Investment Information

3 Months Ended

Mar. 31, 2022

Disclosure Investment Information [Abstract]

Investment Information

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		Allowance for Expected Credit Losses		Cost or Amortized Cost
March 31, 2022
Fixed maturities:
Corporate bonds	$	7,231,686	$	31,393	$	(356,464)	$	(26,509)	$	7,583,266
Mortgage backed securities	416,138		1,717		(28,430)		(797)		443,648
Municipal bonds	370,470		4,169		(10,900)		(106)		377,307
Commercial mortgage backed securities	1,066,365		751		(15,862)		(256)		1,081,732
U.S. government and government agencies	4,716,790		10,031		(178,836)		—		4,885,595
Non-U.S. government securities	2,169,714		42,121		(92,040)		(532)		2,220,165
Asset backed securities	1,677,690		1,128		(43,473)		(5,945)		1,725,980
Total	17,648,853		91,310		(726,005)		(34,145)		18,317,693
Short-term investments	2,332,624		758		(647)		—		2,332,513
Total	$	19,981,477	$	92,068	$	(726,652)	$	(34,145)	$	20,650,206
December 31, 2021
Fixed maturities:
Corporate bonds	$	6,553,333	$	104,170	$	(69,194)	$	(2,037)	$	6,520,394
Mortgage backed securities	408,477		2,825		(5,410)		(48)		411,110
Municipal bonds	404,666		18,724		(1,409)		(2)		387,353
Commercial mortgage backed securities	1,046,484		1,740		(3,117)		(6)		1,047,867
U.S. government and government agencies	4,772,764		10,076		(45,967)		—		4,808,655
Non-U.S. government securities	2,120,294		54,048		(34,749)		(82)		2,101,077
Asset backed securities	2,692,091		6,540		(11,108)		(708)		2,697,367
Total	17,998,109		198,123		(170,954)		(2,883)		17,973,823
Short-term investments	1,734,716		568		(590)		—		1,734,738
Total	$	19,732,825	$	198,691	$	(171,544)	$	(2,883)	$	19,708,561

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
March 31, 2022
Fixed maturities:
Corporate bonds	$	5,798,556	$	(305,661)	$	513,866	$	(50,803)	$	6,312,422	$	(356,464)
Mortgage backed securities	328,090		(21,714)		68,490		(6,716)		396,580		(28,430)
Municipal bonds	203,717		(9,578)		14,759		(1,322)		218,476		(10,900)
Commercial mortgage backed securities	942,203		(15,815)		1,654		(47)		943,857		(15,862)
U.S. government and government agencies	4,201,416		(173,754)		80,735		(5,082)		4,282,151		(178,836)
Non-U.S. government securities	2,045,013		(82,107)		98,575		(9,933)		2,143,588		(92,040)
Asset backed securities	1,450,006		(41,196)		110,116		(2,277)		1,560,122		(43,473)
Total	14,969,001		(649,825)		888,195		(76,180)		15,857,196		(726,005)
Short-term investments	420,157		(647)		—		—		420,157		(647)
Total	$	15,389,158	$	(650,472)	$	888,195	$	(76,180)	$	16,277,353	$	(726,652)
December 31, 2021
Fixed maturities:
Corporate bonds	$	3,639,582	$	(63,938)	$	98,867	$	(5,256)	$	3,738,449	$	(69,194)
Mortgage backed securities	222,176		(3,545)		46,809		(1,865)		268,985		(5,410)
Municipal bonds	26,665		(385)		16,361		(1,024)		43,026		(1,409)
Commercial mortgage backed securities	675,603		(2,805)		5,908		(312)		681,511		(3,117)
U.S. government and government agencies	4,211,621		(44,180)		33,373		(1,787)		4,244,994		(45,967)
Non-U.S. government securities	1,511,301		(31,983)		62,957		(2,766)		1,574,258		(34,749)
Asset backed securities	1,667,002		(9,853)		33,082		(1,255)		1,700,084		(11,108)
Total	11,953,950		(156,689)		297,357		(14,265)		12,251,307		(170,954)
Short-term investments	284,733		(590)		—		—		284,733		(590)
Total	$	12,238,683	$	(157,279)	$	297,357	$	(14,265)	$	12,536,040	$	(171,544)

At March 31, 2022, on a lot level basis, approximately 6,550 security lots out of a total of approximately 9,060 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 $3.6 million. At December 31, 2021, on a lot level basis, approximately 4,700 security lots out of a total of approximately 10,240 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 $1.1 million.

The contractual maturities of the Company’s fixed maturities 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.

	March 31, 2022				December 31, 2021
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	313,167	$	311,780	$	300,889	$	299,772
Due after one year through five years	9,592,143		9,884,149		8,355,255		8,339,387
Due after five years through 10 years	4,107,319		4,353,470		4,689,155		4,684,393
Due after 10 years	476,031		516,934		505,758		493,927
	14,488,660		15,066,333		13,851,057		13,817,479
Mortgage backed securities	416,138		443,648		408,477		411,110
Commercial mortgage backed securities	1,066,365		1,081,732		1,046,484		1,047,867
Asset backed securities	1,677,690		1,725,980		2,692,091		2,697,367
Total	$	17,648,853	$	18,317,693	$	17,998,109	$	17,973,823

Equity Securities, at Fair Value

At March 31, 2022, the Company held $1.0 billion of equity securities, at fair value, compared to $1.8 billion at December 31, 2021. Such holdings include publicly traded common stocks primarily in the consumer cyclical and non-cyclical, technology, communication and financial sectors and exchange-traded funds in fixed income, equity and other sectors.

Other Investments, at Fair Value

The following table summarizes the Company’s other investments and other investable assets:

	March 31, 2022		December 31, 2021
Fixed maturities	$	426,187	$	416,698
Other investments	1,226,808		1,432,553
Short-term investments	12,371		97,806
Equity securities	21,300		26,493
Total	$	1,686,666	$	1,973,550

The following table summarizes the Company’s other investments, as detailed in the previous table, by strategy:

	March 31, 2022		December 31, 2021
Lending	$	472,099	$	536,345
Investment grade fixed income	350,217		147,810
Term loan investments	160,945		484,950
Private equity	98,471		91,126
Energy	81,693		81,692
Credit related funds	63,383		70,278
Infrastructure	—		20,352
Total	$	1,226,808	$	1,432,553

Investments Accounted For Using the Equity Method

The following table summarizes the Company’s investments accounted for using the equity method, by strategy:

	March 31, 2022		December 31, 2021
Credit related funds	$	1,067,549	$	1,022,334
Private equity	602,802		436,042
Real estate	444,755		396,395
Lending	409,736		376,649
Equities	360,906		395,090
Infrastructure	226,430		230,070
Energy	107,842		119,141
Fixed income	105,523		101,890
Total	$	3,325,543	$	3,077,611

Certain of the Company’s other investments 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.

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 has determined that it is not required to consolidate these investments because it is not the primary beneficiary of 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 line item:

	March 31, 2022		December 31, 2021
Investments accounted for using the equity method (1)	3,325,543		3,077,611
Investments accounted for using the fair value option (2)	146,718		170,595
Total	$	3,472,261	$	3,248,206

(1)    Aggregate unfunded commitments were $2.7 billion at March 31, 2022, compared to $2.6 billion at December 31, 2021.

(2)    Aggregate unfunded commitments were $21.3 million at March 31, 2022, compared to $18.8 million at December 31, 2021.

Net Investment Income

The components of net investment income were derived from the following sources:

	March 31,
	2022		2021
Three Months Ended
Fixed maturities	$	82,053	$	90,626
Term loans	1,617		14,728
Equity securities	6,238		5,650
Short-term investments	2,575		607
Other (1)	10,459		14,355
Gross investment income	102,942		125,966
Investment expenses	(22,506)		(27,110)
Net investment income	$	80,436	$	98,856

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

Net Realized Gains (Losses)

Net realized gains (losses), which include changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings were as follows:

	March 31,
	2022		2021
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	19,707	$	65,002
Gross losses on investment sales	(108,347)		(62,998)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	(30,589)		16,553
Other investments	4,389		46,855
Equity securities	(3,313)		2,065
Short-term investments	(149)		736
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	65,211		37,849
Net unrealized gains (losses) on equity securities still held at reporting date	(176,195)		19,708
Allowance for credit losses:
Investments related	(31,722)		(1,648)
Underwriting related	(4,286)		5,268
Derivative instruments (1)	(23,711)		36,116
Other	(3,409)		(23,045)
Net realized gains (losses)	$	(292,414)	$	142,461

(1)    See note 9 for information on the Company’s derivative instruments.

Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method

The Company recorded $36.3 million of equity in net income related to investment funds accounted for using the equity method in the 2022 first quarter, compared to income of $71.7 million for the 2021 first quarter. 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 market 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.

Investments in Operating Affiliates

Investments in which the Company has significant influence over the operating and financial policies are classified as ‘investments in operating affiliates’ on the Company’s balance sheets and are accounted for under the equity method. Such investments primarily include the Company’s investment in Coface SA (“Coface”), Greysbridge and Premia. Investments in Coface and Premia are generally recorded on a three month lag, while the Company’s investment in Greysbridge is not recorded on a lag.

In 2021, the Company completed the share purchase agreement with Natixis to purchase 29.5% of the common equity of Coface, a France-based leader in the global trade credit insurance market. The consideration paid was €9.95 per share, or an aggregate €453 million (approximately $546 million) including related fees. Income (loss) from operating affiliates reflected a one-time gain of $74.5 million realized from the acquisition. As of March 31, 2022, the Company owned approximately 29.86% of the issued shares of Coface, or 30.09% excluding treasury shares, with a carrying value of $646.0 million, compared to $630.5 million at December 31, 2021.

In July 2021, the Company announced the completion of the previously disclosed acquisition of Somers by Greysbridge for a cash purchase price of $35.00 per common share.

Effective July 1, 2021, Somers is wholly owned by Greysbridge, and Greysbridge is owned 40% by the Company, 30% by certain investment funds managed by Kelso and 30% by certain investment funds managed by Warburg. At March 31, 2022 the Company’s carrying value in Greysbridge was $362.2 million, compared to $375.7 million at December 31, 2021, which reflected the Company’s aggregate purchase price of $278.9 million along with income (loss) from operating affiliates, which included a one-time gain of $95.7 million recognized from the acquisition.

Income from operating affiliates for the 2022 first quarter was $24.5 million, compared to an income of $75.5 million, for the 2021 first quarter.

Allowance for Expected Credit Losses

The following table provides a roll forward of the allowance for expected credit losses of the Company’s securities classified as available for sale:

	Structured Securities (1)		Municipal Bonds		Corporate Bonds		Total
Three Months Ended March 31, 2022
Balance at beginning of period	$	802	$	2	$	2,079	$	2,883
Additions for current-period provision for expected credit losses	5,990		95		25,150		31,235
Additions (reductions) for previously recognized expected credit losses	487		9		(15)		481
Reductions due to disposals	(281)		—		(173)		(454)
Balance at end of period	$	6,998	$	106	$	27,041	$	34,145
Three Months Ended March 31, 2021
Balance at beginning of period	$	1,490	$	11	$	896	$	2,397
Additions for current-period provision for expected credit losses	182		—		2,421		2,603
Additions (reductions) for previously recognized expected credit losses	(382)		(9)		(540)		(931)
Reductions due to disposals	(83)		—		(156)		(239)
Balance at end of period	$	1,207	$	2	$	2,621	$	3,830

(1)    Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.

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. See note 18, “Commitments and Contingencies,” of the notes to consolidated financial statements in the Company’s 2021 Form 10-K.

The following table details the value of the Company’s restricted assets:

	March 31, 2022		December 31, 2021
Assets used for collateral or guarantees:
Affiliated transactions	$	4,202,190	$	4,223,955
Third party agreements	3,018,035		2,721,160
Deposits with U.S. regulatory authorities	773,105		798,100
Deposits with non-U.S. regulatory authorities	509,741		506,517
Total restricted assets	$	8,503,071	$	8,249,732

Reconciliation of Cash and Restricted Cash

The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:

	March 31, 2022		December 31, 2021
Cash	$	812,917	$	858,668
Restricted cash (included in ‘other assets’)	$	503,201	$	456,103
Cash and restricted cash	$	1,316,118	$	1,314,771