Variable Interest Entities and Noncontrolling Interests (Tables)

9 Months Ended

Sep. 30, 2020

Carrying value of assets and liabilities of variable interest entity

The following table provides the carrying amount and balance sheet caption in which the assets and liabilities of Watford are reported:


	September 30,		December 31,
	2020		2019
Assets
Investments accounted for using the fair value option	$	1,937,037	$	1,898,091
Fixed maturities available for sale, at fair value	649,781		745,708
Equity securities, at fair value	52,807		65,338
Cash	195,333		102,437
Accrued investment income	16,234		14,025
Premiums receivable	263,748		273,657
Reinsurance recoverable on unpaid and paid losses and LAE	263,293		170,973
Ceded unearned premiums	131,885		132,577
Deferred acquisition costs	58,583		64,044
Receivable for securities sold	1,730		16,287
Goodwill and intangible assets	7,650		7,650
Other assets	75,139		60,070
Total assets of consolidated VIE	$	3,653,220	$	3,550,857

Liabilities
Reserve for losses and loss adjustment expenses	$	1,429,656	$	1,263,628
Unearned premiums	459,476		438,907
Reinsurance balances payable	68,339		77,066
Revolving credit agreement borrowings	210,687		484,287
Senior notes	172,621		172,418
Payable for securities purchased	76,567		18,180
Other liabilities (1)	316,599		171,714
Total liabilities of consolidated VIE	$	2,733,945	$	2,626,200

Redeemable noncontrolling interests	$	52,375	$	52,305

(1) Includes certain borrowings related to investing activities.

Activity in non-redeemable noncontrolling interests

The following table sets forth activity in the non-redeemable noncontrolling interests:


	September 30,
	2020		2019
Three Months Ended
Balance, beginning of period	$	679,089	$	855,347
Additional paid in capital attributable to noncontrolling interests	243		205
Amounts attributable to noncontrolling interests	67,768		136
Other comprehensive income (loss) attributable to noncontrolling interests	10,820		(764)
Balance, end of period	$	757,920	$	854,924

Nine Months Ended
Balance, beginning of year	$	762,777	$	791,560
Additional paid in capital attributable to noncontrolling interests	715		2,279
Repurchases attributable to non-redeemable noncontrolling interests (1)	(2,867)		—
Amounts attributable to noncontrolling interests	(578)		54,819
Other comprehensive income (loss) attributable to noncontrolling interests	(2,127)		6,266
Balance, end of period	$	757,920	$	854,924

(1) During 2020, Watford’s board of directors authorized the investment in Watford’s common shares through a share repurchase program.

Activity in redeemable noncontrolling interests

The following table sets forth activity in the redeemable non-controlling interests:


	September 30,
	2020		2019
Three Months Ended
Balance, beginning of period	$	55,986	$	206,475
Redemption of noncontrolling interests	—		(157,709)

Accretion of preference share issuance costs	23		23
Other	1,826		—
Balance, end of period	$	57,835	$	48,789

Nine Months Ended
Balance, beginning of year	$	55,404	$	206,292
Redemption of noncontrolling interests	—		(157,709)

Accretion of preference share issuance costs	70		206
Other	2,361		—
Balance, end of period	$	57,835	$	48,789

Portion of income or loss attributable to third party investors

The portion of income or loss attributable to third party investors, recorded in the Company’s consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests,’ are summarized in the table below:


	September 30,
	2020		2019
Three Months Ended
Amounts attributable to non-redeemable noncontrolling interests	$	(67,768)	$	(136)
Amounts attributable to redeemable noncontrolling interests	(1,875)		(6,600)
Net (income) loss attributable to noncontrolling interests	$	(69,643)	$	(6,736)

Nine Months Ended
Amounts attributable to non-redeemable noncontrolling interests	$	578	$	(54,819)
Amounts attributable to redeemable noncontrolling interests	(4,998)		(15,778)
Net (income) loss attributable to noncontrolling interests	$	(4,420)	$	(70,597)

Total assets and maximum exposure to loss associated with VIEs

The following table presents the total assets of the Bellemeade entities, as well as the Company’s maximum exposure to loss associated with these VIEs, calculated as the maximum historical observable spread between the one month LIBOR, the basis for the contractual payments to bond holders, and short term invested trust asset yields.


			Maximum Exposure to Loss
Bellemeade Entities (Issue Date)	Total VIE Assets		On-Balance Sheet (Asset) Liability		Off-Balance Sheet		Total
Sep 30, 2020
Bellemeade 2017-1 Ltd. (Oct-17)	$	145,573	$	(432)	$	2,104	$	1,672
Bellemeade 2018-1 Ltd. (Apr-18)	250,095		(1,592)		4,821		3,229
Bellemeade 2018-2 Ltd. (Aug-18)	187,362		(641)		1,695		1,054
Bellemeade 2018-3 Ltd. (Oct-18)	302,563		(2,477)		7,261		4,784
Bellemeade 2019-1 Ltd. (Mar-19)	219,256		(1,062)		8,944		7,882
Bellemeade 2019-2 Ltd. (Apr-19)	398,316		(1,090)		11,369		10,279
Bellemeade 2019-3 Ltd. (Jul-19)	528,084		(975)		9,156		8,181
Bellemeade 2019-4 Ltd. (Oct-19)	468,737		(1,179)		12,722		11,543
Bellemeade 2020-1 Ltd. (Jun-20) (1)	406,534		(701)		7,590		6,889
Bellemeade 2020-2 Ltd. (Sep-20) (2)	423,420		(322)		9,081		8,759
Total	$	3,329,940	$	(10,471)	$	74,743	$	64,272
Dec 31, 2019
Bellemeade 2017-1 Ltd. (Oct-17)	$	216,429	$	(442)	$	2,794	$	2,352
Bellemeade 2018-1 Ltd. (Apr-18)	328,482		(1,574)		5,757		4,183
Bellemeade 2018-2 Ltd. (Aug-18)	437,009		(877)		2,524		1,647
Bellemeade 2018-3 Ltd. (Oct-18)	426,806		(1,113)		3,937		2,824
Bellemeade 2019-1 Ltd. (Mar-19)	257,358		(226)		3,027		2,801
Bellemeade 2019-2 Ltd. (Apr-19)	525,959		(78)		2,579		2,501
Bellemeade 2019-3 Ltd. (Jul-19)	656,523		(585)		9,273		8,688
Bellemeade 2019-4 Ltd. (Oct-19)	577,267		(302)		12,193		11,891
Total	$	3,425,833	$	(5,197)	$	42,084	$	36,887

(1) An additional $79 million capacity was provided directly to Arch MI U.S. by a separate panel of reinsurers and is not reflected in this table.

(2) An additional $26 million capacity was provided directly to Arch MI U.S. by a separate panel of reinsurers and is not reflected in this table.