Fair Value (Tables)

12 Months Ended

Dec. 31, 2017

Financial instruments measured at fair value and categorized between Levels 1, 2 and 3

At December 31, 2017 and 2016, the Company’s financial instruments measured at fair value were classified between Levels 1, 2 and 3 as follows (in thousands of U.S. dollars):



December 31, 2017	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Total
Fixed maturities
U.S. government and government sponsored enterprises	$	—	$	2,205,964		$	—		$	2,205,964
U.S. states, territories and municipalities	—		561,505			128,806			690,311
Non-U.S. sovereign government, supranational and government related	—		1,750,770			—			1,750,770
Corporate bonds	—		6,128,636			—			6,128,636
Asset-backed securities	—		30,965			20,738			51,703
Residential mortgage-backed securities	—		1,822,725			—			1,822,725
Other mortgage-backed securities	—		4,750			—			4,750
Fixed maturities	$	—	$	12,505,315		$	149,544		$	12,654,859
Short-term investments	$	—	$	4,400		$	—		$	4,400
Equities
Finance	$	11,115	$	1		$	21,926		$	33,042
Industrials	16,534		—			—			16,534
Technology	1,990		—			10,961			12,951
Insurance	—		7,558			—			7,558
Communications	3,215		—			—			3,215
Consumer cyclical	2,170		—			—			2,170
Consumer noncyclical	897		—			—			897
Other	3,493		—			—			3,493
Mutual funds and exchange traded funds	—		—			558,736			558,736
Equities	$	39,414	$	7,559		$	591,623		$	638,596
Other invested assets
Derivative assets
Foreign exchange forward contracts	$	—	$	8,559		$	—		$	8,559
Futures contracts	3,367		—			—			3,367
Insurance-linked securities	—		—			11,985			11,985
Total return swaps	—		—			2,505			2,505
TBAs	—		391			—			391
Other
Corporate loans	—		—			205,331			205,331
Notes and loan receivables and notes securitization	—		3,425			108,563			111,988
Private equities	—		—			331,932			331,932
Derivative liabilities
Foreign exchange forward contracts	—		(20,328		)	—			(20,328		)
Total return swaps	—		—			(3,269		)	(3,269		)
Interest rate swaps	—		(12,298		)	—			(12,298		)
TBAs	—		(591		)	—			(591		)
Other invested assets	$	3,367	$	(20,842	)	$	657,047		$	639,572
Funds held–directly managed
U.S. government and government sponsored enterprises	$	—	$	161,023		$	—		$	161,023
Non-U.S. sovereign government, supranational and government related	—		95,812			—			95,812
Corporate bonds	—		41,090			—			41,090
Short-term investments	—		453			—			453
Other invested assets	—		—			2,067			2,067
Funds held–directly managed	$	—	$	298,378		$	2,067		$	300,445
Total	$	42,781	$	12,794,810		$	1,400,281		$	14,237,872



December 31, 2016	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Total
Fixed maturities
U.S. government and government sponsored enterprises	$	—	$	3,541,433		$	—		$	3,541,433
U.S. states, territories and municipalities	—		560,728			123,827			684,555
Non-U.S. sovereign government, supranational and government related	—		1,136,034			—			1,136,034
Corporate	—		5,705,522			—			5,705,522
Asset-backed securities	—		24,709			99,351			124,060
Residential mortgage-backed securities	—		2,240,897			—			2,240,897
Fixed maturities	$	—	$	13,209,323		$	223,178		$	13,432,501
Short-term investments	$	—	$	21,697		$	—		$	21,697
Equities
Finance	$	973	$	4,960		$	20,934		$	26,867
Technology	—		—			9,800			9,800
Insurance	—		1,800			—			1,800
Consumer noncyclical	6		—			—			6
Mutual funds and exchange traded funds	—		—			153			153
Equities	$	979	$	6,760		$	30,887		$	38,626
Other invested assets
Derivative assets
Foreign exchange forward contracts	$	—	$	5,263		$	—		$	5,263
Insurance-linked securities	—		—			10,130			10,130
Total return swaps	—		—			1,989			1,989
TBAs	—		1,369			—			1,369
Other
Notes and loan receivables and notes securitization	—		1,500			141,693			143,193
Private equities	—		—			305,729			305,729
Derivative liabilities
Foreign exchange forward contracts	—		(7,142		)	—			(7,142		)
Insurance-linked securities	—		—			(97		)	(97		)
Total return swaps	—		—			(3,217		)	(3,217		)
Interest rate swaps	—		(13,403		)	—			(13,403		)
TBAs	—		(185		)	—			(185		)
Other invested assets	$	—	$	(12,598	)	$	456,227		$	443,629
Funds held–directly managed
U.S. government and government sponsored enterprises	$	—	$	171,975		$	—		$	171,975
Non-U.S. sovereign government, supranational and government related	—		104,512			—			104,512
Corporate bonds	—		71,365			—			71,365
Short-term investments	—		1,603			—			1,603
Other invested assets	—		—			4,540			4,540
Funds held–directly managed	$	—	$	349,455		$	4,540		$	353,995
Total	$	979	$	13,574,637		$	714,832		$	14,290,448

Reconciliation of beginning and ending balances for all financial instruments measured at fair value using Level 3 inputs

The reconciliations of the beginning and ending balances for all financial instruments measured at fair value using Level 3 inputs for the years ended December 31, 2017 and 2016, were as follows (in thousands of U.S. dollars):



For the year ended December 31, 2017	Balance at beginning of year		Realized and unrealized investment gains (losses) included in net income			Purchases and issuances ⁽¹⁾		Settlements and sales ⁽²⁾			Net transfers into (out of) Level 3		Balance at end of year		Change in unrealized investment gains (losses) relating to assets held at end of year
Fixed maturities
U.S. states, territories and municipalities	$	123,827	$	5,804		$	—	$	(825	)	$	—	$	128,806	$	5,804
Asset-backed securities	99,351		3,300			1,360		(83,273		)	—		20,738		1,316
Fixed maturities	$	223,178	$	9,104		$	1,360	$	(84,098	)	$	—	$	149,544	$	7,120
Equities
Finance	$	20,934	$	992		$	—	$	—		$	—	$	21,926	$	992
Technology	9,800		1,611			—		(450		)	—		10,961		1,611
Mutual funds and exchange traded funds	153		51,476			507,250		(143		)	—		558,736		51,486
Equities	$	30,887	$	54,079		$	507,250	$	(593	)	$	—	$	591,623	$	54,089
Other invested assets
Derivatives, net	$	8,805	$	5,977		$	1,793	$	(5,354	)	$	—	$	11,221	$	3,231
Corporate loans	—		(709		)	206,700		(660		)	—		205,331		(695		)
Notes and loan receivables and notes securitization	141,693		2,744			2,040		(37,914		)	—		108,563		6,977
Private equities	305,729		29,942			17,572		(21,311		)	—		331,932		27,533
Other invested assets	$	456,227	$	37,954		$	228,105	$	(65,239	)	$	—	$	657,047	$	37,046
Funds held–directly managed	$	4,540	$	(516	)	$	495	$	(2,452	)	$	—	$	2,067	$	(629	)
Total	$	714,832	$	100,621		$	737,210	$	(152,382	)	$	—	$	1,400,281	$	97,626


(1)	Purchases and issuances of derivatives include issuances of $2 million.


(2)	Settlements and sales of equities include sales of $1 million.



For the year ended December 31, 2016	Balance at beginning of year		Realized and unrealized investment (losses) gains included in net income			Purchases and issuances ⁽¹⁾		Settlements and sales ⁽²⁾			Net transfers into (out of) Level 3		Balance at end of year		Change in unrealized investment (losses) gains relating to assets held at end of year
Fixed maturities
U.S. states, territories and municipalities	$	138,847	$	(14,240	)	$	—	$	(780	)	$	—	$	123,827	$	(14,240	)
Asset-backed securities	369,699		21			191,048		(461,417		)	—		99,351		(4,628		)
Fixed maturities	$	508,546	$	(14,219	)	$	191,048	$	(462,197	)	$	—	$	223,178	$	(18,868	)
Equities
Finance	$	22,760	$	3,438		$	—	$	(5,264	)	$	—	$	20,934	$	3,211
Technology	8,207		1,143			450		—			—		9,800		1,143
Communications	1,985		209			—		(2,194		)	—		—		55
Mutual funds and exchange traded funds	4,604		(242		)	—		(4,209		)	—		153		14
Equities	$	37,556	$	4,548		$	450	$	(11,667	)	$	—	$	30,887	$	4,423
Other invested assets
Derivatives, net	$	5,351	$	(3,314	)	$	2,256	$	4,512		$	—	$	8,805	$	(1,772	)
Notes and loan receivables and notes securitization	125,922		2,599			71,828		(58,656		)	—		141,693		2,278
Annuities and residuals	8,436		262			—		(8,698		)	—		—		—
Private equities	71,298		6,764			236,022		(8,355		)	—		305,729		2,827
Other invested assets	$	211,007	$	6,311		$	310,106	$	(71,197	)	$	—	$	456,227	$	3,333
Funds held–directly managed	$	10,146	$	1,698		$	1,011	$	(8,315	)	$	—	$	4,540	$	1,678
Total	$	767,255	$	(1,662	)	$	502,615	$	(553,376	)	$	—	$	714,832	$	(9,434	)


(1)	There were no issuances included in the purchases and issuances amounts above.


(2)	Settlements and sales of fixed maturities, equities, other invested assets and funds held–directly managed include sales of $276 million, $12 million, $43 million and $8 million, respectively.

Summary of significant unobservable inputs used in the valuation of financial instruments

The significant unobservable inputs used in the valuation of financial instruments measured at fair value using Level 3 inputs at December 31, 2017 and 2016 were as follows (fair value in thousands of U.S. dollars):



December 31, 2017	Fair value			Valuation techniques	Unobservable inputs	Range (Weighted average)
Fixed maturities
U.S. states, territories and municipalities	$	128,806		Discounted cash flow	Credit spreads	0.2% – 10.2% (4.7%)
Asset-backed securities	20,738			Discounted cash flow	Credit spreads	4.7% (4.7%)
Equities
Finance	21,926			Weighted market comparables	Net income multiple	16.7 (16.7)
				Weighted market comparables	Tangible book value multiple	2.0 (2.0)
					Liquidity discount	25.0% (25.0%)
					Comparable return	4.1% (4.1%)
Technology	10,961			Reported market value	Tangible book value multiple	100.0% (100.0%)
Other invested assets
Total return swaps, net	(764		)	Discounted cash flow	Credit spreads	2.4% – 30.8% (18.5%)
Insurance-linked securities – longevity swaps	11,962			Discounted cash flow	Credit spreads	1.7% (1.7%)
Notes and loan receivables	102,907			Discounted cash flow	Credit spreads	3.9% – 39.3% (6.1%)
Notes and loan receivables	4,265			Discounted cash flow	Credit spreads	17.5% (17.5%)
Notes and loan receivables				Discounted cash flow	Gross revenue/fair value	1.1 (1.1)
Notes securitization	1,391			Discounted cash flow	Credit spreads	1.5% (1.5%)
Private equity – direct	3,011			Discounted cash flow and market multiples	Tangible book value multiple	0.8 (0.8)
				Discounted cash flow and market multiples	Recoverability of intangible assets	0% (0%)
Private equity funds	12,559			Reported market value	Net asset value, as reported	100.0% (100.0%)
				Reported market value	Market adjustments	-0.7% (-0.7%)
Private equity – other	24,241			Discounted cash flow	Effective yield	3.8% (3.8%)
Funds held–directly managed
Other invested assets	2,067			Reported market value	Net asset value, as reported	100.0% (100.0%)
				Reported market value	Market adjustments	0% (0%)



December 31, 2016	Fair value			Valuation techniques	Unobservable inputs	Range (Weighted average)
Fixed maturities
U.S. states, territories and municipalities	$	123,827		Discounted cash flow	Credit spreads	1.5% – 10.5% (6.3%)
Asset-backed securities	99,351			Discounted cash flow	Credit spreads	4.1% – 18.5% (14.9%)
Equities
Finance	20,934			Weighted market comparables	Net income multiple	20.3 (20.3)
				Weighted market comparables	Tangible book value multiple	1.9 (1.9)
					Liquidity discount	25.0% (25.0%)
					Comparable return	36.9% (36.9%)

Technology	9,800			Reported market value	Tangible book value multiple	100.0% (100.0%)
Other invested assets
Total return swaps, net	(1,228		)	Discounted cash flow	Credit spreads	2.9% – 29.4% (19.3%)
Insurance-linked securities – longevity swaps	9,218			Discounted cash flow	Credit spreads	2.6% (2.6%)
Notes and loan receivables	131,176			Discounted cash flow	Credit spreads	4.2% – 24.4% (5.2%)
Notes and loan receivables	8,953			Discounted cash flow	Credit spreads	17.5% (17.5%)
Notes and loan receivables				Discounted cash flow	Gross revenue/fair value	1.2 (1.2)
Notes securitization	1,564			Discounted cash flow	Credit spreads	3.3% (3.3%)
Private equity – direct	5,019			Discounted cash flow and weighted market comparables	Net income multiple	8.6 (8.6)
					Tangible book value multiple	2.0 (2.0)
					Recoverability of intangible assets	0% (0%)
Private equity funds	11,064			Reported market value	Net asset value, as reported	100.0% (100.0%)
				Reported market value	Market adjustments	-0.7% (-0.7%)
Private equity – other	29,949			Discounted cash flow	Effective yield	5.8% (5.8%)
Funds held–directly managed
Other invested assets	4,540			Reported market value	Net asset value, as reported	100.0% (100.0%)
				Reported market value	Market adjustments	0% (0%)

Change in fair value of financial instruments subject to fair value option

Changes in the fair value of the Company’s financial instruments subject to the fair value option during the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands of U.S. dollars):



	2017			2016			2015
Fixed maturities and short-term investments	$	124,033		$	(90,334	)	$	(276,776	)
Equities	60,460			(14,850		)	(187,561		)
Other invested assets	28,144			11,066			(1,835		)
Funds held–directly managed	(5,612		)	(721		)	(6,323		)
Total	$	207,025		$	(94,839	)	$	(472,495	)

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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