Investments

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

6. INVESTMENTS

We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair value; (ii) available-for-sale portfolios of fixed maturity and short-term investments, carried at fair value; (iii) other investments carried at fair value; (iv) equity method investments; and (v) funds held - directly managed.

Fixed Maturity Investments

Asset Types

The fair values of the underlying asset types of our short-term investments and fixed maturity investments, classified as trading and available-for-sale, and the fixed maturity investments included within our funds held - directly managed balance were as follows as of December 31, 2019 and 2018:

	2019
	Short-term investments, trading		Short-term investments, available-for-sale		Fixed maturities, trading		Fixed maturities, available-for-sale		Fixed maturities, funds held - directly managed		Total
U.S. government and agency	$	—	$	111,583	$	219,194	$	298,729	$	106,537	$	736,043
U.K. government	24,411		1,069		122,012		14,280		—		161,772
Other government	21,958		387		575,018		84,760		20,734		702,857
Corporate	5,121		13,915		4,007,386		1,067,256		603,389		5,697,067
Municipal	—		1,381		102,554		14,491		49,456		167,882
Residential mortgage-backed	—		—		258,412		127,219		86,205		471,836
Commercial mortgage-backed	—		—		571,129		98,557		230,343		900,029
Asset-backed	—		—		490,624		208,097		76,681		775,402
Total fixed maturity and short-term investments	$	51,490	$	128,335	$	6,346,329	$	1,913,389	$	1,173,345	$	9,612,888

	2018
	Short-term investments, trading		Fixed maturities, trading		Fixed maturities, available-for-sale		Fixed maturities, funds held - directly managed		Total
U.S. government and agency	$	45,885	$	389,735	$	573	$	74,052	$	510,245
U.K. government	2,275		298,356		—		—		300,631
Other government	19,064		679,525		73,185		22,036		793,810
Corporate	44,900		4,081,793		75,359		637,788		4,839,840
Municipal	—		73,856		2,480		53,929		130,265
Residential mortgage-backed	—		682,962		12		90,583		773,557
Commercial mortgage-backed	—		488,598		—		224,465		713,063
Asset-backed	1,992		553,968		—		80,521		636,481
Total fixed maturity and short-term investments	$	114,116	$	7,248,793	$	151,609	$	1,183,374	$	8,697,892

Included within residential and commercial mortgage-backed securities as of December 31, 2019 were securities issued by U.S. governmental agencies with a fair value of $356.9 million (as of December 31, 2018: $656.6 million). Included within corporate securities as of December 31, 2019 were senior secured loans of $31.4 million (as of December 31, 2018: $20.4 million).

Contractual Maturities

The contractual maturities of our short-term investments and fixed maturity investments, classified as trading and available-for-sale, and the fixed maturity investments included within our funds held - directly managed balance are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

As of December 31, 2019	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	537,944	$	536,156	5.6	%
More than one year through two years	801,473		808,071		8.4	%
More than two years through five years	2,175,547		2,212,834		23.0	%
More than five years through ten years	2,108,172		2,198,505		22.9	%
More than ten years	1,584,345		1,710,055		17.8	%
Residential mortgage-backed	466,932		471,836		4.9	%
Commercial mortgage-backed	882,603		900,029		9.4	%
Asset-backed	779,279		775,402		8.0	%
	$	9,336,295	$	9,612,888	100.0	%

Credit Ratings

The following table sets forth the credit ratings of our short-term investments and fixed maturity investments, classified as trading and available-for-sale, and the fixed maturity investments included within our funds held - directly managed balance as of December 31, 2019:

	Amortized Cost		Fair Value		% of Total		AAA Rated			AA Rated			A Rated			BBB Rated			Non- Investment Grade			Not Rated
U.S. government and agency	$	730,396	$	736,043	7.7	%	$	736,043		$	—		$	—		$	—		$	—		$	—
U.K. government	155,261		161,772		1.7	%	—			161,772			—			—			—			—
Other government	684,117		702,857		7.3	%	316,151			154,072			63,270			144,557			24,807			—
Corporate	5,479,839		5,697,067		59.2	%	149,108			619,707			2,911,867			1,703,328			311,167			1,890
Municipal	157,868		167,882		1.7	%	16,381			77,291			50,938			23,272			—			—
Residential mortgage-backed	466,932		471,836		4.9	%	381,502			47,489			2,295			1,882			34,055			4,613
Commercial mortgage-backed	882,603		900,029		9.4	%	632,461			89,347			95,508			66,573			6,224			9,916
Asset-backed	779,279		775,402		8.1	%	378,116			89,418			174,118			117,275			15,694			781
Total	$	9,336,295	$	9,612,888	100.0	%	$	2,609,762		$	1,239,096		$	3,297,996		$	2,056,887		$	391,947		$	17,200
% of total fair value							27.1		%	12.9		%	34.3		%	21.4		%	4.1		%	0.2		%

Unrealized Gains and Losses on Available-for-sale Fixed Maturity Investments

The amortized cost and fair values of our fixed maturity investments classified as available-for-sale were as follows as of December 31, 2019 and 2018:

2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	410,842	$	77	$	(607	)	$	410,312
U.K. government	15,067		282		—			15,349
Other government	84,116		1,119		(88		)	85,147
Corporate	1,081,713		4,026		(4,568		)	1,081,171
Municipal	15,963		20		(111		)	15,872
Residential mortgage-backed	127,704		240		(725		)	127,219
Commercial mortgage-backed	98,928		38		(409		)	98,557
Asset-backed	208,121		169		(193		)	208,097
	$	2,042,454	$	5,971	$	(6,701	)	$	2,041,724

2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	576	$	—	$	(3	)	$	573
Other government	72,811		1,219		(845		)	73,185
Corporate	75,535		1,006		(1,182		)	75,359
Municipal	2,499		—		(19		)	2,480
Residential mortgage-backed	12		—		—			12
	$	151,433	$	2,225	$	(2,049	)	$	151,609

Gross Unrealized Losses on Available-for-sale Fixed Maturity Investments

The following tables summarize our fixed maturity and short-term investments classified as available-for-sale in a gross unrealized loss position, as of December 31, 2019 and 2018:

		12 Months or Greater					Less Than 12 Months					Total
2019		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturity investments, at fair value
	U.S. government and agency	$	—	$	—		$	222,643	$	(607	)	$	222,643	$	(607	)
	Other government	1,080		(23		)	37,796		(65		)	38,876		(88		)
	Corporate	2,754		(306		)	461,772		(4,262		)	464,526		(4,568		)
	Municipal	128		—			12,046		(111		)	12,174		(111		)
	Residential mortgage-backed	—		—			65,992		(725		)	65,992		(725		)
	Commercial mortgage-backed	—		—			79,606		(409		)	79,606		(409		)
	Asset-backed	—		—			129,014		(193		)	129,014		(193		)
Total fixed maturity and short-term investments		$	3,962	$	(329	)	$	1,008,869	$	(6,372	)	$	1,012,831	$	(6,701	)

		12 Months or Greater					Less Than 12 Months					Total
2018		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturity and short-term investments, at fair value
	U.S. government and agency	$	573	$	(3	)	$	—	$	—		$	573	$	(3	)
	Other government	7,351		(345		)	11,000		(500		)	18,351		(845		)
	Corporate	11,888		(629		)	25,227		(553		)	37,115		(1,182		)
	Municipal	1,783		(18		)	283		(1		)	2,066		(19		)
	Residential mortgage-backed	12		—			—		—			12		—
Total fixed maturity and short-term investments		$	21,607	$	(995	)	$	36,510	$	(1,054	)	$	58,117	$	(2,049	)

As of December 31, 2019 and 2018, the number of securities classified as available-for-sale in an unrealized loss position was 563 and 88, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 12 and 42, respectively. From October 1, 2019 we elected to use available-for-sale accounting for all new acquisitions and where permissible, as trading fixed maturity securities mature, we are reinvesting the proceeds into available-for-sale securities for the Non-Life Run-off and StarStone segments.

Other-Than-Temporary Impairment on Available-for-sale Fixed Maturity Investments

For the years ended December 31, 2019, 2018 and 2017, we did not recognize any other-than-temporary impairment losses on our available-for-sale securities. We determined that no credit losses existed as of December 31, 2019 and 2018. A description of our other-than-temporary impairment process is included in Note 2 - "Significant Accounting Policies". There were no changes to our process in the years ended December 31, 2019 and 2018.

Equity Investments

The following table summarizes our equity investments classified as trading as of December 31, 2019 and 2018:

	2019		2018
Publicly traded equity investments in common and preferred stocks	$	327,875	$	138,415
Exchange-traded funds	133,047		—
Privately held equity investments in common and preferred stocks	268,799		228,710
	$	729,721	$	367,125

Equity investments include publicly traded common and preferred stocks, exchange-traded funds and privately held common and preferred stocks. Our publicly traded equity investments in common and preferred stocks predominantly trade on major exchanges and are managed by our external advisors. Our investments in exchange-traded funds trade on a major exchange.

Our privately held equity investments in common and preferred stocks are direct investments in companies that we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its own unique terms and conditions and there may be restrictions on disposals. The market for these investments is illiquid and there is no active market. Included within the above balance as of December 31, 2019 is an investment in the parent company of AmTrust Financial Services, Inc. ("AmTrust"), with a fair value of $240.1 million. Refer to Note 21 - "Related Party Transactions" for further information.

Other Investments, at fair value

The following table summarizes our other investments carried at fair value as of December 31, 2019 and 2018:

	2019		2018
Hedge funds	$	1,121,904	$	852,584
Fixed income funds	481,039		403,858
Equity funds	410,149		333,681
Private equity funds	329,885		248,628
CLO equity funds	87,509		37,260
CLO equities	87,555		39,052
Private credit funds	—		33,381
Others	6,379		9,313
	$	2,524,420	$	1,957,757

The valuation of our other investments is described in Note 12 - "Fair Value Measurements". Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month lag. We regularly review and discuss fund performance with the 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. The following is a description of the nature of each of these investment categories:

• Hedge funds may invest in a wide range of instruments, including debt and equity securities, and utilize various sophisticated strategies to achieve their objectives. We invest in a mixture of fixed income, equity and multi-strategy hedge funds.

• Fixed income funds comprise 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.

• Equity funds invest in a diversified portfolio of U.S. and international publicly-traded equity securities.

• Private equity funds invest primarily in the financial services industry.

• CLO equity funds invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.

• CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.

• Private credit funds invest in direct senior or collateralized loans.

• Others comprise of various investments including a real estate debt fund that invests primarily in European commercial real estate equity, call options on equities and a fund that provides loans to educational institutions throughout the United States and its territories.

The increase in our other investments carried at fair value between December 31, 2019 and December 31, 2018 was primarily attributable to unrealized gains of $441.6 million and net additional subscriptions of $214.3 million to CLO equity, CLO equity funds, fixed income funds and private equity funds.

As of December 31, 2019, we had unfunded commitments of $482.3 million to private equity funds.

Certain of our other investments are subject to restrictions on redemptions and sales that are determined by the governing documents, which limits our ability to liquidate those investments. These restrictions may include lock-ups, redemption gates, restricted share classes or side pockets, restrictions on the frequency of redemption and notice periods. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for which the investor loses its redemption rights. Certain other investments may not have any restrictions governing their sale, but there is no active market and no guarantee that we will be able to execute a sale in a timely manner. In

addition, even if certain other investments are not eligible for redemption or sales are restricted, we may still receive income distributions from those other investments. The table below details the estimated date by which proceeds would be received if we had provided notice of our intent to redeem or initiated a sales process as of December 31, 2019:

	Less than 1 Year		1-2 years		2-3 years		More than 3 years		Not Eligible/ Restricted		Total		Redemption Frequency
Hedge funds	$	343,005	$	624,233	$	—	$	102,600	$	52,066	$	1,121,904	Monthly to Bi-annually
Fixed income funds	477,935		—		—		—		3,104		481,039		Daily to Quarterly
Equity funds	410,149		—		—		—		—		410,149		Daily to Quarterly
Private equity funds			—		—		—		329,885		329,885		N/A
CLO equity funds	60,735		—		26,774		—		—		87,509		Quarterly to Bi-annually
CLO equities	87,555		—		—		—		—		87,555		N/A
Other	34		—		—		—		6,345		6,379		N/A
	$	1,379,413	$	624,233	$	26,774	$	102,600	$	391,400	$	2,524,420

Equity Method Investments

The table below shows our equity method investments as of December 31, 2019 and 2018:

	2019						2018
	Investment		Ownership %		Carrying Value		Investment		Ownership %		Carrying Value
Enhanzed Re	$	154,050	47.4	%	$	182,856	$	94,800	47.4	%	$	94,800
Citco	50,000		31.9	%	51,742		50,000		31.9	%	50,812
Monument	26,600		26.6	%	60,598		26,600		26.6	%	42,193
Clear Spring	11,210		20.0	%	$	10,645	11,210		20.0	%	10,070
Other	24,963		~30%		20,436		15,250		~30%		6,632
	$	266,823			$	326,277	$	197,860			$	204,507

Refer to Note 21 - "Related Party Transactions" for further information regarding our investments in Clear Spring, Citco, Monument and Enhanzed Re.

As of December 31, 2019, we had unfunded commitments of $93.1 million related to equity method investments.

Funds Held

Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. We either have (i) funds held by reinsured companies, which are carried at amortized cost and on which we receive a fixed crediting rate, or (ii) funds held - directly managed, which are carried at fair value and on which we receive the underlying return on the portfolio. The investment returns on both categories of funds held are recognized in net investment income and net realized and unrealized gains (losses). The funds held balance is credited with investment income and losses payable are deducted.

Funds Held - Directly Managed

Funds held - directly managed, where we receive the underlying return on the investment portfolio, are carried at fair value, either because we elected the fair value option at the inception of the reinsurance contract, or because it represents the aggregate of funds held at amortized cost and the fair value of an embedded derivative. The embedded derivative relates to our contractual right to receive the return on the underlying investment portfolio supporting the reinsurance contract. We include the estimated fair value of these embedded derivatives in the consolidated balance sheets with the host contract in order to reflect the expected settlement of these features with the host contract. The change in the fair value of the embedded derivative is included in net unrealized gains (losses). The following table summarizes the components of the funds held - directly managed as of December 31, 2019 and 2018:

	2019		2018
Fixed maturity investments, trading	$	1,173,345	$	1,183,374
Other assets	14,207		14,780
	$	1,187,552	$	1,198,154

The following table summarizes the fixed maturity investment components of funds held - directly managed as of December 31, 2019 and 2018:

	2019						2018
	Funds held - Directly Managed - Fair Value Option		Funds held - Directly Managed - Variable Return		Total		Funds held - Directly Managed - Fair Value Option			Funds held - Directly Managed - Variable Return			Total
Fixed maturity investments, at amortized cost	$	185,859	$	940,194	$	1,126,053	$	179,670		$	1,044,377		$	1,224,047
Net unrealized gains (losses):
Change in fair value - fair value option accounting	5,438		—		5,438		(2,733		)	—			(2,733		)
Change in fair value - embedded derivative accounting	—		41,854		41,854		—			(37,940		)	(37,940		)
Fixed maturity investments within funds held - directly managed, at fair value	$	191,297	$	982,048	$	1,173,345	$	176,937		$	1,006,437		$	1,183,374

Refer to the sections above for details of the fixed maturity investments within our funds held - directly managed portfolios.

Funds Held by Reinsured Companies

Funds held by reinsured companies, where we received a fixed crediting rate, are carried at cost on our consolidated balance sheets. As of December 31, 2019 and 2018, we had funds held by reinsured companies of $408.7 million and $321.3 million, respectively.

Net Investment Income

Major categories of net investment income for the years ended December 31, 2019, 2018 and 2017 are summarized as follows: 

	2019			2018			2017
Fixed maturity investments	$	233,310		$	189,000		$	144,367
Short-term investments and cash and cash equivalents	16,607			12,117			9,314
Funds held	19,981			10,041			601
Funds held – directly managed	38,173			37,623			32,479
Investment income from fixed maturities and cash and cash equivalents	308,071			248,781			186,761
Equity investments	16,671			5,397			4,355
Other investments	11,792			19,703			14,337
Life settlements and other	—			6,511			14,370
Investment income from equities and other investments	28,463			31,611			33,062
Gross investment income	336,534			280,392			219,823
Investment expenses	(15,258		)	(9,721		)	(11,034		)
Net investment income	$	321,276		$	270,671		$	208,789

Net Realized and Unrealized Gains (Losses)

Components of net realized and unrealized gains (losses) for the years ended December 31, 2019, 2018 and 2017 were as follows:

	2019			2018			2017
Net realized gains (losses) on sale:
Gross realized gains on fixed maturity securities, available-for-sale securities (1)	$	4,856		$	27		$	616
Gross realized losses on fixed maturity securities, available-for-sale securities (1)	(962		)	(90		)	(125		)
Net realized gains (losses) on fixed maturity securities, trading	91,313			(27,646		)	4,695
Net realized gains (losses) on fixed maturity securities in funds held - directly managed portfolios	1,495			(3,940		)	(4,219		)
Net realized gains (losses) on equity investments, trading	(374		)	4,016			701
Total net realized gains (losses) on sale	96,328			(27,633		)	1,668
Net unrealized gains (losses):
Fixed maturity securities, trading	349,975			(165,187		)	35,878
Fixed maturity securities in funds held - directly managed portfolios	88,053			(46,257		)	33,902
Equity investments, trading	55,359			(9,831		)	16,498
Other investments	441,636			(163,976		)	102,388
Total net unrealized gains (losses)	935,023			(385,251		)	188,666
Net realized and unrealized gains (losses)	$	1,031,351		$	(412,884	)	$	190,334

⁽¹⁾The gross realized gains and losses on available-for-sale investments included in the table above resulted from sales of $310.4 million, $11.4 million and $40.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Restricted Assets

We utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. We are also required to maintain investments and cash and cash equivalents on deposit with regulatory authorities and Lloyd's to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. Collateral generally takes the form of assets held in trust, letters of credit or funds held. The assets used as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $352.7 million and $380.5 million, as of December 31, 2019 and 2018, respectively, was as follows: 

	2019		2018
Collateral in trust for third party agreements	$	4,104,093	$	4,336,752
Assets on deposit with regulatory authorities	445,626		579,048
Collateral for secured letter of credit facilities	133,238		127,841
Funds at Lloyd's (1)	639,316		354,589
	$	5,322,273	$	5,398,230

⁽¹⁾ Our businesses include three Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each syndicate. This capital is referred to as "Funds at Lloyd's" and will be drawn upon in the event that a syndicate has a loss that cannot be funded from other sources. We also utilize unsecured letters of credit for Funds at Lloyd's, as described in Note 15 - "Debt Obligations and Credit Facilities". Funds at Lloyd's increased primarily due to reinsurance to close ("RITC") transactions, during 2019.