QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
BERMUDA | N/A |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer | þ | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | ¨ | Emerging growth company | ¨ |
Page | ||
PART I | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 6. |
March 31, 2017 | December 31, 2016 | ||||||
(expressed in thousands of U.S. dollars, except share data) | |||||||
ASSETS | |||||||
Short-term investments, trading, at fair value | $ | 263,511 | $ | 222,918 | |||
Short-term investments, available-for-sale, at fair value (amortized cost: 2017 — $nil; 2016 — $287) | — | 268 | |||||
Fixed maturities, trading, at fair value | 5,585,818 | 4,388,242 | |||||
Fixed maturities, available-for-sale, at fair value (amortized cost: 2017 — $244,199; 2016 — $269,577) | 242,686 | 267,499 | |||||
Equities, trading, at fair value | 106,337 | 95,047 | |||||
Other investments, at fair value | 932,155 | 937,047 | |||||
Other investments, at cost | 133,127 | 131,651 | |||||
Total investments | 7,263,634 | 6,042,672 | |||||
Cash and cash equivalents | 921,562 | 954,871 | |||||
Restricted cash and cash equivalents | 392,413 | 363,774 | |||||
Funds held - directly managed | 1,209,689 | 994,665 | |||||
Premiums receivable | 430,023 | 406,676 | |||||
Deferred tax assets | 12,436 | 11,374 | |||||
Prepaid reinsurance premiums | 234,107 | 219,115 | |||||
Reinsurance balances recoverable | 1,450,865 | 1,460,743 | |||||
Reinsurance balances recoverable, at fair value | 551,253 | — | |||||
Funds held by reinsured companies | 88,326 | 82,073 | |||||
Deferred acquisition costs | 72,088 | 58,114 | |||||
Goodwill and intangible assets | 183,685 | 184,855 | |||||
Other assets | 835,607 | 842,356 | |||||
Assets held for sale | 1,237,189 | 1,244,456 | |||||
TOTAL ASSETS | $ | 14,882,877 | $ | 12,865,744 | |||
LIABILITIES | |||||||
Losses and loss adjustment expenses | $ | 5,835,758 | $ | 5,987,867 | |||
Losses and loss adjustment expenses, at fair value | 1,924,829 | — | |||||
Policy benefits for life and annuity contracts | 111,709 | 112,095 | |||||
Unearned premiums | 578,951 | 548,343 | |||||
Insurance and reinsurance balances payable | 430,769 | 394,021 | |||||
Deferred tax liabilities | 23,265 | 28,356 | |||||
Debt obligations | 730,845 | 673,603 | |||||
Other liabilities | 757,357 | 705,318 | |||||
Liabilities held for sale | 1,142,247 | 1,150,787 | |||||
TOTAL LIABILITIES | 11,535,730 | 9,600,390 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
REDEEMABLE NONCONTROLLING INTEREST | 473,064 | 454,522 | |||||
SHAREHOLDERS’ EQUITY | |||||||
Share capital authorized, issued and fully paid, par value $1 each (authorized 2017 and 2016: 156,000,000): | |||||||
Ordinary shares (issued and outstanding 2017: 16,381,083; 2016: 16,175,250) | 16,381 | 16,175 | |||||
Non-voting convertible ordinary shares: | |||||||
Series C (issued and outstanding 2017: 2,599,672; 2016: 2,792,157) | 2,600 | 2,792 | |||||
Series E (issued and outstanding 2017: 404,771; 2016: 404,771) | 405 | 405 | |||||
Series C Preferred Shares (issued and outstanding 2017: 388,571; 2016: 388,571) | 389 | 389 | |||||
Treasury shares at cost (Preferred shares 2017: 388,571; 2016: 388,571) | (421,559 | ) | (421,559 | ) | |||
Additional paid-in capital | 1,382,421 | 1,380,109 | |||||
Accumulated other comprehensive loss | (21,727 | ) | (23,549 | ) | |||
Retained earnings | 1,905,956 | 1,847,550 | |||||
Total Enstar Group Limited Shareholders’ Equity | 2,864,866 | 2,802,312 | |||||
Noncontrolling interest | 9,217 | 8,520 | |||||
TOTAL SHAREHOLDERS’ EQUITY | 2,874,083 | 2,810,832 | |||||
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY | $ | 14,882,877 | $ | 12,865,744 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(expressed in thousands of U.S. dollars, except share and per share data) | |||||||
INCOME | |||||||
Net premiums earned | $ | 148,898 | $ | 192,887 | |||
Fees and commission income | 11,914 | 6,424 | |||||
Net investment income | 48,739 | 50,280 | |||||
Net realized and unrealized gains | 58,519 | 38,277 | |||||
Other income | 12,198 | 2,410 | |||||
280,268 | 290,278 | ||||||
EXPENSES | |||||||
Net incurred losses and loss adjustment expenses | 77,892 | 83,218 | |||||
Life and annuity policy benefits | (301 | ) | 158 | ||||
Acquisition costs | 20,821 | 45,029 | |||||
General and administrative expenses | 102,468 | 92,934 | |||||
Interest expense | 6,868 | 5,398 | |||||
Net foreign exchange losses | 3,715 | 1,772 | |||||
211,463 | 228,509 | ||||||
EARNINGS BEFORE INCOME TAXES | 68,805 | 61,769 | |||||
INCOME TAXES | 2,929 | (7,369 | ) | ||||
NET EARNINGS FROM CONTINUING OPERATIONS | 71,734 | 54,400 | |||||
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX EXPENSE | 371 | 205 | |||||
NET EARNINGS | 72,105 | 54,605 | |||||
Less: Net earnings attributable to noncontrolling interest | (17,425 | ) | (9,085 | ) | |||
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED | $ | 54,680 | $ | 45,520 | |||
Earnings per ordinary share attributable to Enstar Group Limited: | |||||||
Basic: | |||||||
Net earnings from continuing operations | $ | 2.80 | $ | 2.34 | |||
Net earnings from discontinued operations | 0.02 | 0.02 | |||||
Net earnings per ordinary share | $ | 2.82 | $ | 2.36 | |||
Diluted: | |||||||
Net earnings from continuing operations | $ | 2.78 | $ | 2.33 | |||
Net earnings from discontinued operations | 0.02 | 0.02 | |||||
Net earnings per ordinary share | $ | 2.80 | $ | 2.35 | |||
Weighted average ordinary shares outstanding: | |||||||
Basic | 19,374,728 | 19,282,946 | |||||
Diluted | 19,501,663 | 19,408,894 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(expressed in thousands of U.S. dollars) | |||||||
NET EARNINGS | $ | 72,105 | $ | 54,605 | |||
Other comprehensive income, net of tax: | |||||||
Unrealized holding gains on fixed income investments arising during the period | 686 | 6,964 | |||||
Reclassification adjustment for net realized gains included in net earnings | (149 | ) | (22 | ) | |||
Unrealized gains arising during the period, net of reclassification adjustment | 537 | 6,942 | |||||
Currency translation adjustment | 1,942 | 10,595 | |||||
Total other comprehensive income | 2,479 | 17,537 | |||||
Comprehensive income | 74,584 | 72,142 | |||||
Less comprehensive income attributable to noncontrolling interest | (18,082 | ) | (10,566 | ) | |||
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED | $ | 56,502 | $ | 61,576 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(expressed in thousands of U.S. dollars) | |||||||
Share Capital — Ordinary Shares | |||||||
Balance, beginning of period | $ | 16,175 | $ | 16,133 | |||
Issue of shares | 14 | 30 | |||||
Conversion of Series C Non-Voting Convertible Ordinary Shares | 192 | — | |||||
Balance, end of period | $ | 16,381 | $ | 16,163 | |||
Share Capital — Series A Non-Voting Convertible Ordinary Shares | |||||||
Balance, beginning and end of period | $ | — | $ | 2,973 | |||
Share Capital — Series C Non-Voting Convertible Ordinary Shares | |||||||
Balance, beginning of period | $ | 2,792 | $ | 2,726 | |||
Conversion to Ordinary Shares | (192 | ) | — | ||||
Balance, end of period | $ | 2,600 | $ | 2,973 | |||
Share Capital — Series E Non-Voting Convertible Ordinary Shares | |||||||
Balance, beginning and end of period | $ | 405 | $ | 405 | |||
Share Capital — Series C Convertible Participating Non-Voting Perpetual Preferred Stock | |||||||
Balance, beginning and end of period | $ | 389 | $ | — | |||
Treasury Shares | |||||||
Balance, beginning and end of period | $ | (421,559 | ) | $ | (421,559 | ) | |
Additional Paid-in Capital | |||||||
Balance, beginning of period | $ | 1,380,109 | $ | 1,373,044 | |||
Issue of shares and warrants | (511 | ) | (79 | ) | |||
Amortization of equity incentive plan | 2,823 | 238 | |||||
Balance, end of period | $ | 1,382,421 | $ | 1,373,203 | |||
Accumulated Other Comprehensive Loss | |||||||
Balance, beginning of period | $ | (23,549 | ) | $ | (35,162 | ) | |
Currency translation adjustment | |||||||
Balance, beginning of period | (18,993 | ) | (23,790 | ) | |||
Change in currency translation adjustment | 1,933 | 10,595 | |||||
Balance, end of period | (17,060 | ) | (13,195 | ) | |||
Defined benefit pension liability | |||||||
Balance, beginning and end of period | (4,644 | ) | (7,723 | ) | |||
Unrealized gains (losses) on investments | |||||||
Balance, beginning of period | 88 | (3,649 | ) | ||||
Change in unrealized gains (losses) on investments | (111 | ) | 5,463 | ||||
Balance, end of period | (23 | ) | 1,814 | ||||
Balance, end of period | $ | (21,727 | ) | $ | (19,104 | ) | |
Retained Earnings | |||||||
Balance, beginning of period | $ | 1,847,550 | $ | 1,578,312 | |||
Net earnings attributable to Enstar Group Limited | 54,680 | 45,520 | |||||
Accretion of redeemable noncontrolling interests to redemption value | (1,156 | ) | (875 | ) | |||
Cumulative effect of change in accounting principle | 4,882 | — | |||||
Balance, end of period | $ | 1,905,956 | $ | 1,622,957 | |||
Noncontrolling Interest (excludes Redeemable Noncontrolling Interest) | |||||||
Balance, beginning of period | $ | 8,520 | $ | 3,911 | |||
Net earnings attributable to noncontrolling interest | 697 | — | |||||
Foreign currency translation adjustments | — | (21 | ) | ||||
Balance, end of period | $ | 9,217 | $ | 3,890 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
(expressed in thousands of U.S. dollars) | |||||||
OPERATING ACTIVITIES: | |||||||
Net earnings | $ | 72,105 | $ | 54,605 | |||
Net earnings from discontinued operations | (371 | ) | (205 | ) | |||
Adjustments to reconcile net earnings to cash flows used in operating activities: | |||||||
Net realized (gains) losses on sale of investments | (8,252 | ) | 1,411 | ||||
Net unrealized (gains) on investments | (50,267 | ) | (39,688 | ) | |||
Other non-cash items | 1,225 | 1,053 | |||||
Depreciation and other amortization | 9,302 | 10,745 | |||||
Net change in trading securities held on behalf of policyholders | 83 | (1,093 | ) | ||||
Sales and maturities of trading securities | 1,076,770 | 642,180 | |||||
Purchases of trading securities | (2,275,239 | ) | (711,545 | ) | |||
Changes in: | |||||||
Reinsurance balances recoverable | (540,939 | ) | 72,067 | ||||
Funds held by reinsured companies | (221,277 | ) | (1,085,780 | ) | |||
Losses and loss adjustment expenses | 1,769,233 | 916,058 | |||||
Policy benefits for life and annuity contracts | (1,972 | ) | (2,954 | ) | |||
Insurance and reinsurance balances payable | 36,508 | 11,719 | |||||
Unearned premiums | 30,607 | 24,682 | |||||
Other operating assets and liabilities | 8,345 | (44,550 | ) | ||||
Net cash flows used in operating activities | (94,139 | ) | (151,295 | ) | |||
INVESTING ACTIVITIES: | |||||||
Sales and maturities of available-for-sale securities | 24,724 | 25,846 | |||||
Purchase of available-for-sale securities | (7,188 | ) | (3,582 | ) | |||
Purchase of other investments | (38,237 | ) | 3,487 | ||||
Redemption of other investments | 69,326 | 62,838 | |||||
Other investing activities | (4,981 | ) | (1,219 | ) | |||
Net cash flows provided by investing activities | 43,644 | 87,370 | |||||
FINANCING ACTIVITIES: | |||||||
Receipt of loans | 437,100 | — | |||||
Repayment of loans | (381,000 | ) | (20,500 | ) | |||
Net cash flows provided by (used in) financing activities | 56,100 | (20,500 | ) | ||||
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS | (10,275 | ) | 3,939 | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (4,670 | ) | (80,486 | ) | |||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,318,645 | 1,295,169 | |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,313,975 | $ | 1,214,683 | |||
Supplemental Cash Flow Information: | |||||||
Income taxes paid, net of refunds | $ | 3,917 | $ | 10,687 | |||
Interest paid | $ | 6,385 | $ | 4,534 | |||
Reconciliation to Consolidated Balance Sheets: | |||||||
Cash and cash equivalents | 921,562 | 718,479 | |||||
Restricted cash and cash | 392,413 | 496,204 | |||||
Cash, cash equivalents and restricted cash | $ | 1,313,975 | $ | 1,214,683 |
• | liability for losses and loss adjustment expenses ("LAE"); |
• | liability for policy benefits for life and annuity contracts; |
• | reinsurance balances recoverable; |
• | gross and net premiums written and net premiums earned; |
• | impairment charges, including other-than-temporary impairments on investment securities classified as available-for-sale or held-to-maturity, and impairments on goodwill, intangible assets and deferred charges; |
• | fair value measurements of investments; |
• | fair value estimates associated with accounting for acquisitions; |
• | fair value estimates associated with loss portfolio transfer reinsurance agreements for which we have elected the fair value option; and |
• | redeemable noncontrolling interests. |
March 31, 2017 | December 31, 2016 | ||||||
Assets: | |||||||
Fixed maturities, trading, at fair value | $ | 299,451 | $ | 326,382 | |||
Fixed maturities, held-to-maturity, at amortized cost | 761,821 | 765,554 | |||||
Equities, trading, at fair value | 4,640 | 4,428 | |||||
Other investments, at fair value | 15,261 | 15,114 | |||||
Cash and cash equivalents | 26,893 | 18,018 | |||||
Restricted cash and cash equivalents | 13,027 | 5,202 | |||||
Deferred tax assets | 31,500 | 31,500 | |||||
Reinsurance balances recoverable | 17,754 | 18,029 | |||||
Other assets | 66,842 | 60,229 | |||||
Total assets held for sale | $ | 1,237,189 | $ | 1,244,456 | |||
Liabilities: | |||||||
Policy benefits for life and annuity contracts | $ | 1,136,230 | $ | 1,144,850 | |||
Other liabilities | 6,017 | 5,937 | |||||
Total liabilities held for sale | $ | 1,142,247 | $ | 1,150,787 |
March 31, 2017 | March 31, 2016 | ||||||
INCOME | |||||||
Net premiums earned | $ | 14,325 | $ | 16,522 | |||
Net investment income | 10,029 | 9,609 | |||||
Net realized and unrealized gains (losses) | 1,622 | (313 | ) | ||||
Other income | 360 | 3 | |||||
$ | 26,336 | $ | 25,821 | ||||
EXPENSES | |||||||
Life and annuity policy benefits | 20,670 | 20,822 | |||||
Acquisition costs | 2,036 | 2,236 | |||||
General and administrative expenses | 3,057 | 2,413 | |||||
Other expenses | (16 | ) | 3 | ||||
$ | 25,747 | $ | 25,474 | ||||
EARNINGS BEFORE INCOME TAXES | 589 | 347 | |||||
INCOME TAXES | (218 | ) | $ | (140 | ) | ||
NET EARNINGS FROM DISCONTINUED OPERATIONS | 371 | 207 |
March 31, 2017 | March 31, 2016 | ||||||
Operating activities | $ | 15,463 | $ | (10,793 | ) | ||
Investing activities | 1,237 | 11,008 | |||||
Change in cash of businesses held for sale | $ | 16,700 | $ | 215 |
March 31, 2017 | December 31, 2016 | ||||||
U.S. government and agency | $ | 776,216 | $ | 840,274 | |||
Non-U.S. government | 896,757 | 267,363 | |||||
Corporate | 3,080,120 | 2,387,322 | |||||
Municipal | 54,830 | 47,181 | |||||
Residential mortgage-backed | 334,767 | 373,528 | |||||
Commercial mortgage-backed | 223,567 | 217,212 | |||||
Asset-backed | 483,072 | 478,280 | |||||
Total fixed maturity and short-term investments | 5,849,329 | 4,611,160 | |||||
Equities — U.S. | 106,337 | 95,047 | |||||
$ | 5,955,666 | $ | 4,706,207 |
As at March 31, 2017 | Amortized Cost | Fair Value | % of Total Fair Value | ||||||||
One year or less | $ | 893,102 | $ | 886,878 | 15.2 | % | |||||
More than one year through two years | 734,677 | 732,586 | 12.5 | % | |||||||
More than two years through five years | 1,450,747 | 1,445,942 | 24.7 | % | |||||||
More than five years through ten years | 1,031,378 | 1,034,548 | 17.7 | % | |||||||
More than ten years | 693,101 | 707,969 | 12.1 | % | |||||||
Residential mortgage-backed | 338,576 | 334,767 | 5.7 | % | |||||||
Commercial mortgage-backed | 227,756 | 223,567 | 3.8 | % | |||||||
Asset-backed | 475,082 | 483,072 | 8.3 | % | |||||||
$ | 5,844,419 | $ | 5,849,329 | 100.0 | % |
As at March 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses Non-OTTI | Fair Value | ||||||||||||
U.S. government and agency | $ | 11,003 | $ | — | $ | (98 | ) | $ | 10,905 | |||||||
Non-U.S. government | 83,938 | 821 | (2,165 | ) | 82,594 | |||||||||||
Corporate | 138,986 | 1,861 | (1,977 | ) | 138,870 | |||||||||||
Municipal | 5,967 | 16 | (11 | ) | 5,972 | |||||||||||
Residential mortgage-backed | 467 | 37 | — | 504 | ||||||||||||
Asset-backed | 3,838 | 3 | — | 3,841 | ||||||||||||
$ | 244,199 | $ | 2,738 | $ | (4,251 | ) | $ | 242,686 |
As at December 31, 2016 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses Non-OTTI | Fair Value | ||||||||||||
U.S. government and agency | $ | 12,784 | $ | 32 | $ | (106 | ) | $ | 12,710 | |||||||
Non-U.S. government | 86,897 | 1,303 | (2,777 | ) | 85,423 | |||||||||||
Corporate | 159,243 | 2,040 | (2,628 | ) | 158,655 | |||||||||||
Municipal | 6,585 | 12 | (21 | ) | 6,576 | |||||||||||
Residential mortgage-backed | 488 | 39 | — | 527 | ||||||||||||
Asset-backed | 3,867 | 9 | — | 3,876 | ||||||||||||
$ | 269,864 | $ | 3,435 | $ | (5,532 | ) | $ | 267,767 |
As at March 31, 2017 | Amortized Cost | Fair Value | % of Total Fair Value | ||||||||
One year or less | $ | 50,370 | $ | 49,092 | 20.2 | % | |||||
More than one year through two years | 47,021 | 45,851 | 18.9 | % | |||||||
More than two years through five years | 64,942 | 64,279 | 26.5 | % | |||||||
More than five years through ten years | 41,016 | 42,091 | 17.3 | % | |||||||
More than ten years | 36,545 | 37,028 | 15.3 | % | |||||||
Residential mortgage-backed | 467 | 504 | 0.2 | % | |||||||
Asset-backed | 3,838 | 3,841 | 1.6 | % | |||||||
$ | 244,199 | $ | 242,686 | 100.0 | % |
12 Months or Greater | Less Than 12 Months | Total | ||||||||||||||||||||||
As at March 31, 2017 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
Fixed maturity and short-term investments, at fair value | ||||||||||||||||||||||||
U.S. government and agency | $ | — | $ | — | $ | 10,777 | $ | (98 | ) | $ | 10,777 | $ | (98 | ) | ||||||||||
Non-U.S. government | 6,230 | (1,144 | ) | 32,082 | (1,021 | ) | 38,312 | (2,165 | ) | |||||||||||||||
Corporate | 6,782 | (1,414 | ) | 41,181 | (563 | ) | 47,963 | (1,977 | ) | |||||||||||||||
Municipal | — | — | 2,603 | (11 | ) | 2,603 | (11 | ) | ||||||||||||||||
Total fixed maturity and short-term investments | $ | 13,012 | $ | (2,558 | ) | $ | 86,643 | $ | (1,693 | ) | $ | 99,655 | $ | (4,251 | ) |
12 Months or Greater | Less Than 12 Months | Total | ||||||||||||||||||||||
As at December 31, 2016 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
Fixed maturity and short-term investments, at fair value | ||||||||||||||||||||||||
U.S. government and agency | $ | — | $ | — | $ | 10,743 | $ | (106 | ) | $ | 10,743 | $ | (106 | ) | ||||||||||
Non-U.S. government | 8,316 | (1,794 | ) | 30,086 | (983 | ) | 38,402 | (2,777 | ) | |||||||||||||||
Corporate | 8,003 | (1,800 | ) | 42,304 | (828 | ) | 50,307 | (2,628 | ) | |||||||||||||||
Municipal | — | — | 3,132 | (21 | ) | 3,132 | (21 | ) | ||||||||||||||||
Total fixed maturity and short-term investments | $ | 16,319 | $ | (3,594 | ) | $ | 86,265 | $ | (1,938 | ) | $ | 102,584 | $ | (5,532 | ) |
Amortized Cost | Fair Value | % of Total Investments | AAA Rated | AA Rated | A Rated | BBB Rated | Non- Investment Grade | Not Rated | |||||||||||||||||||||||||||
Fixed maturity and short-term investments, at fair value | |||||||||||||||||||||||||||||||||||
U.S. government and agency | $ | 790,244 | $ | 787,121 | 12.9 | % | $ | 782,678 | $ | 4,443 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Non-U.S. government | 974,929 | 979,351 | 16.1 | % | 140,016 | 748,030 | 71,630 | 18,798 | — | 877 | |||||||||||||||||||||||||
Corporate | 3,216,890 | 3,218,990 | 52.8 | % | 163,042 | 474,830 | 1,683,839 | 769,272 | 122,925 | 5,082 | |||||||||||||||||||||||||
Municipal | 60,836 | 60,802 | 1.0 | % | 25,856 | 28,906 | 4,623 | 1,417 | — | — | |||||||||||||||||||||||||
Residential mortgage-backed | 339,043 | 335,271 | 5.5 | % | 284,488 | 11,122 | 6,128 | 279 | 33,253 | 1 | |||||||||||||||||||||||||
Commercial mortgage-backed | 227,756 | 223,567 | 3.7 | % | 89,253 | 44,067 | 45,729 | 28,142 | 23 | 16,353 | |||||||||||||||||||||||||
Asset-backed | 478,920 | 486,913 | 8.0 | % | 200,514 | 58,461 | 106,377 | 42,694 | 76,729 | 2,138 | |||||||||||||||||||||||||
Total | 6,088,618 | 6,092,015 | 100.0 | % | 1,685,847 | 1,369,859 | 1,918,326 | 860,602 | 232,930 | 24,451 | |||||||||||||||||||||||||
% of total fair value | 27.7 | % | 22.5 | % | 31.5 | % | 14.1 | % | 3.8 | % | 0.4 | % |
March 31, 2017 | December 31, 2016 | |||||||
Private equities and private equity funds | $ | 284,385 | $ | 300,529 | ||||
Fixed income funds | 253,499 | 249,023 | ||||||
Fixed income hedge funds | 78,537 | 85,976 | ||||||
Equity funds | 244,488 | 223,571 | ||||||
CLO equities | 56,964 | 61,565 | ||||||
CLO equity funds | 13,350 | 15,440 | ||||||
Other | 932 | 943 | ||||||
$ | 932,155 | $ | 937,047 |
• | Private equities and private equity funds invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments. |
• | Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily up to quarterly. |
• | Fixed income hedge funds invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of up to three years from the time of initial investment. Once eligible, redemptions are permitted quarterly with 90 days’ notice. |
• | Equity funds invest in a diversified portfolio of international publicly traded equity securities. The funds have liquidity terms that vary from daily to every two weeks. |
• | CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities. |
• | CLO equity funds comprise two funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. One of the funds has a fair value of $2.0 million, part of a self-liquidating structure that is expected to pay out over one to five years. The other fund has a fair value of $11.4 million and is eligible for redemption in 2018. |
• | Other primarily comprises a fund that provides loans to educational institutions throughout the United States and its territories. |
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||
Number of Contracts | Carrying Value | Face Value (Death Benefits) | Number of Contracts | Carrying Value | Face Value (Death Benefits) | |||||||||||||||||
Remaining Life Expectancy of Insureds: | ||||||||||||||||||||||
0 – 1 year | 2 | $ | 471 | $ | 700 | 2 | $ | 461 | $ | 700 | ||||||||||||
1 – 2 years | 7 | 11,748 | 18,206 | 7 | 11,396 | 18,337 | ||||||||||||||||
2 – 3 years | 11 | 15,802 | 29,743 | 11 | 15,338 | 29,715 | ||||||||||||||||
3 – 4 years | 16 | 17,041 | 31,205 | 17 | 17,013 | 32,189 | ||||||||||||||||
4 – 5 years | 17 | 17,943 | 38,302 | 16 | 10,377 | 23,302 | ||||||||||||||||
Thereafter | 172 | 70,122 | 407,607 | 181 | 77,066 | 431,034 | ||||||||||||||||
Total | 225 | $ | 133,127 | $ | 525,763 | 234 | $ | 131,651 | $ | 535,277 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Net realized gains (losses) on sale: | ||||||||
Gross realized gains on fixed maturity securities, available-for-sale | $ | 160 | $ | 265 | ||||
Gross realized losses on fixed maturity securities, available-for-sale | (11 | ) | (243 | ) | ||||
Net realized losses on fixed maturity securities, trading | (1,052 | ) | (1,906 | ) | ||||
Net realized gains on equity securities, trading | 574 | 473 | ||||||
Net realized gains on other investments | 12,434 | — | ||||||
Net realized investment losses on funds held - directly managed | (3,853 | ) | — | |||||
Total net realized gains (losses) on sale | $ | 8,252 | $ | (1,411 | ) | |||
Net unrealized gains: | ||||||||
Fixed maturity securities, trading | $ | 23,316 | $ | 43,196 | ||||
Equity securities, trading | 8,686 | 1,724 | ||||||
Other investments | 11,075 | (5,232 | ) | |||||
Change in fair value of embedded derivative on funds held - directly managed | 6,928 | — | ||||||
Change in value of fair value option on funds held - directly managed | 262 | — | ||||||
Total net unrealized gains | 50,267 | 39,688 | ||||||
Net realized and unrealized gains | $ | 58,519 | $ | 38,277 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Fixed maturity investments | $ | 30,330 | $ | 27,198 | ||||
Short-term investments and cash and cash equivalents | 2,640 | 1,158 | ||||||
Equity securities | 726 | 1,060 | ||||||
Other investments | 3,509 | 6,034 | ||||||
Funds held | 39 | 7,604 | ||||||
Funds held - directly managed | 7,002 | — | ||||||
Life settlements and other | 6,896 | 8,443 | ||||||
Gross investment income | 51,142 | 51,497 | ||||||
Investment expenses | (2,403 | ) | (1,217 | ) | ||||
Net investment income | $ | 48,739 | $ | 50,280 |
March 31, 2017 | December 31, 2016 | |||||||
Collateral in trust for third party agreements | $ | 3,260,539 | $ | 1,975,022 | ||||
Assets on deposit with regulatory authorities | 795,290 | 882,400 | ||||||
Collateral for secured letter of credit facilities | 175,069 | 177,263 | ||||||
Funds at Lloyd's (1) | 220,216 | 220,328 | ||||||
$ | 4,451,114 | $ | 3,255,013 |
• | The funds held balance in relation to the Allianz transaction, described in Note 2 - "Significant New Business" in our consolidated financial statements in Form 10-K for the year ended December 31, 2016, moved from a fixed crediting rate to a variable rate of return on the underlying investments on October 1, 2016. This variable return reflects the economics of the investment portfolio underlying the funds held asset and qualifies as an embedded derivative. We have recorded the aggregate of the funds held, typically held at cost, and the embedded derivative as a single amount in our consolidated balance sheet. As at March 31, 2017 and December 31, 2016, the funds held at cost had a carrying value of $1,054.3 million and $1,023.0 million, respectively, and the embedded derivative had a fair value of $(21.4) million and $(28.3) million, respectively, the aggregate of which was $1,032.9 million and $994.7 million, respectively, as included in the table below. |
• | The fair value option was elected for the QBE reinsurance transaction described in Note 2 - "Significant New Business". As at March 31, 2017, the funds held had an amortized cost of $176.5 million and fair value of $176.8 million. |
March 31, 2017 | December 31, 2016 | ||||||
Fixed maturity investments: | |||||||
U.S. government and agency | $ | 34,187 | $ | 47,885 | |||
Non-U.S. government | 6,059 | 5,961 | |||||
Corporate | 786,315 | 663,556 | |||||
Municipal | 54,019 | 38,927 | |||||
Commercial mortgage-backed | 174,748 | 151,395 | |||||
Asset-backed | 96,207 | 79,806 | |||||
Total fixed maturity investments | $ | 1,151,535 | $ | 987,530 | |||
Other assets | 58,154 | 7,135 | |||||
$ | 1,209,689 | $ | 994,665 |
As at March 31, 2017 | Amortized Cost | Fair Value | % of Total Fair Value | ||||||||
More than one year through two years | $ | 34,050 | $ | 34,058 | 3.0 | % | |||||
More than two years through five years | 314,843 | 313,321 | 27.2 | % | |||||||
More than five years through ten years | 277,009 | 271,393 | 23.5 | % | |||||||
More than ten years | 269,532 | 261,808 | 22.7 | % | |||||||
Commercial mortgage-backed | 181,047 | 174,748 | 15.2 | % | |||||||
Asset-backed | 96,184 | 96,207 | 8.4 | % | |||||||
$ | 1,172,665 | $ | 1,151,535 | 100.0 | % |
Amortized Cost | Fair Value | % of Total Investments | AAA Rated | AA Rated | A Rated | BBB Rated | |||||||||||||||||||||
U.S. government and agency | $ | 34,198 | $ | 34,187 | 3.0 | % | $ | 34,187 | $ | — | $ | — | $ | — | |||||||||||||
Non-U.S. government | 6,019 | 6,059 | 0.5 | % | — | — | 2,948 | 3,111 | |||||||||||||||||||
Corporate | 799,530 | 786,315 | 68.2 | % | 7,199 | 63,529 | 312,830 | 402,757 | |||||||||||||||||||
Municipal | 55,687 | 54,019 | 4.7 | % | — | 17,861 | 28,960 | 7,198 | |||||||||||||||||||
Commercial mortgage-backed | 181,047 | 174,748 | 15.2 | % | 169,738 | 3,007 | 2,003 | — | |||||||||||||||||||
Asset-backed | 96,184 | 96,207 | 8.4 | % | 92,523 | 3,684 | — | — | |||||||||||||||||||
Total | $ | 1,172,665 | $ | 1,151,535 | 100.0 | % | $ | 303,647 | $ | 88,081 | $ | 346,741 | $ | 413,066 | |||||||||||||
% of total fair value | 26.4 | % | 7.6 | % | 30.1 | % | 35.9 | % |
2017 | ||||
Net realized losses on fixed maturity securities | $ | (3,853 | ) | |
Change in fair value of embedded derivative | 6,928 | |||
Change in value of fair value option on funds held - directly managed | 262 | |||
Net realized gains (losses) and change in fair value of funds held - directly managed | $ | 3,337 |
2017 | ||||
Fixed maturity investments | $ | 7,485 | ||
Short-term investments and cash and cash equivalents | 65 | |||
Gross investment income | 7,550 | |||
Investment expenses | (548 | ) | ||
Investment income on funds held - directly managed | $ | 7,002 |
• | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. |
• | Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest |
• | Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third party pricing sources or management's assumptions and internal valuation models may be used to determine the fair values. |
March 31, 2017 | ||||||||||||||||
Investments: | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
U.S. government and agency | $ | — | $ | 787,121 | $ | — | $ | 787,121 | ||||||||
Non-U.S. government | — | 979,351 | — | 979,351 | ||||||||||||
Corporate | — | 3,162,811 | 56,179 | 3,218,990 | ||||||||||||
Municipal | — | 60,802 | — | 60,802 | ||||||||||||
Residential mortgage-backed | — | 335,271 | — | 335,271 | ||||||||||||
Commercial mortgage-backed | — | 198,715 | 24,852 | 223,567 | ||||||||||||
Asset-backed | — | 457,831 | 29,082 | 486,913 | ||||||||||||
Equities — U.S. | 102,192 | 4,145 | — | 106,337 | ||||||||||||
Other investments | — | 375,650 | 69,627 | 445,277 | ||||||||||||
Total investments | $ | 102,192 | $ | 6,361,697 | $ | 179,740 | $ | 6,643,629 | ||||||||
Funds Held - Directly Managed: | ||||||||||||||||
U.S. government and agency | $ | — | $ | 34,187 | $ | — | $ | 34,187 | ||||||||
Non-U.S. government | — | 6,059 | — | 6,059 | ||||||||||||
Corporate | — | 786,315 | — | 786,315 | ||||||||||||
Municipal | — | 54,019 | — | 54,019 | ||||||||||||
Commercial mortgage-backed | — | 174,748 | — | 174,748 | ||||||||||||
Asset-backed | — | 96,207 | — | 96,207 | ||||||||||||
Other funds held assets | — | 58,154 | — | 58,154 | ||||||||||||
$ | — | $ | 1,209,689 | $ | — | $ | 1,209,689 | |||||||||
Reinsurance recoverable: | ||||||||||||||||
Reinsurance recoverable | $ | — | $ | — | $ | 551,253 | $ | 551,253 | ||||||||
$ | — | $ | — | $ | 551,253 | $ | 551,253 | |||||||||
Other Assets: | ||||||||||||||||
Derivative Instruments | $ | — | $ | 54 | $ | — | $ | 54 | ||||||||
$ | — | $ | 54 | $ | — | $ | 54 | |||||||||
Losses and LAE: | ||||||||||||||||
Losses and LAE | $ | — | $ | — | $ | 1,924,829 | $ | 1,924,829 | ||||||||
$ | — | $ | — | $ | 1,924,829 | $ | 1,924,829 | |||||||||
Other Liabilities: | ||||||||||||||||
Derivative Instruments | $ | — | $ | 965 | $ | — | $ | 965 | ||||||||
$ | — | $ |