INVESTMENTS

We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair value; (ii) a held-to-maturity portfolio of fixed maturity investments carried at amortized cost; (iii) available-for-sale portfolios of short-term and fixed maturity investments carried at fair value; and (iv) other investments carried at either fair value or cost.

Trading

The fair values of our fixed maturity investments, short-term investments and equities classified as trading were as follows:



	June 30, 2016		December 31, 2015
U.S. government and agency	$	771,489	$	750,957
Non-U.S. government	309,794		359,002
Corporate	2,612,211		2,631,682
Municipal	8,691		22,247
Residential mortgage-backed	474,820		391,247
Commercial mortgage-backed	281,052		284,575
Asset-backed	651,304		638,434
Total fixed maturity and short-term investments	5,109,361		5,078,144
Equities — U.S.	109,903		108,793
Equities — International	7,390		7,148
	$	5,226,654	$	5,194,085

Included within residential and commercial mortgage-backed securities as at June 30, 2016 were securities issued by U.S. governmental agencies with a fair value of $447.0 million (as at December 31, 2015: $359.4 million). Included within corporate securities as at June 30, 2016 were senior secured loans of $89.9 million (as at December 31, 2015: $94.4 million).

The contractual maturities of our fixed maturity and short-term investments classified as trading 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 at June 30, 2016	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	732,723	$	723,589	14.2	%
More than one year through two years	927,837		928,798		18.2	%
More than two years through five years	1,266,491		1,279,337		25.0	%
More than five years through ten years	551,552		563,660		11.0	%
More than ten years	197,290		206,801		4.0	%
Residential mortgage-backed	473,782		474,820		9.3	%
Commercial mortgage-backed	280,949		281,052		5.5	%
Asset-backed	669,975		651,304		12.8	%
	$	5,100,599	$	5,109,361	100.0	%

Held-to-maturity

We hold a portfolio of held-to-maturity securities to support our annuity business. The amortized cost and fair values of our fixed maturity investments classified as held-to-maturity were as follows:



As at June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	19,886	$	1,068	$	(62	)	$	20,892
Non-U.S. government	33,233		1,193		—			34,426
Corporate	717,536		36,782		(1,457		)	752,861
	$	770,655	$	39,043	$	(1,519	)	$	808,179



As at December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	19,771	$	8	$	(458	)	$	19,321
Non-U.S. government	40,503		48		(1,493		)	39,058
Corporate	730,592		3,398		(23,298		)	710,692
	$	790,866	$	3,454	$	(25,249	)	$	769,071

The contractual maturities of our fixed maturity investments classified as held-to-maturity 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 at June 30, 2016	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	17,293	$	17,318	2.1	%
More than one year through two years	23,600		23,784		3.0	%
More than two years through five years	66,940		68,813		8.5	%
More than five years through ten years	107,660		110,845		13.7	%
More than ten years	555,162		587,419		72.7	%
	$	770,655	$	808,179	100.0	%

Available-for-sale

The amortized cost and fair values of our short-term and fixed maturity investments classified as available-for-sale were as follows:



As at June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	13,364	$	164	$	—		$	13,528
Non-U.S. government	89,836		2,530		(2,159		)	90,207
Corporate	184,886		3,820		(1,945		)	186,761
Municipal	6,500		102		—			6,602
Residential mortgage-backed	569		55		—			624
Asset-backed	4,578		30		—			4,608
	$	299,733	$	6,701	$	(4,104	)	$	302,330



As at December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	25,102	$	80	$	(341	)	$	24,841
Non-U.S. government	89,631		42		(3,889		)	$	85,784
Corporate	182,773		1,040		(3,429		)	$	180,384
Municipal	5,959		4		(36		)	$	5,927
Residential mortgage-backed	665		51		(1		)	$	715
Asset-backed	4,660		—		(10		)	$	4,650
	$	308,790	$	1,217	$	(7,706	)	$	302,301

The contractual maturities of our short-term and fixed maturity investments classified as available-for-sale 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 at June 30, 2016	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	51,327	$	50,119	16.6	%
More than one year through two years	68,189		67,500		22.3	%
More than two years through five years	87,040		86,492		28.6	%
More than five years through ten years	41,192		42,841		14.2	%
More than ten years	46,838		50,146		16.6	%
Residential mortgage-backed	569		624		0.2	%
Asset-backed	4,578		4,608		1.5	%
	$	299,733	$	302,330	100.0	%

Gross Unrealized Losses

The following tables summarize our fixed maturity and short-term investments in a gross unrealized loss position:



	12 Months or Greater					Less Than 12 Months					Total
As at June 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturity and short-term investments, at fair value
Non-U.S. government	$	—	$	—		$	20,177	$	(2,159	)	$	20,177	$	(2,159	)
Corporate	3,089		(137		)	32,647		(1,808		)	35,736		(1,945		)
Total	$	3,089	$	(137	)	$	52,824	$	(3,967	)	$	55,913	$	(4,104	)
Fixed maturity investments, at amortized cost
U.S. government and agency	$	447	$	(62	)	$	—	$	—		$	447	$	(62	)
Corporate	18,469		(643		)	37,889		(814		)	56,358		(1,457		)
Total	18,916		(705		)	37,889		(814		)	56,805		(1,519		)
Total fixed maturity and short-term investments	$	22,005	$	(842	)	$	90,713	$	(4,781	)	$	112,718	$	(5,623	)



	12 Months or Greater					Less Than 12 Months					Total
As at December 31, 2015	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	$	523	$	(2	)	$	21,694	$	(339	)	$	22,217	$	(341	)
Non-U.S. government	18,995		(2,633		)	50,080		(1,256		)	69,075		(3,889		)
Corporate	54,295		(2,394		)	81,047		(1,035		)	135,342		(3,429		)
Municipal	—		—			4,609		(36		)	4,609		(36		)
Residential mortgage-backed	71		(1		)	—		—			71		(1		)
Asset-backed	4,649		(10		)	—		—			4,649		(10		)
Total	$	78,533	$	(5,040	)	$	157,430	$	(2,666	)	$	235,963	$	(7,706	)
Fixed maturity investments, at amortized cost
U.S. government and agency	$	7,221	$	(48	)	$	12,024	$	(410	)	$	19,245	$	(458	)
Non-U.S. government	24,424		(1,255		)	8,885		(238		)	33,309		(1,493		)
Corporate	209,000		(9,038		)	330,833		(14,260		)	539,833		(23,298		)
Total	240,645		(10,341		)	351,742		(14,908		)	592,387		(25,249		)
Total fixed maturity and short-term investments	$	319,178	$	(15,381	)	$	509,172	$	(17,574	)	$	828,350	$	(32,955	)

As at June 30, 2016 and December 31, 2015, the number of securities classified as available-for-sale in an unrealized loss position was 120 and 332, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 13 and 124, respectively.

As at June 30, 2016 and December 31, 2015, the number of securities classified as held-to-maturity in an unrealized loss position was 14 and 109, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 6 and 53, respectively.

Other-Than-Temporary Impairment

For the six months ended June 30, 2016 and 2015, we did not recognize any other-than-temporary impairment losses on either our available-for-sale or held-to-maturity securities. We determined that no credit losses existed as at June 30, 2016. A description of our other-than-temporary impairment process is included in Note 2 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015. There were no changes to our process during the six months ended June 30, 2016.

Credit Ratings

The following table sets forth the credit ratings of our fixed maturity and short-term investments as of June 30, 2016:



	Amortized Cost		Fair Value		% of Total Investments		AAA Rated			AA Rated			A Rated			BBB Rated			Non- Investment Grade			Not Rated
Fixed maturity and short-term investments, at fair value
U.S. government and agency	$	771,905	$	785,017	12.6	%	$	778,456		$	6,561		$	—		$	—		$	—		$	—
Non-U.S. government	405,688		400,001		6.4	%	129,956			185,750			52,705			20,284			11,306			—
Corporate	2,777,899		2,798,972		45.1	%	164,171			451,121			1,312,900			721,700			143,010			6,070
Municipal	14,987		15,293		0.2	%	5,395			7,710			2,188			—			—			—
Residential mortgage-backed	474,351		475,444		7.6	%	465,622			452			6,029			2,302			1,036			3
Commercial mortgage-backed	280,949		281,052		4.5	%	114,235			34,730			73,995			15,538			2,674			39,880
Asset-backed	674,553		655,912		10.6	%	232,047			128,948			182,307			43,362			69,051			197
Total	5,400,332		5,411,691		87.0	%	1,889,882			815,272			1,630,124			803,186			227,077			46,150
% of total fair value							34.9		%	15.1		%	30.0		%	14.9		%	4.2		%	0.9		%
Fixed maturity investments, at amortized cost
U.S. government and agency	19,886		20,892		0.3	%	19,491			1,378			—			—			—			23
Non-U.S. government	33,233		34,426		0.6	%	—			9,446			24,980			—			—
Corporate	717,536		752,861		12.1	%	41,800			114,014			488,429			108,522			—			96
Total	770,655		808,179		13.0	%	61,291			124,838			513,409			108,522			—			119
% of total fair value							8.3		%	15.4		%	64.7		%	11.5		%	—		%	0.1		%
Total fixed maturity and short-term investments	$	6,170,987	$	6,219,870	100.0	%	$	1,951,173		$	940,110		$	2,143,533		$	911,708		$	227,077		$	46,269
% of total fair value							31.4		%	15.1		%	34.4		%	14.7		%	3.7		%	0.7		%

Other Investments, at fair value

The following table summarizes our other investments carried at fair value:



	June 30, 2016		December 31, 2015
Private equities and private equity funds	$	229,756	$	254,883
Fixed income funds	248,815		291,736
Fixed income hedge funds	111,543		109,400
Equity funds	163,050		147,390
Multi-strategy hedge fund	98,416		99,020
Real estate debt fund	—		54,829
CLO equities	65,156		61,702
CLO equity funds	13,513		13,928
Call options on equities	4,850		—
Other	1,059		1,144
	$	936,158	$	1,034,032

The valuation of our other investments is described in Note 4 - "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:


•	Private equities and private equity funds invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments.

•

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. The funds have liquidity terms that vary from daily up to quarterly.


•	Fixed income hedge funds invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of up to three years from the time of initial investment. Once eligible, redemptions are permitted quarterly with 60 days’ notice.


•	Equity funds invest in a diversified portfolio of international publicly traded equity securities. The funds are eligible for bi-monthly redemption.


•	Multi-strategy hedge fund comprises an investment in a hedge fund that invests in a variety of asset classes including funds, fixed income, equity securities and other investments. The fund is eligible for quarterly redemption after September 1, 2016. Once eligible, redemptions will be permitted quarterly with 60 days’ notice.


•	Real estate debt fund 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 was fully redeemed as at March 31, 2016.


•	CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities.


•	CLO equity funds comprise two funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. One of the funds has a fair value of $3.6 million, part of a self-liquidating structure that is expected to pay out over two to six years. The other fund has a fair value of $9.9 million and is eligible for redemption in 2018.


•	Call options on equities comprise directly held options to purchase the common equity of publicly traded corporations.


•	Other primarily comprises a fund that provides loans to educational institutions throughout the United States and its territories.

Investments of $0.8 million in fixed income hedge funds were subject to gates or side-pockets, where redemptions are subject to the sale of underlying investments. 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.

As at June 30, 2016, we had unfunded commitments to private equity funds of $138.4 million.

Other Investments, at cost

Our other investments carried at cost of $129.6 million as of June 30, 2016 consist of life settlement contracts acquired during 2015. During the six months ended June 30, 2016 and 2015, net investment income included $10.0 million and $2.0 million, respectively, related to investments in life settlements. There were impairment charges of $2.9 million and nil recognized during the six month periods ended June 30, 2016 and 2015, respectively. The following table presents further information regarding our investments in life settlements as of June 30, 2016 and December 31, 2015.



	June 30, 2016					December 31, 2015
	Number of Contracts	Carrying Value		Face Value (Death Benefits)		Number of Contracts	Carrying Value		Face Value (Death Benefits)
Remaining Life Expectancy of Insureds:
0 – 1 year	2	$	436	$	700	2	$	417	$	700
1 – 2 years	3	2,725		4,500		4	3,032		5,000
2 – 3 years	18	25,556		53,900		19	24,072		39,123
3 – 4 years	16	14,855		30,328		14	9,695		20,932
4 – 5 years	21	9,882		22,759		16	9,025		22,457
Thereafter	187	76,182		432,601		221	86,830		491,499
Total	247	$	129,636	$	544,788	276	$	133,071	$	579,711

Remaining life expectancy for year 0-1 in the table above references policies whose current life expectancy is less than 12 months as of the reporting date. Remaining life expectancy is not an indication of expected maturity. Actual maturity in any category above may vary significantly (either earlier or later) from the remaining life expectancies reported.

At June 30, 2016, our best estimate of the life insurance premiums required to keep the policies in force, payable in the 12 months ending June 30, 2017 and the four succeeding years ending June 30, 2021 is $17.5 million, $17.4 million, $17.5 million, $17.2 million and $15.7 million, respectively.

Net Realized and Unrealized Gains (Losses)

Components of net realized and unrealized gains (losses) for the three and six months ended June 30, 2016 and 2015 are summarized as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net realized gains on sale:
Gross realized gains on fixed maturity securities, available-for-sale	$	114		$	39		$	379		$	153
Gross realized (losses) on fixed maturity securities, available-for-sale	(1		)	(1		)	(244		)	(9		)
Net realized investment gains (losses) on fixed maturity securities, trading	1,535			1,886			(377		)	3,752
Net realized investment gains on equity securities, trading	555			5,169			1,028			15,886
Total net realized gains on sale	$	2,203		$	7,093		$	786		$	19,782
Net unrealized gains (losses):
Fixed maturity securities, trading	$	40,472		$	(22,953	)	$	82,212		$	(9,065	)
Equity securities, trading	617			(6,445		)	2,223			(13,564		)
Other investments	(5,305		)	11,056			(9,270		)	34,618
Total net unrealized gains (losses)	35,784			(18,342		)	75,165			11,989
Net realized and unrealized gains (losses)	$	37,987		$	(11,249	)	$	75,951		$	31,771

The gross realized gains and losses on available-for-sale securities included in the table above resulted from sales of $18.2 million and $33.6 million for the three and six months ended June 30, 2016, respectively, and $16.5 million and $59.8 million for the three and six months ended June 30, 2015, respectively.

Net Investment Income

Major categories of net investment income for the three and six months ended June 30, 2016 and 2015 are summarized as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Fixed maturity investments	$	40,531		$	28,551		$	77,109		$	54,800
Short-term investments and cash and cash equivalents	870			1,387			2,049			4,106
Equity securities	1,387			1,315			2,509			2,996
Other investments	5,693			3,558			11,727			4,440
Funds held	7,633			(184		)	15,237			(10		)
Life settlements and other	1,335			2,788			10,161			3,095
Gross investment income	57,449			37,415			118,792			69,427
Investment expenses	(3,226		)	(2,760		)	(4,506		)	(4,355		)
Net investment income	$	54,223		$	34,655		$	114,286		$	65,072

Restricted Assets

We are required to maintain investments and cash and cash equivalents on deposit to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust accounts to collateralize business with our 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 our restricted assets, including restricted cash of $446.3 million and $511.3 million, as of June 30, 2016 and December 31, 2015, respectively, was as follows:



	June 30, 2016		December 31, 2015
Collateral in trust for third party agreements	$	2,863,608	$	3,053,692
Assets on deposit with regulatory authorities	955,123		915,346
Collateral for secured letter of credit facilities	195,277		212,544
Funds at Lloyd's ⁽¹⁾	350,146		382,624
	$	4,364,154	$	4,564,206

⁽¹⁾Our underwriting 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. As at June 30, 2016, our combined Funds at Lloyd's were comprised of cash and investments of $312.2 million and letters of credit supported by collateral of $37.9 million.