticipated recovery, the Company considers various factors including its future cash flow requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short-term investments and fixed maturity investments available-for-sale in an unrealized gain position, and other relevant factors. For the three months ended March 31, 2014, the Company did not recognize any other-than-temporary impairment losses due to required sales. The Company determined that, as at March 31, 2014, no credit losses existed.

Other Investments

The estimated fair values of the Company’s other investments were as follows:


	March 31,		December 31,
	2014		2013
Private equity funds	$	191,452	$	161,229
Fixed income funds		222,004		194,375
Fixed income hedge funds		69,547		68,157
Equity funds		128,110		109,355
Real estate debt fund		32,469		32,113
Other		3,183		4,064

	$	646,765	$	569,293

Private equity funds

This class comprises several private equity funds that invest primarily in the financial services industry. All of the Company’s investments in private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit the Company’s ability to liquidate those investments. These restrictions have been in place since the dates the initial investments were made by the Company.

As of March 31, 2014 and December 31, 2013, the Company had $191.5 million and $161.2 million, respectively, of other investments recorded in private equity funds, which represented 2.8% and 2.5% of total investments, cash and cash equivalents and restricted cash and cash equivalents at March 31, 2014 and December 31, 2013, respectively. Due to a lag in the valuations reported by the managers, the Company records changes in the investment value with up to a three-month lag. Management regularly reviews and discusses fund performance with their fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments.

Fixed income funds

This class comprises a number of positions in diversified fixed income funds that are managed by third party managers. Underlying investments vary from high grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily to monthly.

Fixed income hedge funds

This class comprises hedge funds that invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of three years from the time of the Company’s initial investment. Once eligible, redemptions will be permitted quarterly with 90 days’ notice. Some of the funds were eligible for redemption in March 2014.

Equity funds

This class comprises equity funds that invest in a diversified portfolio of international publicly-traded equity securities.

Real estate debt fund

This class comprises a real estate debt fund that invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made 10 days after the date of any monthly valuation; the fund states that it will make commercially reasonable efforts to redeem the investment within the next monthly period.

Other

This class primarily comprises a fund that provides loans to educational institutions throughout the U.S. and its territories. Through these investments, the Company participates in the performance of the underlying loan pools. This investment matures when the loans are paid down and cannot be redeemed before maturity.

Redemption restrictions on other investments

Certain funds included in other investments are subject to a lock-up period. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem the investment. Funds that do provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, which is called a “gate.” The fund may restrict redemptions because the aggregate amount of redemption requests as of a particular date exceeds a specified level. The gate is a method for executing an orderly redemption process that allows for redemption requests to be executed in a timely manner to reduce the possibility of adversely affecting the remaining investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion to be settled in cash sometime after the redemption date.

Certain funds included in other investments may be allowed to invest a portion of their assets in illiquid securities, such as private equity or convertible debt. In such cases, a common mechanism used is a “side-pocket,” whereby the illiquid security is assigned to a separate memorandum capital account or designated account. Typically, the investor loses its redemption rights in the designated account. Only when the illiquid security is sold, or is otherwise deemed liquid by the fund, may investors redeem their interest in the side-pocket.

At March 31, 2014, the Company had $2.6 million of investments subject to side-pockets ($3.2 million as of December 31, 2013). Management has not made any adjustments to the fair value estimate reported by the fund managers for the side-pocketed investments.

The following tables present the fair value, unfunded commitments and redemption frequency for all other investments. These investments are all valued at net asset value as at March 31, 2014 and December 31, 2013:


March 31, 2014	Total Fair Value		Gated/Side Pocket Investments		Investments without Gates or Side Pockets		Unfunded Commitments		Redemption Frequency
Private equity funds	$	191,452	$	—	$	191,452	$	131,295	Not eligible
Fixed income funds		222,004		—		222,004		—	Daily to monthly
Fixed income hedge funds		69,547		2,649		66,898		—	Quarterly after lock-up periods expire
Equity funds		128,110		—		128,110		—	Bi-monthly
Real estate debt fund		32,469		—		32,469		—	Monthly
Other		3,183		—		3,183		655	Not eligible

	$	646,765	$	2,649	$	644,116	$	131,950


December 31, 2013	Total Fair Value		Gated/Side Pocket Investments		Investments without Gates or Side Pockets		Unfunded Commitments		Redemption Frequency
Private equity funds	$	161,229	$	—	$	161,229	$	113,585	Not eligible
Fixed income funds		194,375		—		194,375		—	Daily to monthly
Fixed income hedge funds		68,157		3,150		65,007		—	Quarterly after lock-up periods expire
Equity funds		109,355		—		109,355		—	Bi-monthly
Real estate debt fund		32,113		—		32,113		—	Monthly
Other		4,064		—		4,064		655	Not eligible

	$	569,293	$	3,150	$	566,143	$	114,240

Fair Value of Financial Instruments

Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The Company uses a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:

•

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.

•

Level 2—Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

•

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company’s own judgment about assumptions that market participants might use.

The following is a summary of valuation techniques or models the Company uses to measure fair value by asset and liability classes.

Fixed Maturity Investments

The Company’s fixed maturity investment portfolios are managed by the Company’s Chief Investment Officer and outside investment advisors with oversight from the Company’s Investment Committee. Fair values for all securities in the fixed maturity investment portfolios are independently provided by the investment custodians, investment accounting service providers and investment managers, each of which utilize internationally recognized independent pricing services. Interactive Data Corporation is, however, the main pricing service utilized to estimate the fair value measurements for the Company’s fixed maturity investments. The Company records the unadjusted price provided by the investment custodians, investment accounting service providers or the investment managers and validates this price through a process that includes, but is not limited to: (i) comparison of prices against alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the inputs used for pricing; and (iv) comparing the price to the Company’s knowledge of the current investment market. The Company’s internal price validation procedures and review of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.

The independent pricing services used by the investment custodians, investment accounting service providers and investment managers obtain actual transaction prices for securities that have quoted prices in active markets. For determining the fair value of securities that are not actively traded, in general, pricing services use “matrix pricing” in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value. In addition, pricing services use valuation models, using observable data, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed and asset-backed securities.

The following describes the techniques generally used to determine the fair value of the Company’s fixed maturity investments by asset class.

•

U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified within Level 2.

•

Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified within Level 2.

•

Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at March 31, 2014, the Company had one corporate security classified as Level 3.

•

Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2.

•

Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2.

•

Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at March 31, 2014, the Company had no residential or commercial mortgage-backed securities classified as Level 3.

Equities

The Company’s equities are predominantly traded on the major exchanges and are primarily managed by two external advisors. The Company uses Interactive Data Corporation, an internationally recognized pricing service, to estimate the fair value for all of its equities. The Company’s equities are widely diversified and there is no significant concentration in any specific industry.

The Company has categorized all of its investments in equities as Level 1 investments because the fair values of these investments are based on quoted prices in active markets for identical assets or liabilities. Because their fair value estimates are based on observable market data, the Company has categorized its investments in preferred stock as Level 2, with the exception of one investment in preferred stock that has been categorized as Level 3.

Other investments

The Company has ongoing due diligence processes with respect to funds in which it invests and their managers. These processes are designed to assist the Company in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, the Company obtains the audited financial statements for funds annually, and regularly reviews and discusses the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values. The use of net asset value as an estimate of the fair value for investments in certain entities that calculate net asset value is a permitted practical expedient. While reported net asset value is the primary input to the review, when the net asset value is deemed not to be indicative of fair value, the Company may incorporate adjustments to the reported net asset value (and not use the permitted practical expedient) on an investment by investment basis. These adjustments may involve significant management judgment. As at March 31, 2014, there were no significant adjustments made to the reported net asset value.

For its investments in private equity funds, the Company measures fair value by obtaining the most recently provided capital statement from the external fund manager or third-party administrator. The funds calculate net asset value on a fair value basis.

For all publicly-traded companies within these funds, the Company adjusts the reported net asset value based on the latest share price as of the Company’s reporting date. The Company has classified its investments in private equity funds as Level 3.

The fixed income funds and equity funds in which the Company invests have been classified as Level 2 investments because their fair value is estimated using the published net asset value and because the fixed income funds and equity funds are highly liquid.

For its investments in fixed income hedge funds, the Company measures fair value by obtaining the most recently published net asset value as advised by the external fund manager or third-party administrator. The investments in the funds are classified as Level 3.

The real estate debt fund in which the Company invests has been valued based on the most recent published net asset value. This investment has been classified as Level 3.

The Company’s remaining other investments are valued based on the latest available capital statements and have been classified as Level 3.

Fair Value Measurements

In accordance with the provisions of the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification (“ASC”) 820, the Company has categorized its investments that are recorded at fair value among levels as follows:


	March 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
U.S. government and agency	$	—	$	415,811	$	—	$	415,811
Non-U.S. government		—		527,177		—		527,177
Corporate		—		2,196,479		607		2,197,086
Municipal		—		34,545		—		34,545
Residential mortgage-backed		—		237,896		—		237,896
Commercial mortgage-backed		—		127,664		—		127,664
Asset-backed		—		320,304		—		320,304
Equities—U.S.		97,335		5,256		4,750		107,341
Equities—International		24,851		26,482		—		51,333
Other investments		—		350,114		296,651		646,765

Total investments	$	122,186	$	4,241,728	$	302,008	$	4,665,922


	December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
U.S. government and agency	$	—	$	468,289	$	—	$	468,289
Non-U.S. government		—		562,516		—		562,516
Corporate		—		2,200,970		609		2,201,579
Municipal		—		41,034		—		41,034
Residential mortgage-backed		—		235,964		—		235,964
Commercial mortgage-backed		—		114,637		—		114,637
Asset-backed		—		285,066		—		285,066
Equities—U.S.		97,470		13,090		4,725		115,285
Equities—International		35,677		31,071		—		66,748
Other investments		—		303,724		265,569		569,293

Total investments	$	133,147	$	4,256,361	$	270,903	$	4,660,411

The following tables present the Company’s fair value hierarchy for those assets classified as held-to-maturity in the consolidated balance sheet but for which disclosure of the fair value is required as of March 31, 2014 and December 31, 2013:


	March 31, 2014
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
U.S. government and agency	$	—	$	18,622	$	—	$	18,622
Non-U.S. government		—		31,219		—		31,219
Corporate		—		777,550		—		777,550

Total investments	$	—	$	827,391	$	—	$	827,391


	December 31, 2013
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
U.S. government and agency	$	—	$	18,132	$	—	$	18,132
Non-U.S. government		—		22,327		—		22,327
Corporate		—		759,100		—		759,100

Total investments	$	—	$	799,559	$	—	$	799,559

During 2014 and 2013, the Company had no transfers between Levels 1 and 2.

The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three months ended March 31, 2014:


	Fixed Maturity Investments			Other Investments			Equity Securities		Total
Level 3 investments as of January 1, 2014	$	609		$	265,569		$	4,725	$	270,903
Purchases		—			23,292			—		23,292
Sales		—			(2,983	)		—		(2,983	)
Total realized and unrealized (losses) gains through earnings		(2	)		10,773			25		10,796
Net transfers into and/or (out of) Level 3		—			—			—		—

Level 3 investments as of March 31, 2014	$	607		$	296,651		$	4,750	$	302,008

The amount of net gains (losses) for the three months ended March 31, 2014 included in earnings attributable to the fair value of changes in assets still held at March 31, 2014 was $10.8 million. All of this amount was included in net realized and unrealized gains.


	Fixed Maturity Investments		Other Investments			Equity Securities		Total
Level 3 investments as of January 1, 2013	$	540	$	202,730		$	3,401	$	206,671
Purchases		—		8,991			—		8,991
Sales		—		(9,284	)		—		(9,284	)
Total realized and unrealized gains through earnings		15		12,250			599		12,864
Net transfers into and/or (out of) Level 3		—		—			—		—

Level 3 investments as of March 31, 2013	$	555	$	214,687		$	4,000	$	219,242

The amount of net gains (losses) for the three months ended March 31, 2013 included in earnings attributable to the fair value of changes in assets still held at March 31, 2013 was $12.9 million. All of this amount was included in net realized and unrealized gains.

Net Realized and Unrealized Gains

Components of net realized and unrealized gains (losses) for the three months ended March 31, 2014 and 2013 are as follows:


	Three Months Ended March 31,
	2014			2013
Gross realized gains on available-for-sale securities	$	26		$	65
Gross realized losses on available-for-sale securities		(145	)		(17	)
Net realized gains on trading securities		5,917			6,009
Net unrealized gains on trading securities		11,778			5,132
Net realized and unrealized gains on other investments		16,997			18,931

Net realized and unrealized gains	$	34,573		$	30,120

Proceeds from sales and maturities of available-for-sale securities	$	59,238		$	59,631

Net Investment Income

Major categories of net investment income for the three months ended March 31, 2014 and 2013 are summarized as follows:


	Three Months Ended March 31,
	2014			2013
Interest from fixed maturity investments	$	34,206		$	20,625
Interest from cash and cash equivalents and short-term investments		1,625			3,081
Net amortization of bond premiums and discounts		(12,462	)		(8,513	)
Dividends from equities		1,404			1,091
Other investments		92			61
Interest on other receivables		226			618
Other income		22			1,397
Interest on deposits held with clients		730			1,194
Policy loan interest		311			0
Investment expenses		(1,806	)		(1,591	)

	$	24,348		$	17,963

Restricted Assets

The Company is required to maintain investments and cash and cash equivalents on deposit with various regulatory authorities to support its insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. The Company also utilizes trust accounts to collateralize business with its insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of the Company’s restricted assets, including restricted cash of $607.2 and $397.7 million, as of March 31, 2014 and December 31, 2013 was as follows:


	March 31,		December 31,
	2014		2013
Collateral in trust for third party agreements	$	2,230,318	$	2,002,374
Assets on deposit with regulatory authorities		598,698		608,940
Collateral for secured letter of credit facility		302,622		310,938

	$	3,131,638	$	2,922,252