Holdings Ltd’s 6.5% senior notes, due July 2, 2029 and approximately 6.6% of Watford’s preference shares.

Watford is considered a VIE and the Company concluded that it is the primary beneficiary of Watford. As such, the results of Watford are included in the Company’s consolidated financial statements.

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.

In the 2020 fourth quarter, Arch Capital, Watford Holdings Ltd. and Greysbridge Ltd., a wholly-owned subsidiary of Arch Capital, entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) pursuant to which, among other things, Arch Capital agreed to acquire all of the common shares of Watford Holdings Ltd. not owned by Arch for a cash purchase price of $35.00 per common share. Arch Capital has assigned its rights under the Merger Agreement to Greysbridge Holdings Ltd., a wholly-owned subsidiary of Arch Capital (“Greysbridge”). The transaction is expected to close in the second quarter of 2021 and remains subject to customary closing conditions. Shareholder approval has been obtained and regulatory approvals are ongoing. Upon closing of the transaction, Watford will be wholly owned by Greysbridge and Greysbridge will be owned 40% by Arch Re Bermuda, 30% by certain investment funds managed by Kelso & Company and 30% by certain investment funds managed by Warburg Pincus LLC.

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


	March 31,		December 31,
	2021		2020
Assets
Investments accounted for using the fair value option (1)	$	1,880,768	$	1,790,385
Fixed maturities available for sale, at fair value	627,387		655,249
Equity securities, at fair value	62,314		52,410
Cash	236,164		211,451
Accrued investment income	14,325		14,679
Premiums receivable	252,523		224,377
Reinsurance recoverable on unpaid and paid losses and LAE	291,485		286,590
Ceded unearned premiums	113,180		122,339
Deferred acquisition costs	62,224		53,705
Receivable for securities sold	68,076		37,423
Goodwill and intangible assets	7,650		7,650
Other assets	87,358		75,801
Total assets of consolidated VIE	$	3,703,454	$	3,532,059

Liabilities
Reserve for losses and loss adjustment expenses	$	1,568,243	$	1,519,583
Unearned premiums	426,975		407,714
Reinsurance balances payable	77,041		63,269
Revolving credit agreement borrowings	155,687		155,687
Senior notes	172,757		172,689
Payable for securities purchased	59,230		25,881
Other liabilities	214,103		193,494
Total liabilities of consolidated VIE	$	2,674,036	$	2,538,317

Redeemable noncontrolling interests	$	52,421	$	52,398

(1) Includes in “other investments” on the Company’s balance sheet.

For the three months ended March 31, 2021, Watford generated $7.0 million of cash provided by operating activities, $21.4 million of cash provided by investing activities and $1.0 million of cash used for financing activities, compared to $24.6 million of cash provided by operating activities, $35.7 million of cash used for investing activities and $12.3 million of cash provided by financing activities for the three months ended March 31, 2020.

Non-redeemable noncontrolling interests

The Company accounts for the portion of Watford’s common equity attributable to third party investors in the shareholders’ equity section of its consolidated balance sheets. The noncontrolling ownership in Watford’s common shares was approximately 90% at March 31, 2021. The portion of Watford’s income or loss attributable to third party investors is recorded in the consolidated statements of income in ‘net (income) loss attributable to noncontrolling interests.’

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


	March 31,
	2021		2020
Three Months Ended
Balance, beginning of period	$	823,007	$	762,777
Additional paid in capital attributable to noncontrolling interests	21,730		(123)
Repurchases attributable to non-redeemable noncontrolling interests (1)	—		(2,867)
Amounts attributable to noncontrolling interests	36,697		(233,944)
Other comprehensive income (loss) attributable to noncontrolling interests	(4,570)		(33,058)
Balance, end of period	$	876,864	$	492,785

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

Redeemable noncontrolling interests

The Company accounts for redeemable noncontrolling interests in the mezzanine section of its consolidated balance sheets in accordance with applicable accounting guidance. Such redeemable noncontrolling interests primarily relate to the Watford Preference Shares issued in late March 2014 with a par value of $0.01 per share and a liquidation preference of $25.00 per share. The Watford Preference Shares were issued at a discounted amount of $24.50 per share. Preferred dividends, including the accretion of the discount and issuance costs, are included in ‘net (income) loss attributable to noncontrolling interests’ in the Company’s consolidated statements of income.

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


	March 31,
	2021		2020
Three Months Ended
Balance, beginning of period	$	58,548	$	55,404


Accretion of preference share issuance costs	23		23
Other	(901)		(51)
Balance, end of period	$	57,670	$	55,376

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:


	March 31,
	2021		2020
Three Months Ended
Amounts attributable to non-redeemable noncontrolling interests	$	(36,697)	$	233,944
Amounts attributable to redeemable noncontrolling interests	(855)		(1,153)
Net (income) loss attributable to noncontrolling interests	$	(37,552)	$	232,791

Bellemeade Re

The Company has entered into various aggregate excess of loss mortgage reinsurance agreements with various special purpose reinsurance companies domiciled in Bermuda (the “Bellemeade Agreements”). At the time the Bellemeade Agreements were entered into, the applicability of the accounting guidance that addresses VIEs was evaluated. As a result of the evaluation of the Bellemeade Agreements, the Company concluded that these entities are VIEs. However, given that the ceding insurers do not have the unilateral power to direct those activities that are significant to their economic performance, the Company does not consolidate such entities in its consolidated financial statements.

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 benchmark index for each respective transaction and short term invested trust asset yields. The benchmark index for agreements effective prior to 2021 is based on one-month LIBOR, while the 2021 agreement benchmark index is based on the Secured Overnight Financing Rate (“SOFR”). SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions.


			March 31, 2021								December 31, 2020
			Maximum Exposure to Loss								Maximum Exposure to Loss
Bellemeade Entities (Issue Date)	Total VIE Assets		On-Balance Sheet (Asset) Liability		Off-Balance Sheet		Total		Total VIE Assets		On-Balance Sheet (Asset) Liability		Off-Balance Sheet		Total

Bellemeade 2017-1 Ltd. (Oct-17)	$	145,573	$	(306)	$	1,152	$	846	$	145,573	$	(245)	$	844	$	599
Bellemeade 2018-1 Ltd. (Apr-18)	250,095		(1,081)		2,885		1,804		250,095		(903)		2,245		1,342
Bellemeade 2018-2 Ltd. (Aug-18)	66,747		(32)		62		30		108,395		(138)		280		142
Bellemeade 2018-3 Ltd. (Oct-18)	302,563		(1,604)		4,277		2,673		302,563		(1,320)		3,262		1,942
Bellemeade 2019-1 Ltd. (Mar-19)	219,256		(1,117)		7,991		6,874		219,256		(1,361)		8,461		7,100
Bellemeade 2019-2 Ltd. (Apr-19)	398,316		(780)		6,577		5,797		398,316		(730)		5,201		4,471
Bellemeade 2019-3 Ltd. (Jul-19)	528,084		(898)		6,047		5,149		528,084		(861)		5,079		4,218
Bellemeade 2019-4 Ltd. (Oct-19)	468,737		(908)		8,034		7,126		468,737		(890)		6,676		5,786
Bellemeade 2020-1 Ltd. (Jun-20) (1)	132,881		(58)		294		236		275,068		(178)		1,012		834
Bellemeade 2020-2 Ltd. (Sep-20) (2)	368,797		(370)		6,077		5,707		423,420		(556)		6,839		6,283
Bellemeade 2020-3 Ltd. (Nov-20) (3)	418,158		(433)		9,527		9,094		418,158		(631)		9,605		8,974
Bellemeade 2020-4 Ltd. (Dec-20) (4)	321,393		(23)		5,969		5,946		321,393		(156)		6,816		6,660
Bellemeade 2021-1 Ltd. (Mar-21) (5)	579,717		—		4,767		4,767		—		—		—		—
Total	$	4,200,317	$	(7,610)	$	63,659	$	56,049	$	3,859,058	$	(7,969)	$	56,320	$	48,351

(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.

(3) An additional $34 million capacity was provided directly to Arch MI U.S. by a separate panel of reinsurers and is not reflected in this table.

(4) An additional $16 million capacity was provided directly to Arch MI U.S. by a separate panel of reinsurers and is not reflected in this table.

(5) An additional $64 million capacity was provided directly to Arch MI U.S. by a separate panel of reinsurers and is not reflected in this table.