FINANCIAL INSTRUMENTS

Prior to the termination of the Joint Venture, the Company, via the Joint Venture, purchased and sold various financial instruments, including listed and unlisted equities, corporate and sovereign debt, commodities, futures, put and call options, currency forwards, other derivatives and similar instruments sold, not yet purchased. These instruments were transferred to SILP as part of the LP Transaction. See Note 3 for further details.

Purchases and sales of investments are disclosed in the Company’s consolidated statements of cash flows. The following table summarizes the change in unrealized gains and losses and the realized gains and losses on financial instruments included in the caption “Net investment income (loss)” in the Company’s consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017:



	Year ended December 31
	2019			2018			2017
	($ in thousands)
Gross realized gains	$	—		$	303,674		$	267,904
Gross realized losses	(14,150		)	(540,561		)	(180,286		)
Net realized gains (losses)	$	(14,150	)	$	(236,887	)	$	87,618
Change in unrealized gains and losses	$	8,380		$	(32,597	)	$	(41,444	)

Investments

Equity securities, trading

At December 31, 2019, the Company held no equity securities.

At December 31, 2018, the following long positions were included in the caption “Equity securities, trading”:



	Cost		Unrealized gains		Unrealized losses			Fair value
	($ in thousands)
Equities – listed	$	50,521	$	1,015	$	(14,628	)	$	36,908
Total equity securities	$	50,521	$	1,015	$	(14,628	)	$	36,908

Other Investments

“Other investments” include private securities and investments accounted for under the equity method which are not significant to present separately on the balance sheet.

At December 31, 2019, the following securities were included in the caption “Other investments”:



	Cost		Unrealized gains		Unrealized losses			Fair value / carrying value
	($ in thousands)
Private investments and unlisted equities	$	10,420	$	265	$	(4	)	$	10,681
Investment accounted for under the equity method	—		—		—			5,703
Total other investments								$	16,384

At December 31, 2018, the following securities were included in the caption “Other investments”:



	Cost		Unrealized gains		Unrealized losses			Fair value / carrying value
	($ in thousands)
Private investments and unlisted equity funds	$	6,672	$	—	$	(267	)	$	6,405
Investment accounted for under the equity method	—		—		—			5,003
Total other investments								$	11,408

Private and unlisted equity funds include private equity securities that did not have readily determinable fair values and the Company applied the measurement alternative under ASU 2016-01 and ASU 2018-03. The carrying values of the private equity securities are determined based on the original cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At December 31, 2019 the carrying value of the private equity securities without readily determinable fair value was $10.7 million (December 31, 2018: $6.4 million). The carrying value of these private equity securities included an upward adjustment of $0.2 million based on an observable price change during the year ended December 31, 2019. There were no other significant upward or downward adjustments to the carrying values of the private equity securities for the year ended December 31, 2019.

At December 31, 2019, the Company held a 58% interest in AccuRisk Holdings LLC (“AccuRisk”) and had provided a $6.0 million credit facility to AccuRisk. The Company’s involvement in AccuRisk includes providing capital and funding for AccuRisk’s expansion plans and providing reinsurance to business produced by AccuRisk. The Company has determined that AccuRisk is a VIE, of which the Company is not the primary beneficiary. The Company has accounted for its investment in AccuRisk under the equity method and included it in the caption “Other Investments” in the Company’s consolidated balance sheets. The carrying value of AccuRisk is adjusted based on the Company’s share of ownership, including its share of the income (loss) reported in quarterly management accounts by AccuRisk. The Company’s maximum exposure to loss relating to AccuRisk is limited to the carrying amount of its investment in AccuRisk plus any loans outstanding to AccuRisk (see Note 15). For the year ended December 31, 2019, the Company’s share of AccuRisk’s net income (loss) was $0.7 million (2018: $(0.2) million) which was included in the caption “Net investment income (loss)” in the Company’s consolidated statements of operations.

Fair Value Hierarchy

The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:


•	Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


•	Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.


•	Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

As of December 31, 2019, the Company did not carry any investments at fair value that were assigned a Level within the fair value hierarchy.

The following table presents the Company’s investments, categorized by the level of the fair value hierarchy as of December 31, 2018:



	Fair value measurements as of December 31, 2018
Description	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Assets:	($ in thousands)
Listed equity securities	$	36,908	$	—	$	—	$	36,908
Private and unlisted equity securities	—		—		664		664
	$	36,908	$	—	$	664	$	37,572
Investment in related party investment fund measured at net asset value (1) (2)							235,612
Equities without readily determinable fair values for which measurement alternative is applied							5,741
Investment accounted for under the equity method							5,003
Total investments							$	283,928

⁽¹⁾ Investments measured at fair value using the net asset value practical expedient have not been classified in the fair value hierarchy. The fair value amounts are presented in the above table to facilitate reconciliation to the consolidated balance sheets.

⁽²⁾See Note 3 “Investment in related party investment fund”.

The Company’s ”Investment in related party investment fund” is measured at fair value using the net asset value practical expedient, and is therefore not classified within the fair value hierarchy (See Note 3 for further details).

The carrying value of investments accounted for under the equity method is based on the Company's share of the investees’ net assets.

The following table presents the reconciliation of the balances for all investments measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2019:



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year ended December 31, 2019
	Assets
	Debt instruments		Private and unlisted equity securities			Total
	($ in thousands)
Beginning balance	$	—	$	664		$	664
Sales	—		(664		)	(664		)
Total realized and unrealized gains (losses) and amortization included in earnings, net	—		—			—
Transfers out of Level 3	—		—			—
Ending balance	$	—	$	—		$	—

During the year ended December 31, 2019, the sales of private and unlisted equities measured at fair value using Level 3 inputs were the result of the LP Transaction. There were no other transfers between Level 1, Level 2 or Level 3 during the year ended December 31, 2019.

The following table presents the reconciliation of the balances for all investments measured at fair value using significant unobservable inputs (Level 3) for the year ended December 31, 2018:



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year ended December 31, 2018
	Assets
	Debt instruments			Private and unlisted equity securities			Total
	($ in thousands)
Beginning balance	$	880		$	6,108		$	6,988
Sales	$	(916	)	$	(1,890	)	$	(2,806	)
Total realized and unrealized gains (losses) and amortization included in earnings, net	$	36		$	(304	)	$	(268	)
Transfers out of Level 3	$	—		$	(3,250	)	$	(3,250	)
Ending balance	$	—		$	664		$	664

During the year ended December 31, 2018, the sales of debt instruments and private and unlisted equities measured at fair value using Level 3 inputs were the result of the LP Transaction. For the year ended December 31, 2018 the private and unlisted equity securities without readily determinable fair values, for which measurement alternative is applied, were transferred out of Level 3 fair value hierarchy. There were no other transfers between Level 1, Level 2 or Level 3 during the year ended December 31, 2018.

Financial Instruments Disclosed, But Not Carried, at Fair Value

The captions “Notes receivable (net of valuation allowance)” and “Convertible senior notes payable” are composed of financial instruments that are carried at amortized cost. The carry values of these financial instruments approximate their fair values, which the Company has determined on the basis of Level 2 inputs for its convertible senior notes payable, and Level 3 inputs for its notes receivable.