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Investment Information
 12 Months Ended
Dec. 31, 2019
Disclosure Investment Information [Abstract]  
Investment Information Investment Information
At December 31, 2019, total investable assets of $24.99 billion included $22.29 billion held by the Company and $2.70 billion attributable to Watford.
Available For Sale Investments
The following table summarizes the fair value and cost or amortized cost of the Company’s securities classified as available for sale:
 
Estimated
Fair
Value
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Cost or Amortized
Cost
 
OTTI Unrealized Losses (2)
December 31, 2019
 
 
 
 
 
 
 
 
 
Fixed maturities (1):
 
 
 
 
 
 
 
 
 
Corporate bonds
$
6,406,591

 
$
191,889

 
$
(12,793
)
 
$
6,227,495

 
$
—

Mortgage backed securities
562,309

 
9,669

 
(931
)
 
553,571

 
(6
)
Municipal bonds
881,926

 
24,628

 
(2,213
)
 
859,511

 
—

Commercial mortgage backed securities
733,108

 
14,951

 
(2,330
)
 
720,487

 
—

U.S. government and government agencies
4,916,592

 
36,600

 
(10,134
)
 
4,890,126

 
—

Non-U.S. government securities
2,078,757

 
48,549

 
(20,330
)
 
2,050,538

 
—

Asset backed securities
1,683,753

 
24,017

 
(4,724
)
 
1,664,460

 
—

Total
17,263,036

 
350,303

 
(53,455
)
 
16,966,188

 
(6
)
Short-term investments
956,546

 
811

 
(1,548
)
 
957,283

 
—

Total
$
18,219,582

 
$
351,114

 
$
(55,003
)
 
$
17,923,471

 
$
(6
)
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
Fixed maturities (1):
 
 
 
 
 
 
 
 
 
Corporate bonds
$
5,537,548

 
$
14,476

 
$
(105,428
)
 
$
5,628,500

 
$
(69
)
Mortgage backed securities
541,193

 
3,991

 
(3,216
)
 
540,418

 
(6
)
Municipal bonds
1,013,395

 
5,380

 
(11,891
)
 
1,019,906

 
—

Commercial mortgage backed securities
729,442

 
2,650

 
(10,751
)
 
737,543

 
—

U.S. government and government agencies
3,758,698

 
27,189

 
(8,474
)
 
3,739,983

 
—

Non-U.S. government securities
1,771,338

 
14,477

 
(50,948
)
 
1,807,809

 
—

Asset backed securities
1,600,896

 
8,060

 
(14,798
)
 
1,607,634

 
—

Total
14,952,510

 
76,223

 
(205,506
)
 
15,081,793

 
(75
)
Short-term investments
955,880

 
36

 
(394
)
 
956,238

 
—

Total
$
15,908,390

 
$
76,259

 
$
(205,900
)
 
$
16,038,031

 
$
(75
)
(1)
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”
(2)
Represents the total OTTI recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At December 31, 2019 and 2018, the net unrealized gain related to securities for which a non-credit OTTI was recognized in AOCI was nil.


The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:
 
Less than 12 Months
 
12 Months or More
 
Total
 
Estimated Fair
Value
 
Gross Unrealized Losses
 
Estimated Fair
Value
 
Gross Unrealized Losses
 
Estimated Fair
Value
 
Gross Unrealized Losses
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities (1):
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
675,131

 
$
(12,350
)
 
$
37,671

 
$
(443
)
 
$
712,802

 
$
(12,793
)
Mortgage backed securities
102,887

 
(927
)
 
203

 
(4
)
 
103,090

 
(931
)
Municipal bonds
220,296

 
(2,213
)
 
—

 
—

 
220,296

 
(2,213
)
Commercial mortgage backed securities
147,290

 
(2,302
)
 
2,683

 
(28
)
 
149,973

 
(2,330
)
U.S. government and government agencies
1,373,127

 
(10,089
)
 
32,058

 
(45
)
 
1,405,185

 
(10,134
)
Non-U.S. government securities
1,224,243

 
(20,163
)
 
37,610

 
(167
)
 
1,261,853

 
(20,330
)
Asset backed securities
441,522

 
(3,334
)
 
48,313

 
(1,390
)
 
489,835

 
(4,724
)
Total
4,184,496

 
(51,378
)
 
158,538

 
(2,077
)
 
4,343,034

 
(53,455
)
Short-term investments
95,777

 
(1,548
)
 
—

 
—

 
95,777

 
(1,548
)
Total
$
4,280,273

 
$
(52,926
)
 
$
158,538

 
$
(2,077
)
 
$
4,438,811

 
$
(55,003
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities (1):
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
2,983,195

 
$
(68,910
)
 
$
1,234,865

 
$
(36,518
)
 
$
4,218,060

 
$
(105,428
)
Mortgage backed securities
84,296

 
(695
)
 
109,009

 
(2,521
)
 
193,305

 
(3,216
)
Municipal bonds
233,081

 
(2,074
)
 
408,155

 
(9,817
)
 
641,236

 
(11,891
)
Commercial mortgage backed securities
223,341

 
(2,831
)
 
193,956

 
(7,920
)
 
417,297

 
(10,751
)
U.S. government and government agencies
635,049

 
(1,354
)
 
391,102

 
(7,120
)
 
1,026,151

 
(8,474
)
Non-U.S. government securities
1,028,340

 
(35,524
)
 
389,671

 
(15,424
)
 
1,418,011

 
(50,948
)
Asset backed securities
533,592

 
(8,832
)
 
368,095

 
(5,966
)
 
901,687

 
(14,798
)
Total
5,720,894

 
(120,220
)
 
3,094,853

 
(85,286
)
 
8,815,747

 
(205,506
)
Short-term investments
122,878

 
(394
)
 
—

 
—

 
122,878

 
(394
)
Total
$
5,843,772

 
$
(120,614
)
 
$
3,094,853

 
$
(85,286
)
 
$
8,938,625

 
$
(205,900
)
(1)
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities pledged. See “—Securities Lending Agreements.”

At December 31, 2019, on a lot level basis, approximately 2,230 security lots out of a total of approximately 9,590 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $0.9 million. The Company believes that such securities were temporarily impaired at December 31, 2019. At December 31, 2018, on a lot level basis, approximately 5,870 security lots out of a total of approximately 8,450 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.6 million.
The contractual maturities of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
December 31, 2019
 
December 31, 2018
Maturity
 
Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
 
Amortized Cost
Due in one year or less
 
$
428,659

 
$
423,617

 
$
276,682

 
$
279,135

Due after one year through five years
 
10,126,403

 
9,996,206

 
8,666,297

 
8,738,944

Due after five years through 10 years
 
3,317,535

 
3,219,567

 
2,919,232

 
2,951,582

Due after 10 years
 
411,269

 
388,280

 
218,768

 
226,537

 
 
14,283,866

 
14,027,670

 
12,080,979

 
12,196,198

Mortgage backed securities
 
562,309

 
553,571

 
541,193

 
540,418

Commercial mortgage backed securities
 
733,108

 
720,487

 
729,442

 
737,543

Asset backed securities
 
1,683,753

 
1,664,460

 
1,600,896

 
1,607,634

Total (1)
 
$
17,263,036

 
$
16,966,188

 
$
14,952,510

 
$
15,081,793


(1)
In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities pledged. See “—Securities Lending Agreements.”
Securities Lending Agreements
The Company enters into securities lending agreements with financial institutions to enhance investment income whereby it loans certain of its securities to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The Company maintains legal control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan to the Company.
The Company receives collateral in the form of cash or securities. Cash collateral primarily consists of short-term investments. At December 31, 2019, the fair value of the cash collateral received on securities lending was $81.2 million and the fair value of security collateral received was $307.2 million. At December 31, 2018, the fair value of the cash collateral received on securities lending was $19.0 million and the fair value of security collateral received was $255.1 million. 
The Company’s securities lending transactions were accounted for as secured borrowings with significant investment categories as follows:
 
 
Remaining Contractual Maturity of the Agreements
 
 
Overnight and Continuous
 
Less than 30 Days
 
30-90 Days
 
90 Days or More
 
Total
December 31, 2019
 
 
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
$
240,332

 
$
—

 
$
115,973

 
$
—

 
$
356,305

Corporate bonds
 
2,570

 
—

 
—

 
—

 
2,570

Equity securities
 
29,491

 
—

 
—

 
—

 
29,491

Total
 
$
272,393

 
$
—

 
$
115,973

 
$
—

 
$
388,366

Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 10
 
—

Amounts related to securities lending not included in offsetting disclosure in Note 10
 
$
388,366

December 31, 2018
 
 
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
$
219,276

 
$
—

 
$
32,583

 
$
—

 
$
251,859

Corporate bonds
 
7,129

 
—

 
—

 
—

 
7,129

Equity securities
 
15,137

 
—

 
—

 
—

 
15,137

Total
 
$
241,542

 
$
—

 
$
32,583

 
$
—

 
$
274,125

Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 10
 
—

Amounts related to securities lending not included in offsetting disclosure in Note 10
 
$
274,125



Equity Securities, at Fair Value
At December 31, 2019, the Company held $838.9 million of equity securities, at fair value, compared to $338.9 million at December 31, 2018. Pursuant to applicable accounting guidance, changes in fair value on equity securities are recorded through net income effective January 1, 2018.
Other Investments
The following table summarizes the Company’s other investments, which are included in investments accounted for using the fair value option, by strategy:

December 31,

2019

2018
Term loan investments
1,326,018


1,282,287

Lending
602,841


524,112

Credit related funds
123,020


202,123

Energy
97,402


117,509

Investment grade fixed income
151,594


101,902

Infrastructure
61,786


45,371

Private equity
49,376


24,383

Real estate
17,279


14,252

Total
$
2,429,316


$
2,311,939


Investments Accounted For Using the Equity Method
The following table summarizes the Company’s investments accounted for using the equity method, by strategy:

December 31,

2019
 
2018
Credit related funds
$
428,437

 
$
429,402

Equities
293,686

 
375,273

Real estate
246,851

 
232,647

Lending
202,690

 
125,041

Private equity
144,983

 
114,019

Infrastructure
235,033

 
113,748

Energy
108,716

 
103,661

Total
$
1,660,396

 
$
1,493,791

In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.
A summary of financial information for the Company’s investment funds accounted for using the equity method is as follows:
 
December 31,
 
2019
 
2018
Invested assets
$
26,383,370

 
$
28,299,386

Total assets
28,039,181

 
29,833,681

Total liabilities
3,595,695

 
3,406,612

Net assets
$
24,443,486

 
$
26,427,069

 
Year Ended December 31,
 
2019
 
2018
 
2017
Total revenues
$
164,669

 
$
4,565,354

 
$
3,867,874

Total expenses
528,762

 
1,135,602

 
782,773

Net income (loss)
$
(364,093
)
 
$
3,429,752

 
$
3,085,101


Certain of the Company’s other investments and investments accounted for using the equity method are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company’s ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.
Fair Value Option
The following table summarizes the Company’s assets which are accounted for using the fair value option:
 
December 31,
 
2019
 
2018
Fixed maturities
$
754,452

 
$
1,245,562

Other investments
2,429,316

 
2,311,939

Short-term investments
377,014

 
322,177

Equity securities
102,695

 
103,893

Investments accounted for using the fair value option
$
3,663,477

 
$
3,983,571


Limited Partnership Interests
In the normal course of its activities, the Company invests in limited partnerships as part of its overall investment strategy. Such amounts are included in ‘investments accounted for using the equity method’ and ‘investments accounted for using the fair value option.’ The Company determined that these limited partnership interests represented variable interests in the funds because the general partner did not have a significant interest in the funds. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfunded commitment.
The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet item:
 
December 31,
 
2019
 
2018
Investments accounted for using the equity method (1)
$
1,660,396

 
$
1,493,791

Investments accounted for using the fair value option (2)
188,283

 
162,398

Total
$
1,848,679

 
$
1,656,189

(1)
Aggregate unfunded commitments were $1.36 billion at December 31, 2019, compared to $1.22 billion at December 31, 2018.
(2)
Aggregate unfunded commitments were $41.7 million at December 31, 2019, compared to $117.5 million at December 31, 2018.
Net Investment Income
The components of net investment income were derived from the following sources:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Fixed maturities
$
505,399

 
$
470,912

 
$
385,919

Term loans
98,949

 
87,926

 
86,017

Equity securities
15,857

 
13,154

 
11,752

Short-term investments
15,820

 
18,793

 
10,964

Other (1)
80,618

 
64,942

 
68,249

Gross investment income
716,643

 
655,727

 
562,901

Investment expenses
(88,905
)
 
(92,094
)
 
(92,029
)
Net investment income
$
627,738

 
$
563,633

 
$
470,872


(1)
Includes income distributions from investment funds and other items.

Net Realized Gains (Losses)
Net realized gains (losses) were as follows, excluding the other-than-temporary impairment provisions:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Available for sale securities:
 
 
 
 
 
Gross gains on investment sales
$
235,655

 
$
69,299

 
$
286,415

Gross losses on investment sales
(104,612
)
 
(223,123
)
 
(203,873
)
Change in fair value of assets and liabilities accounted for using the fair value option:
 
 
 
 
 
Fixed maturities
41,910

 
(90,898
)
 
29,451

Other investments
(35,734
)
 
(90,778
)
 
51,124

Equity securities
15,869

 
(5,984
)
 
18,707

Short-term investments
3,801

 
(461
)
 
272

Equity securities, at fair value (1):
 
 
 
 
 
Net realized gains (losses) on securities sold
11,313

 
(40,117
)
 
—

Net unrealized gains (losses) on equity securities still held at reporting date
97,768

 
(22,828
)
 
—

Derivative instruments (2)
119,741

 
15,636

 
(7,356
)
Other (3)
(19,348
)
 
(16,090
)
 
(25,599
)
Net realized gains (losses)
$
366,363

 
$
(405,344
)
 
$
149,141


(1)
Effective January 1, 2018, changes in fair value on equity securities are recorded through net income.
(2)
See Note 10 for information on the Company’s derivative instruments.
(3)
Includes the re-measurement of contingent consideration liability amounts.

Equity in Net Income (Loss) of Investments Accounted For Using the Equity Method
The Company recorded equity in net income related to investments accounted for using the equity method of $123.7 million for 2019, compared to $45.6 million for 2018 and $142.3 million for 2017.
Other-Than-Temporary Impairments
The Company performs quarterly reviews of its available for sale investments in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance.
The following table details the net impairment losses recognized in earnings by asset class:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Fixed maturities:
 
 
 
 
 
Mortgage backed securities
$
(915
)
 
$
(437
)
 
$
(1,488
)
Corporate bonds
(1,256
)
 
(1,232
)
 
(2,884
)
Non-U.S. government securities
—

 
(290
)
 
(376
)
Asset backed securities
(994
)
 
(811
)
 
—

U.S. government and government agencies
—

 
—

 
(426
)
Municipal bonds
—

 
—

 
(375
)
Total
(3,165
)
 
(2,770
)
 
(5,549
)
Short-term investments
—

 
(59
)
 
—

Equity securities
—

 
—

 
(1,422
)
Other investments
—

 
—

 
(167
)
Net impairment losses recognized in earnings
$
(3,165
)
 
$
(2,829
)
 
$
(7,138
)

A description of the methodology and significant inputs used to measure the amount of net impairment losses recognized in earnings in 2019 is as follows:
•
Corporate bonds – the Company reviewed the business prospects, credit ratings, estimated loss given default factors, foreign currency impacts and information received from asset managers and rating agencies for certain corporate bonds. Impairment losses were primarily from foreign currency impacts;
•
Mortgage backed and asset backed securities – the Company utilized underlying data provided by asset managers, cash flow projections and additional information from credit agencies in order to determine an expected recovery value for each security.
The Company believes that the OTTI included in accumulated other comprehensive income at December 31, 2019 on the securities which were considered by the Company to be impaired was due to market and sector-related factors (i.e., not credit losses). At December 31, 2019, the Company did not intend to sell these securities, or any other securities which were in an unrealized loss position, and determined that it is more likely than not that the Company will not be required to sell such securities before recovery of their cost basis.
The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Balance at start of year
$
637

 
$
767

 
$
13,138

Credit loss impairments recognized on securities not previously impaired
—

 
—

 
31

Credit loss impairments recognized on securities previously impaired
—

 
—

 
210

Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security
—

 
—

 
—

Reductions for securities sold during the period
(291
)
 
(130
)
 
(12,612
)
Balance at end of year
$
346

 
$
637

 
$
767


Restricted Assets
The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its underwriting operations. The Company’s subsidiaries maintain assets in trust accounts as collateral for transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties
The following table details the value of the Company’s restricted assets:
 
December 31,
 
2019
 
2018
Assets used for collateral or guarantees:
 
 
 
Affiliated transactions
$
4,526,761

 
$
4,623,483

Third party agreements
2,278,248

 
2,181,682

Deposits with U.S. regulatory authorities
797,371

 
689,114

Deposits with non-U.S. regulatory authorities
119,238

 
59,624

Total restricted assets
$
7,721,618

 
$
7,553,903


In addition, Watford maintains a secured credit facility to provide borrowing capacity for investment purposes and a total return swap agreement and maintains assets pledged as collateral for such purposes. The Company does not guarantee or provide credit support for Watford, and the Company’s financial exposure to Watford is limited to its investment in Watford’s senior notes, common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions. As of December 31, 2019 and December 31, 2018, Watford held $1.0 billion and $1.3 billion, respectively, in pledged assets to collateralize the credit facility mentioned above.
Reconciliation of Cash and Restricted Cash
The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:
 
December 31,
 
2019
 
2018
 
2017
Cash
$
726,230

 
$
646,556

 
$
606,199

Restricted cash (included in ‘other assets’)
177,468

 
78,087

 
121,085

Cash and restricted cash
$
903,698

 
$
724,643

 
$
727,284