Q2 2015 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
OR
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 1-14536
PartnerRe Ltd.
(Exact name of registrant as specified in its charter)
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Bermuda | | Not Applicable |
(State of incorporation) | | (I.R.S. Employer Identification No.) |
90 Pitts Bay Road, Pembroke, HM08, Bermuda
(Address of principal executive offices) (Zip Code)
(441) 292-0888
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý | | Accelerated filer | c |
Non-accelerated filer | c | | Smaller reporting company | c |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The number of the registrant’s common shares (par value $1.00 per share) outstanding, net of treasury shares, as of July 27, 2015 was 47,840,186.
PartnerRe Ltd.
INDEX TO FORM 10-Q
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PART I—FINANCIAL INFORMATION |
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ITEM 1. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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PART II—OTHER INFORMATION |
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ITEM 1. | | |
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ITEM 1A. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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ITEM 5. | | |
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ITEM 6. | | |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of PartnerRe Ltd.
We have reviewed the accompanying condensed consolidated balance sheet of PartnerRe Ltd. and subsidiaries (the “Company”) as of June 30, 2015, and the related condensed consolidated statements of operations and comprehensive (loss) income for the three-month and six-month periods ended June 30, 2015 and 2014, and of shareholders’ equity, and of cash flows for the six-month periods ended June 30, 2015 and 2014. These condensed consolidated interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of PartnerRe Ltd. and subsidiaries as of December 31, 2014, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and of cash flows for the year then ended (not presented herein); and in our report dated February 26, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2014 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
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/s/ Deloitte Ltd. |
Deloitte Ltd. |
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Hamilton, Bermuda |
July 31, 2015 |
PartnerRe Ltd.
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars, except parenthetical share and per share data)
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| June 30, 2015 | | December 31, 2014 |
| (Unaudited) | | (Audited) |
Assets | | | |
Investments: | | | |
Fixed maturities, at fair value (amortized cost: 2015, $13,108,936; 2014, $13,489,633) | $ | 13,349,772 |
| | $ | 13,918,745 |
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Short-term investments, at fair value (amortized cost: 2015, $19,270; 2014, $25,699) | 19,244 |
| | 25,678 |
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Equities, at fair value (cost: 2015, $846,644; 2014, $843,429) | 1,006,551 |
| | 1,056,514 |
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Other invested assets | 340,267 |
| | 298,827 |
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Total investments | 14,715,834 |
| | 15,299,764 |
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Funds held – directly managed (cost: 2015, $590,395; 2014, $600,379) | 594,870 |
| | 608,853 |
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Cash and cash equivalents | 1,492,997 |
| | 1,313,468 |
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Accrued investment income | 139,772 |
| | 158,737 |
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Reinsurance balances receivable | 3,055,308 |
| | 2,454,850 |
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Reinsurance recoverable on paid and unpaid losses | 342,074 |
| | 246,158 |
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Funds held by reinsured companies | 688,358 |
| | 765,905 |
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Deferred acquisition costs | 733,184 |
| | 661,186 |
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Deposit assets | 72,442 |
| | 92,973 |
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Net tax assets | 55,214 |
| | 6,876 |
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Goodwill | 456,380 |
| | 456,380 |
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Intangible assets | 146,069 |
| | 159,604 |
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Other assets | 39,321 |
| | 45,603 |
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Total assets | $ | 22,531,823 |
| | $ | 22,270,357 |
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Liabilities | | | |
Unpaid losses and loss expenses | $ | 9,549,398 |
| | $ | 9,745,806 |
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Policy benefits for life and annuity contracts | 2,087,369 |
| | 2,050,107 |
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Unearned premiums | 2,207,674 |
| | 1,750,607 |
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Other reinsurance balances payable | 234,175 |
| | 182,395 |
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Deposit liabilities | 48,475 |
| | 70,325 |
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Net tax liabilities | 246,618 |
| | 240,989 |
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Accounts payable, accrued expenses and other | 254,982 |
| | 304,728 |
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Debt related to senior notes | 750,000 |
| | 750,000 |
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Debt related to capital efficient notes | 70,989 |
| | 70,989 |
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Total liabilities | 15,449,680 |
| | 15,165,946 |
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Shareholders’ Equity | | | |
Common shares (par value $1.00; issued: 2015 and 2014, 87,237,220 shares) | 87,237 |
| | 87,237 |
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Preferred shares (par value $1.00; issued and outstanding: 2015 and 2014, 34,150,000 shares; aggregate liquidation value: 2015 and 2014, $853,750) | 34,150 |
| | 34,150 |
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Additional paid-in capital | 3,965,490 |
| | 3,949,665 |
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Accumulated other comprehensive loss | (30,244 | ) | | (34,083 | ) |
Retained earnings | 6,297,968 |
| | 6,270,811 |
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Common shares held in treasury, at cost (2015, 39,401,311 shares; 2014, 39,400,936 shares) | (3,274,675 | ) | | (3,258,870 | ) |
Total shareholders’ equity attributable to PartnerRe Ltd. | 7,079,926 |
| | 7,048,910 |
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Noncontrolling interests | 2,217 |
| | 55,501 |
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Total shareholders’ equity | 7,082,143 |
| | 7,104,411 |
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Total liabilities and shareholders’ equity | $ | 22,531,823 |
| | $ | 22,270,357 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
PartnerRe Ltd.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(Expressed in thousands of U.S. dollars, except share and per share data)
(Unaudited)
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| For the three months ended | | For the six months ended |
| June 30, 2015 | | June 30, 2014 | | June 30, 2015 | | June 30, 2014 |
Revenues | | | | | | | |
Gross premiums written | $ | 1,432,012 |
| | $ | 1,462,307 |
| | $ | 3,180,946 |
| | $ | 3,334,047 |
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Net premiums written | $ | 1,322,304 |
| | $ | 1,418,665 |
| | $ | 2,975,519 |
| | $ | 3,157,159 |
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Decrease (increase) in unearned premiums | 5,522 |
| | (65,596 | ) | | (412,972 | ) | | (550,308 | ) |
Net premiums earned | 1,327,826 |
| | 1,353,069 |
| | 2,562,547 |
| | 2,606,851 |
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Net investment income | 120,192 |
| | 129,967 |
| | 224,823 |
| | 246,834 |
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Net realized and unrealized investment (losses) gains | (255,734 | ) | | 165,717 |
| | (140,089 | ) | | 307,888 |
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Other income | 236 |
| | 9,265 |
| | 4,528 |
| | 9,669 |
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Total revenues | 1,192,520 |
| | 1,658,018 |
| | 2,651,809 |
| | 3,171,242 |
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Expenses | | | | | | | |
Losses and loss expenses and life policy benefits | 864,917 |
| | 883,846 |
| | 1,586,198 |
| | 1,633,303 |
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Acquisition costs | 283,463 |
| | 302,573 |
| | 559,254 |
| | 567,181 |
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Other expenses | 129,766 |
| | 107,072 |
| | 254,516 |
| | 218,534 |
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Interest expense | 12,248 |
| | 12,240 |
| | 24,493 |
| | 24,477 |
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Amortization of intangible assets | 6,767 |
| | 7,003 |
| | 13,535 |
| | 14,005 |
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Net foreign exchange losses (gains) | 6,391 |
| | (2,023 | ) | | (6,756 | ) | | (2,693 | ) |
Total expenses | 1,303,552 |
| | 1,310,711 |
| | 2,431,240 |
| | 2,454,807 |
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(Loss) income before taxes and interest in earnings of equity method investments | (111,032 | ) | | 347,307 |
| | 220,569 |
| | 716,435 |
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Income tax (benefit) expense | (13,844 | ) | | 78,440 |
| | 65,821 |
| | 140,746 |
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Interest in earnings of equity method investments | 8,633 |
| | 4,925 |
| | 4,795 |
| | 10,989 |
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Net (loss) income | (88,555 | ) | | 273,792 |
| | 159,543 |
| | 586,678 |
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Net income attributable to noncontrolling interests | (354 | ) | | (1,951 | ) | | (2,536 | ) | | (4,995 | ) |
Net (loss) income attributable to PartnerRe Ltd. | (88,909 | ) | | 271,841 |
| | 157,007 |
| | 581,683 |
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Preferred dividends | 14,184 |
| | 14,184 |
| | 28,367 |
| | 28,367 |
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Net (loss) income attributable to PartnerRe Ltd. common shareholders | $ | (103,093 | ) | | $ | 257,657 |
| | $ | 128,640 |
| | $ | 553,316 |
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Comprehensive (loss) income | | | | | | | |
Net (loss) income attributable to PartnerRe Ltd. | $ | (88,909 | ) | | $ | 271,841 |
| | $ | 157,007 |
| | $ | 581,683 |
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Change in currency translation adjustment | 8,101 |
| | 17,020 |
| | 5,597 |
| | 1,797 |
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Change in unfunded pension obligation, net of tax | (891 | ) | | (9 | ) | | (1,327 | ) | | (10 | ) |
Change in unrealized losses on investments, net of tax | (214 | ) | | (222 | ) | | (431 | ) | | (447 | ) |
Total other comprehensive income, net of tax | 6,996 |
| | 16,789 |
| | 3,839 |
| | 1,340 |
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Comprehensive (loss) income attributable to PartnerRe Ltd. | $ | (81,913 | ) | | $ | 288,630 |
| | $ | 160,846 |
| | $ | 583,023 |
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Per share data attributable to PartnerRe Ltd. common shareholders | | | | | | | |
Net (loss) income per common share: | | | | | | | |
Basic net (loss) income | $ | (2.16 | ) | | $ | 5.13 |
| | $ | 2.70 |
| | $ | 10.86 |
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Diluted net (loss) income | $ | (2.16 | ) | | $ | 5.02 |
| | $ | 2.64 |
| | $ | 10.64 |
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Weighted average number of common shares outstanding | 47,773,371 |
| | 50,241,216 |
| | 47,650,042 |
| | 50,942,980 |
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Weighted average number of common shares and common share equivalents outstanding | 47,773,371 |
| | 51,328,761 |
| | 48,785,437 |
| | 52,024,451 |
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Dividends declared per common share | $ | 0.70 |
| | $ | 0.67 |
| | $ | 1.40 |
| | $ | 1.34 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
PartnerRe Ltd.
Condensed Consolidated Statements of Shareholders’ Equity
(Expressed in thousands of U.S. dollars)
(Unaudited)
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| For the six months ended |
| June 30, 2015 | | June 30, 2014 |
Common shares | | | |
Balance at beginning of period | $ | 87,237 |
| | $ | 86,657 |
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Issuance of common shares | — |
| | 450 |
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Balance at end of period | 87,237 |
| | 87,107 |
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Preferred shares | | | |
Balance at beginning and end of period | 34,150 |
| | 34,150 |
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Additional paid-in capital | | | |
Balance at beginning of period | 3,949,665 |
| | 3,901,627 |
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Stock compensation expense, net of taxes paid | 15,825 |
| | 15,658 |
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Issuance of common shares | — |
| | 11,183 |
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Balance at end of period | 3,965,490 |
| | 3,928,468 |
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Accumulated other comprehensive loss | | | |
Balance at beginning of period | (34,083 | ) | | (12,238 | ) |
Currency translation adjustment | | | |
Balance at beginning of period | (7,915 | ) | | 977 |
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Change in foreign currency translation adjustment | (4,148 | ) | | 1,797 |
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Change in net unrealized gain on designated net investment hedge | 9,745 |
| | — |
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Balance at end of period | (2,318 | ) | | 2,774 |
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Unfunded pension obligation | | | |
Balance at beginning of period | (29,576 | ) | | (17,509 | ) |
Change in unfunded pension obligation, net of tax | (1,327 | ) | | (10 | ) |
Balance at end of period (net of tax: 2015, $8,670; 2014, $5,034) | (30,903 | ) | | (17,519 | ) |
Unrealized gain on investments | | | |
Balance at beginning of period | 3,408 |
| | 4,294 |
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Change in unrealized losses on investments, net of tax | (431 | ) | | (447 | ) |
Balance at end of period (net of tax: 2015 and 2014: $nil) | 2,977 |
| | 3,847 |
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Balance at end of period | (30,244 | ) | | (10,898 | ) |
Retained earnings | | | |
Balance at beginning of period | 6,270,811 |
| | 5,406,797 |
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Net income | 159,543 |
| | 586,678 |
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Net income attributable to noncontrolling interests | (2,536 | ) | | (4,995 | ) |
Reissuance of common shares | (34,874 | ) | | — |
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Dividends on common shares | (66,609 | ) | | (68,291 | ) |
Dividends on preferred shares | (28,367 | ) | | (28,367 | ) |
Balance at end of period | 6,297,968 |
| | 5,891,822 |
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Common shares held in treasury | | | |
Balance at beginning of period | (3,258,870 | ) | | (2,707,461 | ) |
Repurchase of common shares | (59,266 | ) | | (313,141 | ) |
Reissuance of common shares | 43,461 |
| | — |
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Balance at end of period | (3,274,675 | ) | | (3,020,602 | ) |
Total shareholders’ equity attributable to PartnerRe Ltd. | $ | 7,079,926 |
| | $ | 6,910,047 |
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Noncontrolling interests | 2,217 |
| | 47,356 |
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Total shareholders’ equity | $ | 7,082,143 |
| | $ | 6,957,403 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
PartnerRe Ltd.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(Unaudited)
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| For the six months ended |
| June 30, 2015 | | June 30, 2014 |
Cash flows from operating activities | | | |
Net income | $ | 159,543 |
| | $ | 586,678 |
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Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Amortization of net premium on investments | 50,606 |
| | 54,783 |
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Amortization of intangible assets | 13,535 |
| | 14,005 |
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Net realized and unrealized investment losses (gains) | 140,089 |
| | (307,888 | ) |
Changes in: | | | |
Reinsurance balances, net | (680,908 | ) | | (518,432 | ) |
Reinsurance recoverable on paid and unpaid losses, net of ceded premiums payable | 56,054 |
| | 46,768 |
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Funds held by reinsured companies and funds held – directly managed | 67,763 |
| | 115,224 |
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Deferred acquisition costs | (90,494 | ) | | (105,900 | ) |
Net tax assets and liabilities | (42,360 | ) | | (55,879 | ) |
Unpaid losses and loss expenses including life policy benefits | 193,289 |
| | (131,400 | ) |
Unearned premiums | 412,972 |
| | 550,308 |
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Other net changes in operating assets and liabilities | (23,590 | ) | | (27,380 | ) |
Net cash provided by operating activities | 256,499 |
| | 220,887 |
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Cash flows from investing activities | | | |
Sales of fixed maturities | 4,199,011 |
| | 4,276,812 |
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Redemptions of fixed maturities | 366,356 |
| | 338,238 |
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Purchases of fixed maturities | (4,363,623 | ) | | (4,683,829 | ) |
Sales and redemptions of short-term investments | 37,357 |
| | 31,405 |
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Purchases of short-term investments | (31,239 | ) | | (49,706 | ) |
Sales of equities | 497,082 |
| | 122,296 |
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Purchases of equities | (460,117 | ) | | (103,688 | ) |
Other, net | (73,378 | ) | | (17,980 | ) |
Net cash provided by (used in) investing activities | 171,449 |
| | (86,452 | ) |
Cash flows from financing activities | | | |
Dividends paid to common and preferred shareholders | (94,976 | ) | | (96,658 | ) |
Repurchase of common shares | (71,376 | ) | | (316,091 | ) |
Reissuance of treasury shares and issuance of common shares, net of taxes paid | (816 | ) | | 6,156 |
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Distribution of shares to noncontrolling interests | (55,820 | ) | | (14,266 | ) |
Net cash used in financing activities | (222,988 | ) | | (420,859 | ) |
Effect of foreign exchange rate changes on cash | (25,431 | ) | | (1,841 | ) |
Increase (decrease) in cash and cash equivalents | 179,529 |
| | (288,265 | ) |
Cash and cash equivalents—beginning of period | 1,313,468 |
| | 1,496,485 |
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Cash and cash equivalents—end of period | $ | 1,492,997 |
| | $ | 1,208,220 |
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Supplemental cash flow information: | | | |
Taxes paid | $ | 124,999 |
| | $ | 195,261 |
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Interest paid | 24,630 |
| | 24,630 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
PartnerRe Ltd.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
PartnerRe Ltd. (PartnerRe or the Company) predominantly provides reinsurance and certain specialty insurance lines on a worldwide basis through its principal wholly-owned subsidiaries, including Partner Reinsurance Company Ltd., Partner Reinsurance Europe SE, Partner Reinsurance Company of the U.S. and, effective April 1, 2015, Partner Reinsurance Asia Pte. Ltd (PartnerRe Asia). Risks reinsured include, but are not limited to, property, casualty, motor, agriculture, aviation/space, catastrophe, credit/surety, engineering, energy, marine, specialty property, specialty casualty, multiline and other lines, mortality, longevity, accident and health and alternative risk products. The Company’s alternative risk products include weather and credit protection to financial, industrial and service companies on a worldwide basis.
In January 2015, the Company announced that PartnerRe Asia was licensed by the Monetary Authority of Singapore (MAS) to operate as a non-life and life reinsurer in Singapore. As of April 1, 2015, PartnerRe Asia became the principal reinsurance carrier for the Company’s business underwritten in the Asia Pacific region. The establishment of PartnerRe Asia has enabled the Company's Asian reinsurance operations to be consolidated into one regional, well-capitalized entity and will support its growing underwriting presence in the region.
On January 25, 2015, the Company entered into an Agreement and Plan of Amalgamation (Amalgamation Agreement) with Axis Capital Holdings Limited, a Bermuda exempted company (AXIS), pursuant to which the Company would amalgamate with AXIS (Amalgamation), and the two companies would continue as a single Bermuda exempted company (Amalgamated Company). The transaction, which is structured as a merger of equals, has been unanimously approved by the Boards of Directors of both companies. Under the terms of the Amalgamation Agreement, the Company’s shareholders would receive 2.18 shares of the Amalgamated Company’s common shares for each share of the Company’s common shares they own and AXIS’ shareholders would receive one share of the Amalgamated Company’s common shares for each share of AXIS’ common shares they own. The Amalgamated Company's headquarters would be located in Bermuda.
On April 14, 2015, the Company announced receipt of an unsolicited proposal from EXOR S.p.A. (EXOR), a European investment company controlled by the Agnelli family, to acquire 100% of the common shares of the Company for $130 per share in cash.
On May 3, 2015, the Company and AXIS amended the Amalgamation Agreement (Amendment to the Amalgamation Agreement) to allow the Company to pay a one-time special dividend of $11.50 per share to PartnerRe common shareholders in connection with the closing of the Amalgamation (one-time special dividend) and to increase the termination fee from $250 million to $280 million.
Because EXOR did not show any flexibility on its proposed price, on May 4, 2015, the Company’s Board of Directors (Board) announced that it had terminated discussions with EXOR regarding its $130 per share proposal.
On May 12, 2015, the Company announced receipt of a revised proposal from EXOR to acquire all of the outstanding common shares of the Company for $137.50 per share in cash.
On May 20, 2015, the Company announced that it was prepared to engage in discussions with EXOR to determine whether EXOR’s proposal, received on May 12, 2015, could be improved so that it is compelling, on price and terms, to the Company’s shareholders.
On May 21, 2015, EXOR announced that it was prepared to commence discussions once the Company's Board declares that EXOR’s binding proposal, received on May 12, 2015, is "reasonably likely to be a superior proposal,” as defined in the Amalgamation Agreement.
On May 22, 2015, the Company stated that by demanding to declare EXOR’s proposal “reasonably likely to be a superior proposal” as a precondition to any negotiations, EXOR effectively rejected the Company’s good faith offer made on May 20, 2015 to engage in discussions on price and other terms. The Company further stated that it will proceed to shareholder approval of the transaction with AXIS.
On July 7, 2015, EXOR enhanced the terms of its proposal by providing (i) a 100 basis points increase in the preferred share dividend rate, (ii) call protection until 2021, and (iii) a commitment to limit distributions to common shareholders to an amount not greater than 67% of earnings until December 31, 2020.
On July 10, 2015, PartnerRe and AXIS announced that the special general meetings of the shareholders of both companies to approve the Amalgamation Agreement that were originally scheduled for July 24, 2015, were postponed until August 7, 2015.
On July 16, 2015, PartnerRe and AXIS amended the Amalgamation Agreement further to increase the one-time special dividend to be paid by the Company to its common shareholders to $17.50 per share and, subject to certain conditions, to match the economic terms proposed by EXOR on July 7, 2015 in relation to the Company's preferred shares.
On July 20, 2015, EXOR further announced an increase in its proposal to acquire 100% of the common shares of PartnerRe for $137.50 per share in cash by adding one-time special dividend of $3.00 per share to be paid by PartnerRe to its common shareholders pre-closing.
On July 21, 2015, PartnerRe announced that it had determined that EXOR's enhanced proposal of July 20, 2015 would reasonably be likely to result in a superior proposal in accordance with the Amalgamation Agreement. As a result, the Board sought to engage in negotiations with EXOR, and offered EXOR the opportunity to conduct due diligence, to determine whether the current EXOR proposal could be improved both in price and terms. Contemporaneously, PartnerRe stated that the Board continued to view the Amalgamation with AXIS as superior in value, terms and certainty of closing compared to the current EXOR proposal and was re-affirming its recommendation supporting the Amalgamation Agreement.
Institutional Shareholder Services Inc. and Glass, Lewis & Co., providers of proxy advisory services to shareholders, recommended on July 24, 2015 and July 25, 2015, respectively, that the Company’s shareholders vote against the amalgamation at the special meeting of the PartnerRe shareholders scheduled to be held on August 7, 2015.
The Amalgamation is subject to approval by the shareholders of both companies on August 7, 2015, regulatory clearance and other customary closing conditions. Both companies will continue to operate as two independent entities until the closing of the Amalgamation and such conditions are met. See also Notes 8 (b) and 10 for further details.
2. Significant Accounting Policies
The Company’s Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated. To facilitate comparison of information across periods, certain reclassifications have been made to prior period amounts to conform to the current year's presentation.
The preparation of financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While Management believes that the amounts included in the Condensed Consolidated Financial Statements reflect its best estimates and assumptions, actual results could differ from those estimates. The Company’s principal estimates include:
| |
• | Unpaid losses and loss expenses; |
| |
• | Policy benefits for life and annuity contracts; |
| |
• | Gross and net premiums written and net premiums earned; |
| |
• | Recoverability of deferred acquisition costs; |
| |
• | Recoverability of deferred tax assets; |
| |
• | Valuation of goodwill and intangible assets; and |
| |
• | Valuation of certain assets and derivative financial instruments that are measured using significant unobservable inputs. |
In the opinion of Management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. As the Company’s reinsurance operations are exposed to low-frequency, high-severity risk events, some of which are seasonal, results for certain interim periods may include unusually low loss experience, while results for other interim periods may include significant catastrophic losses. Consequently, the Company’s results for interim periods are not necessarily indicative of results for the full year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
3. Recent Accounting Pronouncements
In February 2015, the Financial Accounting Standards Board (FASB) issued updated guidance on the consolidation of voting interest entities and variable interest entities. The guidance is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its Consolidated Financial Statements and disclosures.
In May 2015, the FASB issued updated guidance on disclosures related to short-duration insurance contracts. The update expands required disclosures in order to increase the transparency of significant estimates made in measuring the liability for unpaid
losses and loss expenses, improve comparability and facilitate financial statement users' analysis of the cash flows arising from re/insurance contracts and the development of loss reserve estimates. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its disclosures.
In May 2015, the FASB issued updated guidance on disclosures for investments in certain entities that calculate net asset value (NAV) per share (or its equivalent). The update eliminates the requirement to categorize investments measured using the NAV practical expedient in the fair value hierarchy table. The guidance is applicable retrospectively and is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its disclosures.
4. Fair Value
(a) Fair Value of Financial Instrument Assets
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement.
The Company determines the appropriate level in the hierarchy for each financial instrument that it measures at fair value. In determining fair value, the Company uses various valuation approaches, including market, income and cost approaches. The hierarchy is broken down into three levels based on the observability of inputs as follows:
| |
• | Level 1 inputs—Unadjusted, quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. |
The Company’s financial instruments that it measures at fair value using Level 1 inputs generally include: equities and real estate investment trusts listed on a major exchange, exchange traded funds and exchange traded derivatives, including futures that are actively traded.
| |
• | Level 2 inputs—Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets and significant directly or indirectly observable inputs, other than quoted prices, used in industry accepted models. |
The Company’s financial instruments that it measures at fair value using Level 2 inputs generally include: U.S. government issued bonds; U.S. government sponsored enterprises bonds; U.S. state, territory and municipal entities bonds; non-U.S. sovereign government, supranational and government related bonds consisting primarily of bonds issued by non-U.S. national governments and their agencies, non-U.S. regional governments and supranational organizations; investment grade and high yield corporate bonds; asset-backed securities; mortgage-backed securities; short-term investments; certain equities traded on foreign exchanges; certain fixed income mutual funds; foreign exchange forward contracts and over-the-counter derivatives such as foreign currency option contracts, credit default swaps, interest rate swaps and to-be-announced mortgage-backed securities (TBAs).
| |
• | Level 3 inputs—Unobservable inputs. |
The Company’s financial instruments that it measures at fair value using Level 3 inputs generally include: inactively traded fixed maturities including U.S. state, territory and municipal bonds; special purpose financing asset-backed bonds; unlisted equities; real estate and certain other mutual fund investments; inactively traded weather derivatives; notes and loan receivables, notes securitizations, annuities and residuals, private equities and longevity and other total return swaps.
The Company’s policy is to recognize transfers between the hierarchy levels at the beginning of the period.
The Company’s financial instruments measured at fair value include investments and the segregated investment portfolio underlying the funds held – directly managed account. At June 30, 2015 and December 31, 2014, the Company’s financial instruments measured at fair value were classified between Levels 1, 2 and 3 as follows (in thousands of U.S. dollars):
|
| | | | | | | | | | | | | | | | |
June 30, 2015 | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
Fixed maturities | | | | | | | | |
U.S. government and government sponsored enterprises | | $ | — |
| | $ | 2,335,450 |
| | $ | — |
| | $ | 2,335,450 |
|
U.S. states, territories and municipalities | | — |
| | 569,848 |
| | 112,221 |
| | 682,069 |
|
Non-U.S. sovereign government, supranational and government related | | — |
| | 1,491,495 |
| | — |
| | 1,491,495 |
|
Corporate | | — |
| | 5,510,022 |
| | — |
| | 5,510,022 |
|
Asset-backed securities | | — |
| | 678,594 |
| | 411,649 |
| | 1,090,243 |
|
Residential mortgage-backed securities | | — |
| | 2,186,376 |
| | — |
| | 2,186,376 |
|
Other mortgage-backed securities | | — |
| | 54,117 |
| | — |
| | 54,117 |
|
Fixed maturities | | $ | — |
| | $ | 12,825,902 |
| | $ | 523,870 |
| | $ | 13,349,772 |
|
Short-term investments | | $ | — |
| | $ | 19,244 |
| | $ | — |
| | $ | 19,244 |
|
Equities | | | | | | | | |
Real estate investment trusts | | $ | 189,202 |
| | $ | — |
| | $ | — |
| | $ | 189,202 |
|
Insurance | | 119,690 |
| | 5,175 |
| | — |
| | 124,865 |
|
Consumer noncyclical | | 121,091 |
| | — |
| | — |
| | 121,091 |
|
Finance | | 79,914 |
| | 7,809 |
| | 20,964 |
| | 108,687 |
|
Energy | | 94,517 |
| | — |
| | — |
| | 94,517 |
|
Industrials | | 60,073 |
| | 9,219 |
| | — |
| | 69,292 |
|
Technology | | 48,775 |
| | — |
| | 9,215 |
| | 57,990 |
|
Consumer cyclical | | 48,034 |
| | — |
| | — |
| | 48,034 |
|
Communications | | 43,976 |
| | — |
| | 2,580 |
| | 46,556 |
|
Utilities | | 25,966 |
| | — |
| | — |
| | 25,966 |
|
Other | | 19,031 |
| | — |
| | — |
| | 19,031 |
|
Mutual funds and exchange traded funds | | 92,397 |
| | — |
| | 8,923 |
| | 101,320 |
|
Equities | | $ | 942,666 |
| | $ | 22,203 |
| | $ | 41,682 |
| | $ | 1,006,551 |
|
Other invested assets | | | | | | | | |
Derivative assets | | | | | | | | |
Foreign exchange forward contracts | | $ | — |
| | $ | 17,643 |
| | $ | — |
| | $ | 17,643 |
|
Insurance-linked securities | | — |
| | — |
| | 14 |
| | 14 |
|
Total return swaps | | — |
| | — |
| | 233 |
| | 233 |
|
TBAs | | — |
| | 11 |
| | — |
| | 11 |
|
Other | | | | | | | | |
Notes and loan receivables and notes securitization | | — |
| | — |
| | 65,450 |
| | 65,450 |
|
Annuities and residuals | | — |
| | — |
| | 11,096 |
| | 11,096 |
|
Private equities | | — |
| | — |
| | 71,543 |
| | 71,543 |
|
Derivative liabilities | | | | | | | | |
Foreign exchange forward contracts | | — |
| | (5,927 | ) | | — |
| | (5,927 | ) |
Foreign currency option contracts | | — |
| | (946 | ) | | — |
| | (946 | ) |
Futures contracts | | (7,811 | ) | | — |
| | — |
| | (7,811 | ) |
Insurance-linked securities | | — |
| | — |
| | (359 | ) | | (359 | ) |
Total return swaps | | — |
| | — |
| | (2,298 | ) | | (2,298 | ) |
Interest rate swaps | | — |
| | (15,912 | ) | | — |
| | (15,912 | ) |
TBAs | | — |
| | (1,609 | ) | | — |
| | (1,609 | ) |
Other invested assets | | $ | (7,811 | ) | | $ | (6,740 | ) | | $ | 145,679 |
| | $ | 131,128 |
|
Funds held – directly managed | | | | | | | | |
U.S. government and government sponsored enterprises | | $ | — |
| | $ | 157,909 |
| | $ | — |
| | $ | 157,909 |
|
Non-U.S. sovereign government, supranational and government related | | — |
| | 109,934 |
| | — |
| | 109,934 |
|
Corporate | | — |
| | 137,451 |
| | — |
| | 137,451 |
|
Short-term investments | | — |
| | 7,047 |
| | — |
| | 7,047 |
|
Other invested assets | | — |
| | — |
| | 12,348 |
| | 12,348 |
|
Funds held – directly managed | | $ | — |
| | $ | 412,341 |
| | $ | 12,348 |
| | $ | 424,689 |
|
Total | | $ | 934,855 |
| | $ | 13,272,950 |
| | $ | 723,579 |
| | $ | 14,931,384 |
|
|
| | | | | | | | | | | | | | | | |
December 31, 2014 | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total |
Fixed maturities | | | | | | | | |
U.S. government and government sponsored enterprises | | $ | — |
| | $ | 2,315,422 |
| | $ | — |
| | $ | 2,315,422 |
|
U.S. states, territories and municipalities | | — |
| | 380,875 |
| | 149,728 |
| | 530,603 |
|
Non-U.S. sovereign government, supranational and government related | | — |
| | 1,976,202 |
| | — |
| | 1,976,202 |
|
Corporate | | — |
| | 5,604,160 |
| | — |
| | 5,604,160 |
|
Asset-backed securities | | — |
| | 681,502 |
| | 449,918 |
| | 1,131,420 |
|
Residential mortgage-backed securities | | — |
| | 2,306,476 |
| | — |
| | 2,306,476 |
|
Other mortgage-backed securities | | — |
| | 54,462 |
| | — |
| | 54,462 |
|
Fixed maturities | | $ | — |
| | $ | 13,319,099 |
| | $ | 599,646 |
| | $ | 13,918,745 |
|
Short-term investments | | $ | — |
| | $ | 25,678 |
| | $ | — |
| | $ | 25,678 |
|
Equities | | | | | | | | |
Real estate investment trusts | | $ | 213,770 |
| | $ | — |
| | $ | — |
| | $ | 213,770 |
|
Insurance | | 140,916 |
| | 4,521 |
| | — |
| | 145,437 |
|
Energy | | 123,978 |
| | — |
| | — |
| | 123,978 |
|
Consumer noncyclical | | 100,134 |
| | — |
| | — |
| | 100,134 |
|
Finance | | 70,621 |
| | 7,354 |
| | 20,353 |
| | 98,328 |
|
Technology | | 52,707 |
| | — |
| | 8,555 |
| | 61,262 |
|
Communications | | 51,829 |
| | — |
| | 2,640 |
| | 54,469 |
|
Industrials | | 49,983 |
| | — |
| | — |
| | 49,983 |
|
Consumer cyclical | | 39,002 |
| | — |
| | — |
| | 39,002 |
|
Utilities | | 31,748 |
| | — |
| | — |
| | 31,748 |
|
Other | | 11,571 |
| | — |
| | — |
| | 11,571 |
|
Mutual funds and exchange traded funds | | 118,246 |
| | — |
| | 8,586 |
| | 126,832 |
|
Equities | | $ | 1,004,505 |
| | $ | 11,875 |
| | $ | 40,134 |
| | $ | 1,056,514 |
|
Other invested assets | | | | | | | | |
Derivative assets | | | | | | | | |
Foreign exchange forward contracts | | $ | — |
| | $ | 20,033 |
| | $ | — |
| | $ | 20,033 |
|
Futures contracts | | 846 |
| | — |
| | — |
| | 846 |
|
Insurance-linked securities | | — |
| | — |
| | 3 |
| | 3 |
|
Total return swaps | | — |
| | — |
| | 485 |
| | 485 |
|
TBAs | | — |
| | 154 |
| | — |
| | 154 |
|
Other | | | | | | | | |
Notes and loan receivables and notes securitization | | — |
| | — |
| | 44,817 |
| | 44,817 |
|
Annuities and residuals | | — |
| | — |
| | 13,243 |
| | 13,243 |
|
Private equities | | — |
| | — |
| | 59,872 |
| | 59,872 |
|
Derivative liabilities | | | | | | | | |
Foreign exchange forward contracts | | — |
| | (7,446 | ) | | — |
| | (7,446 | ) |
Foreign currency option contracts | | — |
| | (1,196 | ) | | — |
| | (1,196 | ) |
Futures contracts | | (467 | ) | | — |
| | — |
| | (467 | ) |
Insurance-linked securities | | — |
| | — |
| | (339 | ) | | (339 | ) |
Total return swaps | | — |
| | — |
| | (2,007 | ) | | (2,007 | ) |
Interest rate swaps | | — |
| | (16,282 | ) | | — |
| | (16,282 | ) |
TBAs | | — |
| | (240 | ) | | — |
| | (240 | ) |
Other invested assets | | $ | 379 |
| | $ | (4,977 | ) | | $ | 116,074 |
| | $ | 111,476 |
|
Funds held – directly managed | | | | | | | | |
U.S. government and government sponsored enterprises | | $ | — |
| | $ | 153,483 |
| | $ | — |
| | $ | 153,483 |
|
U.S. states, territories and municipalities | | — |
| | — |
| | 132 |
| | 132 |
|
Non-U.S. sovereign government, supranational and government related | | — |
| | 128,233 |
| | — |
| | 128,233 |
|
Corporate | | — |
| | 177,347 |
| | — |
| | 177,347 |
|
Other invested assets | | — |
| | — |
| | 13,398 |
| | 13,398 |
|
Funds held – directly managed | | $ | — |
| | $ | 459,063 |
| | $ | 13,530 |
| | $ | 472,593 |
|
Total | | $ | 1,004,884 |
| | $ | 13,810,738 |
| | $ | 769,384 |
| | $ | 15,585,006 |
|
At June 30, 2015 and December 31, 2014, the aggregate carrying amounts of items included in Other invested assets that the Company did not measure at fair value were $209.2 million and $187.3 million, respectively, which related to the Company’s investments that are accounted for using the cost method of accounting or equity method of accounting.
In addition to the investments underlying the funds held – directly managed account held at fair value of $424.7 million and $472.6 million at June 30, 2015 and December 31, 2014, respectively, the funds held – directly managed account also included cash and cash equivalents, carried at fair value, of $58.1 million and $42.3 million, respectively, and accrued investment income of $4.8 million and $5.7 million, respectively. At June 30, 2015 and December 31, 2014, the aggregate carrying amounts of items included in the funds held – directly managed account that the Company did not measure at fair value were $107.3 million and $88.3 million, respectively, which primarily related to other assets and liabilities held by Colisée Re related to the underlying business, which are carried at cost (see Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014).
At June 30, 2015 and December 31, 2014, substantially all of the accrued investment income in the Condensed Consolidated Balance Sheets relate to the Company’s investments and the investments underlying the funds held – directly managed account for which the fair value option was elected.
During the three months and six months ended June 30, 2015 and 2014, there were no transfers between Level 1 and Level 2.
Disclosures about the fair value of financial instruments that the Company does not measure at fair value exclude insurance contracts and certain other financial instruments. At June 30, 2015 and December 31, 2014, the fair values of financial instrument assets recorded in the Condensed Consolidated Balance Sheets not described above, approximate their carrying values.
The reconciliations of the beginning and ending balances for all financial instruments measured at fair value using Level 3 inputs for the three months ended June 30, 2015 and 2014, were as follows (in thousands of U.S. dollars):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the three months ended June 30, 2015 | | Balance at beginning of period | | Realized and unrealized investment (losses) gains included in net loss | | Purchases and issuances (1) | | Settlements and sales (1) | | Net transfers into/ (out of) Level 3 | | Balance at end of period | | Change in unrealized investment (losses) gains relating to assets held at end of period |
Fixed maturities | | | | | | | | | | | | | | |
U.S. states, territories and municipalities | | $ | 147,683 |
| | $ | (8,390 | ) | | $ | 16,440 |
| | $ | (43,512 | ) | | $ | — |
| | $ | 112,221 |
| | $ | (8,392 | ) |
Asset-backed securities | | 451,583 |
| | (7,711 | ) | | 17,280 |
| | (49,503 | ) | | — |
| | 411,649 |
| | (7,566 | ) |
Fixed maturities | | $ | 599,266 |
| | $ | (16,101 | ) | | $ | 33,720 |
| | $ | (93,015 | ) | | $ | — |
| | $ | 523,870 |
| | $ | (15,958 | ) |
Equities | | | | | | | | | | | | | | |
Finance | | $ | 20,532 |
| | $ | 564 |
| | $ | — |
| | $ | (132 | ) | | $ | — |
| | $ | 20,964 |
| | $ | 564 |
|
Technology | | 8,602 |
| | 613 |
| | — |
| | — |
| | — |
| | 9,215 |
| | 613 |
|
Communications | | 2,723 |
| | (143 | ) | | — |
| | — |
| | — |
| | 2,580 |
| | (143 | ) |
Mutual funds and exchange traded funds | | 257,977 |
| | 286 |
| | — |
| | (249,340 | ) | | — |
| | 8,923 |
| | 286 |
|
Equities | | $ | 289,834 |
| | $ | 1,320 |
| | $ | — |
| | $ | (249,472 | ) | | $ | — |
| | $ | 41,682 |
| | $ | 1,320 |
|
Other invested assets | | | | | | | | | | | | | | |
Derivatives, net | | $ | (1,377 | ) | | $ | (1,033 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2,410 | ) | | $ | (1,033 | ) |
Notes and loan receivables and notes securitization | | 51,103 |
| | (540 | ) | | 16,271 |
| | (1,384 | ) | | — |
| | 65,450 |
| | (541 | ) |
Annuities and residuals | | 12,155 |
| | 90 |
| | — |
| | (1,149 | ) | | — |
| | 11,096 |
| | 91 |
|
Private equities | | 64,642 |
| | 1,055 |
| | 6,754 |
| | (908 | ) | | — |
| | 71,543 |
| | 906 |
|
Other invested assets | | $ | 126,523 |
| | $ | (428 | ) | | $ | 23,025 |
| | $ | (3,441 | ) | | $ | — |
| | $ | 145,679 |
| | $ | (577 | ) |
Funds held – directly managed | | | | | | | | | | | | | | |
U.S. states, territories and municipalities | | $ | 132 |
| | $ | 68 |
| | $ | — |
| | $ | (200 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
Other invested assets | | 12,008 |
| | 340 |
| | — |
| | — |
| | — |
| | 12,348 |
| | 340 |
|
Funds held – directly managed | | $ | 12,140 |
| | $ | 408 |
| | $ | — |
| | $ | (200 | ) | | $ | — |
| | $ | 12,348 |
| | $ | 340 |
|
Total | | $ | 1,027,763 |
| | $ | (14,801 | ) | | $ | 56,745 |
| | $ | (346,128 | ) | | $ | — |
| | $ | 723,579 |
| | $ | (14,875 | ) |
| |
(1) | There were no issuances or sales for the three months ended June 30, 2015. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the three months ended June 30, 2014 | | Balance at beginning of period | | Realized and unrealized investment gains (losses) included in net income | | Purchases and issuances (1) | | Settlements and sales (2) | | Net transfers into/(out of) Level 3 | | Balance at end of period | | Change in unrealized investment gains (losses) relating to assets held at end of period |
Fixed maturities | | | | | | | | | | | | | | |
U.S. states, territories and municipalities | | $ | 113,467 |
| | $ | 5,960 |
| | $ | 4,260 |
| | $ | (70 | ) | | $ | — |
| | $ | 123,617 |
| | $ | 5,959 |
|
Asset-backed securities | | 447,701 |
| | 3,141 |
| | 68,035 |
| | (29,771 | ) | | — |
| | 489,106 |
| | 3,184 |
|
Fixed maturities | | $ | 561,168 |
| | $ | 9,101 |
| | $ | 72,295 |
| | $ | (29,841 | ) | | $ | — |
| | $ | 612,723 |
| | $ | 9,143 |
|
Equities | | | | | | | | | | | | | | |
Finance | | $ | 22,706 |
| | $ | (3,142 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19,564 |
| | $ | (3,142 | ) |
Communications | | 2,111 |
| | (44 | ) | | — |
| | — |
| | — |
| | 2,067 |
| | (44 | ) |
Technology | | 7,400 |
| | 245 |
| | — |
| | — |
| | — |
| | 7,645 |
| | 245 |
|
Other | | — |
| | (1 | ) | | 8 |
| | — |
| | — |
| | 7 |
| | (1 | ) |
Mutual funds and exchange traded funds | | 8,053 |
| | 193 |
| | — |
| | — |
| | — |
| | 8,246 |
| | 193 |
|
Equities | | $ | 40,270 |
| | $ | (2,749 | ) | | $ | 8 |
| | $ | — |
| | $ | — |
| | $ | 37,529 |
| | $ | (2,749 | ) |
Other invested assets | | | | | | | | | | | | | | |
Derivatives, net | | $ | (1,042 | ) | | $ | 398 |
| | $ | (208 | ) | | $ | — |
| | $ | — |
| | $ | (852 | ) | | $ | 398 |
|
Notes and loan receivables and notes securitization | | 42,243 |
| | 2,967 |
| | 2,196 |
| | (8,803 | ) | | — |
| | 38,603 |
| | 4,486 |
|
Annuities and residuals | | 18,945 |
| | 302 |
| | — |
| | (2,113 | ) | | — |
| | 17,134 |
| | 303 |
|
Private equities | | 42,655 |
| | (2,264 | ) | | 15,478 |
| | (941 | ) | | — |
| | 54,928 |
| | (2,264 | ) |
Other invested assets | | $ | 102,801 |
| | $ | 1,403 |
| | $ | 17,466 |
| | $ | (11,857 | ) | | $ | — |
| | $ | 109,813 |
| | $ | 2,923 |
|
Funds held – directly managed | | | | | | | | | | | | | | |
U.S. states, territories and municipalities | | $ | 301 |
| | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 305 |
| | $ | 4 |
|
Other invested assets | | 15,223 |
| | 577 |
| | — |
| | — |
| | — |
| | 15,800 |
| | 577 |
|
Funds held – directly managed | | $ | 15,524 |
| | $ | 581 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 16,105 |
| | $ | 581 |
|
Total | | $ | 719,763 |
| | $ | 8,336 |
| | $ | 89,769 |
| | $ | (41,698 | ) | | $ | — |
| | $ | 776,170 |
| | $ | 9,898 |
|
| |
(1) | Purchases and issuances of derivatives include issuances of $0.2 million. |
| |
(2) | There were no sales for the three months ended June 30, 2014. |
The reconciliations of the beginning and ending balances for all financial instruments measured at fair value using Level 3 inputs for the six months ended June 30, 2015 and 2014, were as follows (in thousands of U.S. dollars):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the six months ended June 30, 2015 | | Balance at beginning of period | | Realized and unrealized investment (losses) gains included in net income | | Purchases and issuances (1) | | Settlements and sales (1) | | Net transfers into/(out of) Level 3 | | Balance at end of period | | Change in unrealized investment (losses) gains relating to assets held at end of period |
Fixed maturities | | | | | | | | | | | | | | |
U.S. states, territories and municipalities | | $ | 149,728 |
| | $ | (10,251 | ) | | $ | 16,440 |
| | $ | (43,696 | ) | | $ | — |
| | $ | 112,221 |
| | $ | (10,258 | ) |
Asset-backed securities | | 449,918 |
| | (6,450 | ) | | 60,702 |
| | (92,521 | ) | | — |
| | 411,649 |
| | (6,187 | ) |
Fixed maturities | | $ | 599,646 |
| | $ | (16,701 | ) | | $ | 77,142 |
| | $ | (136,217 | ) | | $ | — |
| | $ | 523,870 |
| | $ | (16,445 | ) |
Equities | | | | | | | | | | | | | | |
Finance | | $ | 20,353 |
| | $ | 743 |
| | $ | — |
| | $ | (132 | ) | | $ | — |
| | $ | 20,964 |
| | $ | 743 |
|
Technology | | 8,555 |
| | 660 |
| | — |
| | — |
| | — |
| | 9,215 |
| | 660 |
|
Communications | | 2,640 |
| | (60 | ) | | — |
| | — |
| | — |
| | 2,580 |
| | (60 | ) |
Mutual funds and exchange traded funds | | 8,586 |
| | 337 |
| | 249,340 |
| | (249,340 | ) | | — |
| | 8,923 |
| | 337 |
|
Equities | | $ | 40,134 |
| | $ | 1,680 |
| | $ | 249,340 |
| | $ | (249,472 | ) | | $ | — |
| | $ | 41,682 |
| | $ | 1,680 |
|
Other invested assets | | | | | | | | | | | | | | |
Derivatives, net | | $ | (1,858 | ) | | $ | (552 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | (2,410 | ) | | $ | (552 | ) |
Notes and loan receivables and notes securitization | | 44,817 |
| | 564 |
| | 22,682 |
| | (2,613 | ) | | — |
| | 65,450 |
| | 2,082 |
|
Annuities and residuals | | 13,243 |
| | 321 |
| | — |
| | (2,468 | ) | | — |
| | 11,096 |
| | 321 |
|
Private equities | | 59,872 |
| | 1,552 |
| | 11,938 |
| | (1,819 | ) | | — |
| | 71,543 |
| | 1,404 |
|
Other invested assets | | $ | 116,074 |
| | $ | 1,885 |
| | $ | 34,620 |
| | $ | (6,900 | ) | | $ | — |
| | $ | 145,679 |
| | $ | 3,255 |
|
Funds held – directly managed | | < |