Fair Value Measurements Fair Value Measurements (Notes)

12 Months Ended

Dec. 31, 2019

The following tables present the Company’s investments, categorized by the level of the fair value hierarchy as of December 31, 2019 and 2018:



	December 31, 2019
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Private common equity securities	$	—	$	—	$	1,000	$	1,000
Private preferred equity securities	—		—		3,000		3,000
Total equities	—		—		4,000		4,000
U.S. Treasury securities	—		101,186		—		101,186
Sovereign debt	—		23,885		—		23,885
Total debt securities	—		125,071		—		125,071
	$	—	$	125,071	$	4,000	129,071
Investments in funds valued at NAV							860,630
Total assets							$	989,701
Liabilities
Derivative liabilities (embedded)	$	—	$	—	$	31	$	31
Total liabilities	$	—	$	—	$	31	$	31



	December 31, 2018
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets
U.S. Treasury securities	$	—	$	197,312	$	—	$	197,312
Sovereign debt	—		42,328		—		42,328
Total debt securities	$	—	$	239,640	$	—	239,640
Investments in funds valued at NAV							1,284,088
Total assets							$	1,523,728
Liabilities
Derivative liabilities (embedded)	$	—	$	—	$	22	$	22
Total liabilities	$	—	$	—	$	22	$	22

The total change in unrealized gains (losses) on equity and debt securities held at the year ended December 31, 2019 were $nil and $10.0 million, respectively (2018 - $nil and $(6.7) million, and 2017 - $330.4 million and $(12.4) million, respectively).

Private common and preferred equity securities

Private common and preferred equity securities are those not registered for public sale and are carried at an estimated fair value at the end of the period. Valuation techniques used may include market approach, last transaction analysis, liquidation analysis and/or using discounted cash flow models where the significant inputs could include but are not limited to additional rounds of equity financing, financial metrics such as revenue multiples or price-earnings ratio, discount rates and other factors. In addition, third party valuation firms may be employed to conduct investment valuations of such private securities. As the significant inputs used to price these securities are unobservable, these are classified as Level 3.

Debt securities

U.S. Treasury securities and sovereign debt securities are primarily priced by obtaining broker dealer quotes and other market information including actual market prices, when available. When evaluating these securities, the pricing services gather information from market sources and integrate other observations from markets and sector news. The fair value of each security is individually computed using analytical models which incorporate option adjusted spreads and other daily interest rate data. As the significant inputs used to price these securities are observable, the fair values of these investments are classified as Level 2.

Investments in funds valued at NAV

The Company values its investments in limited partnerships, including its investment in related party investment fund, at fair value. The Company has elected the practical expedient for fair value for these investments which is estimated based on the Company’s share of the NAV of the limited partnerships, as provided by the independent fund administrator, as the Company believes it represents the most meaningful measurement basis for the investment assets and liabilities. The NAV represents the Company’s proportionate interest in the members’ equity of the limited partnerships. The resulting net gains or net losses are reflected in the consolidated statements of income (loss). These investments are included in investment in funds valued at NAV and excluded from the presentation of investments categorized by the level of the fair value hierarchy.

In order to assess the reasonableness of the NAVs, the Company performs a number of monitoring procedures on a monthly, quarterly and annual basis, to assess the quality of the information provided by the investment manager and fund administrator underlying the preparation of the NAV. These procedures include, but are not limited to, regular review and discussion of the fund’s performance with the investment manager. However, the Company often does not have access to financial information relating to the underlying securities held within the TP Fund. Therefore,

management is often unable to corroborate the fair values placed on the securities underlying the asset valuations provided by the investment manager or fund administrator.

Embedded derivatives

The Company has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of the embedded derivative reported in other expenses. The Company’s embedded derivatives relate to interest crediting features in certain reinsurance and deposit contracts that vary based on the returns on the Company’s investments managed by Third Point LLC. The Company determines the fair value of the embedded derivatives using models developed by the Company. As the significant inputs used to price embedded derivatives are unobservable, these are classified as level 3.

The following table presents the reconciliation of all investments measured at fair value using Level 3 inputs for the years ended December 31, 2019 and 2018:



	January 1, 2019			Transfers in to (out of) Level 3		Purchases		Sales			Realized and Unrealized Gains(Losses)⁽²⁾			December 31, 2019
Assets
Private common equity securities	$	—		$	—	$	1,000	$	—		$	—		$	1,000
Private preferred equity securities	—			—		3,000		—			—			3,000
Total assets	$	—		$	—	$	4,000	$	—		$	—		$	4,000
Liabilities
Derivative liabilities (embedded)	$	(22	)	$	—	$	—	$	—		$	(9	)	$	(31	)
Total liabilities	$	(22	)	$	—	$	—	$	—		$	(9	)	$	(31	)


	January 1, 2018			Transfers in to (out of) Level 3		Purchases		Sales ⁽¹⁾			Realized and Unrealized Gains(Losses)⁽²⁾			December 31, 2018
Assets
Private common equity securities	$	4,794		$	—	$	567	$	(4,726	)	$	(635	)	$	—
Private preferred equity securities	57,126			—		38,376		(91,065		)	(4,437		)	—
Asset-backed securities	27,308			—		35,905		(60,906		)	(2,307		)	—
Corporate bonds	9,868			—		1,372		(11,763		)	523			—
Other debt securities	713			—		—		(913		)	200			—
Rights and warrants	435			—		753		(1,380		)	192			—
Real estate	6,831			—		—		(6,817		)	(14		)	—
Total assets	$	107,075		$	—	$	76,973	$	(177,570	)	$	(6,478	)	$	—
Liabilities
Derivative liabilities (free standing)	$	(2,085	)	$	—	$	—	$	1,797		$	288		$	—
Derivative liabilities (embedded)	(171		)	—		—		—			149			(22		)
Total liabilities	$	(2,256	)	$	—	$	—	$	1,797		$	437		$	(22	)


(1)	Sales of investments measured at fair value using Level 3 inputs in the year ended December 31, 2018 include the impact of the change in investment account structure as described in Note 4.


(2)	Total change in realized and unrealized gains (losses) recorded on Level 3 financial instruments is included in net investment income (loss) in the consolidated statements of income (loss). Realized and unrealized gains (losses) related to embedded derivatives are included in other expenses in the consolidated statements of income (loss).

Total change in unrealized gains (losses) on fair value of assets using significant unobservable inputs (Level 3) held at the year ended December 31, 2019 was $nil (2018 - $nil and 2017 - $(9.5) million).

For the years ended December 31, 2019 and 2018, there were no changes in the valuation techniques as they relate to the above.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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