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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
¨        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31721
AXIS CAPITAL HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
BERMUDA
(State or other jurisdiction of incorporation or organization)
98-0395986
(I.R.S. Employer Identification No.)
92 Pitts Bay Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
(441) 496-2600
(Registrant’s telephone number, including area code)
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 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  x    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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  x  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x           
    Accelerated filer  ¨  
Non-accelerated filer   ¨ (do not check if a smaller reporting company)
 Smaller reporting company  ¨
 
Emerging growth company   ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
At May 1 2018, there were 83,518,960 Common Shares, $0.0125 par value per share, of the registrant outstanding.

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AXIS CAPITAL HOLDINGS LIMITED
INDEX TO FORM 10-Q


 
 
 
Page
 
PART I
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
PART II
 
 
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
 


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PART I
FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may”, "should”, "could", "anticipate", "estimate", "expect", "plan", "believe", "predict", "potential", and "intend". Forward-looking statements contained in this report may include information regarding our estimates of losses related to catastrophes and other large losses, measurements of potential losses in the fair value of our investment portfolio and derivative contracts, our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and the outcome of our strategic initiatives, our expectations regarding estimated synergies and the success of the integration of acquired entities, our expectations regarding the estimated benefits and synergies relating to the Company's transformation program, our expectations regarding pricing and other market conditions, our growth prospects, and valuations of the potential impact of movements in interest rates, equity securities prices, credit spreads and foreign currency rates. Forward-looking statements only reflect our expectations and are not guarantees of performance.
These statements involve risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to the following: 
•
the cyclical nature of the re(insurance) business leading to periods with excess underwriting capacity and unfavorable premium rates,
•
the occurrence and magnitude of natural and man-made disasters,
•
losses from war, terrorism and political unrest or other unanticipated losses,
•
actual claims exceeding our loss reserves,
•
general economic, capital and credit market conditions,
•
the failure of any of the loss limitation methods we employ,
•
the effects of emerging claims, coverage and regulatory issues, including uncertainty related to coverage definitions, limits, terms and conditions,
•
our inability to purchase reinsurance or collect amounts due to us,
•
the breach by third parties in our program business of their obligations to us,
•
difficulties with technology and/or data security,
•
the failure of our policyholders and intermediaries to pay premiums,
•
the failure of our cedants to adequately evaluate risks,
•
inability to obtain additional capital on favorable terms, or at all,
•
the loss of one or more key executives,
•
a decline in our ratings with rating agencies,
•
loss of business provided to us by our major brokers and credit risk due to our reliance on brokers,
•
changes in accounting policies or practices,
•
the use of industry catastrophe models and changes to these models,
•
changes in governmental regulations and potential government intervention in our industry,
•
failure to comply with certain laws and regulations relating to sanctions and foreign corrupt practices,
•
increased competition,
•
changes in the political environment of certain countries in which we operate or underwrite business including the United Kingdom's expected withdrawal from the European Union,
•
fluctuations in interest rates, credit spreads, equity securities prices and/or currency values,
•
the failure to successfully integrate acquired businesses or realize the expected synergies resulting from such acquisitions,
•
the failure to realize the expected benefits or synergies relating to the Company's transformation program,


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•
changes in tax laws, and
•
the other factors including but not limited to those set forth under Item 1A, 'Risk Factors' and Item 7, 'Management’s Discussion and Analysis of Financial Condition and Results of Operations' included in our Annual Report on Form 10-K for the year ended December 31, 2017.

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.


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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page  
 
 
Consolidated Balance Sheets at March 31, 2018 (Unaudited) and December 31, 2017
Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (Unaudited)
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2018 and 2017 (Unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Segment Information
Note 3 - Investments
Note 4 - Fair Value Measurements
Note 5 - Derivative Instruments
Note 6 - Reserve for Losses and Loss Expenses
Note 7 - Earnings Per Common Share
Note 8 - Share-Based Compensation
Note 9 - Shareholders' Equity
Note 10 - Debt and Financing Arrangements
Note 11 - Commitments and Contingencies
Note 12 - Other Comprehensive Income
Note 13 - Subsequent Events





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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2018 (UNAUDITED) AND DECEMBER 31, 2017
 
 
2018
 
2017
 
(in thousands)
Assets
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value
(Amortized cost 2018: $11,898,060; 2017: $12,611,219)
$
11,801,396

 
$
12,622,006

Equity securities, at fair value
(Cost 2018: $374,091; 2017: $552,867)
435,742

 
635,511

Mortgage loans, held for investment, at amortized cost and fair value
364,769

 
325,062

Other investments, at fair value
1,009,587

 
1,009,373

Equity method investments
108,597

 
108,597

Short-term investments, at amortized cost and fair value
56,246

 
83,661

Total investments
13,776,337

 
14,784,210

Cash and cash equivalents
1,227,736

 
948,626

Restricted cash and cash equivalents
416,844

 
415,160

Accrued interest receivable
73,928

 
81,223

Insurance and reinsurance premium balances receivable
3,892,957

 
3,012,419

Reinsurance recoverable on unpaid and paid losses
3,129,303

 
3,338,840

Deferred acquisition costs
721,820

 
474,061

Prepaid reinsurance premiums
1,015,163

 
809,274

Receivable for investments sold
19,433

 
11,621

Goodwill
102,003

 
102,003

Intangible assets
253,808

 
257,987

Value of business acquired
150,936

 
206,838

Other assets
307,041

 
317,915

Total assets
$
25,087,309

 
$
24,760,177

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss expenses
$
12,034,643

 
$
12,997,553

Unearned premiums
4,659,858

 
3,641,399

Insurance and reinsurance balances payable
1,251,629

 
899,064

Senior notes and notes payable
1,376,835

 
1,376,529

Payable for investments purchased
144,315

 
100,589

Other liabilities
355,634

 
403,779

Total liabilities
19,822,914

 
19,418,913

 
 
 
 
Shareholders’ equity
 
 
 
Preferred shares
775,000

 
775,000

Common shares (shares issued 2018: 176,580; 2017: 176,580
shares outstanding 2018: 83,518; 2017: 83,161)
2,206

 
2,206

Additional paid-in capital
2,289,497

 
2,299,166

Accumulated other comprehensive income (loss)
(85,216
)
 
92,382

Retained earnings
6,076,294

 
5,979,666

Treasury shares, at cost (2018: 93,062; 2017: 93,419 shares)
(3,793,386
)
 
(3,807,156
)
Total shareholders’ equity
5,264,395

 
5,341,264

 
 
 
 
Total liabilities and shareholders’ equity
$
25,087,309

 
$
24,760,177


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017


 
Three months ended
 
2018
 
2017
 
(in thousands, except for per share amounts)
Revenues
 
 
 
Net premiums earned
$
1,167,402

 
$
938,703

Net investment income
100,999

 
98,664

Other insurance related income (losses)
6,606

 
(3,783
)
Net investment losses:
 
 
 
Other-than-temporary impairment ("OTTI") losses
(414
)
 
(6,553
)
Other realized and unrealized investment losses
(14,416
)
 
(18,497
)
Total net investment losses
(14,830
)
 
(25,050
)
Total revenues
1,260,177

 
1,008,534

 
 
 
 
Expenses
 
 
 
Net losses and loss expenses
661,345

 
606,942

Acquisition costs
229,260

 
189,792

General and administrative expenses
169,837

 
161,260

Foreign exchange losses
37,860

 
21,465

Interest expense and financing costs
16,763

 
12,791

Reorganization expenses
13,054

 
—

    Amortization of value of business acquired
57,110

 
—

    Amortization of intangibles
2,782

 
—

Total expenses
1,188,011

 
992,250

 
 
 
 
Income before income taxes and interest in income (loss) of equity method investments
72,166

 
16,284

Income tax benefit
1,036

 
9,337

Interest in loss of equity method investments
—

 
(5,766
)
Net income
73,202

 
19,855

Preferred share dividends
10,656

 
14,841

Net income available to common shareholders
$
62,546

 
$
5,014

 
 
 
 
Per share data
 
 
 
Net income per common share:
 
 
 
Basic net income
$
0.75

 
$
0.06

Diluted net income
$
0.75

 
$
0.06

Weighted average number of common shares outstanding - basic
83,322

 
86,022

Weighted average number of common shares outstanding - diluted
83,721

 
86,793

Cash dividends declared per common share
$
0.39

 
$
0.38

 
 
 
 



See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
 
 
Three months ended
 
2018
 
2017
 
(in thousands)
Net income
$
73,202

 
$
19,855

Other comprehensive income (loss), net of tax:
 
 
 
Available for sale investments:
 
 
 
Unrealized investment gains (losses) arising during the period
(112,191
)
 
67,703

Adjustment for reclassification of net realized investment losses and OTTI losses recognized in net income
785

 
24,968

Unrealized investment gains (losses) arising during the period, net of reclassification adjustment
(111,406
)
 
92,671

Foreign currency translation adjustment
1,270

 
29,869

Total other comprehensive income (loss), net of tax
(110,136
)
 
122,540

Comprehensive income (loss)
$
(36,934
)
 
$
142,395




See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
 
2018
 
2017
 
(in thousands)
Preferred shares
 
 
 
Balance at beginning and end of period
$
775,000

 
$
1,126,074

 
 
 
 
Common shares (par value)
 
 
 
Balance at beginning and end of period
2,206

 
2,206

 
 
 
 
Additional paid-in capital
 
 
 
Balance at beginning of period
2,299,166

 
2,299,857

Treasury shares reissued
(19,272
)
 
(37,363
)
Share-based compensation expense
9,603

 
14,177

Balance at end of period
2,289,497

 
2,276,671

 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
Balance at beginning of period
92,382

 
(121,841
)
Unrealized gains (losses) on available for sale investments, net of tax:
 
 
 
Balance at beginning of period
89,962

 
(82,323
)
Cumulative effect of adoption of ASU No. 2018-02

2,142

 
—

Cumulative effect of adoption of ASU No. 2016-01, net of taxes
(69,604
)
 
—

Unrealized gains (losses) arising during the period
(111,406
)
 
92,671

Balance at end of period
(88,906
)
 
10,348

Cumulative foreign currency translation adjustments, net of tax:
 
 
 
Balance at beginning of period
2,420

 
(39,518
)
Foreign currency translation adjustment
1,270

 
29,869

Balance at end of period
3,690

 
(9,649
)
Balance at end of period
(85,216
)
 
699

 
 
 
 
Retained earnings
 
 
 
Balance at beginning of period
5,979,666

 
6,527,627

Cumulative effect of adoption of ASU No. 2018-02
(2,142
)
 
—

Cumulative effect of adoption of ASU No. 2016-01, net of taxes
69,604

 
—

Net income
73,202

 
19,855

Preferred share dividends
(10,656
)
 
(14,841
)
Common share dividends
(33,380
)
 
(33,379
)
Balance at end of period
6,076,294

 
6,499,262

 
 
 
 
Treasury shares, at cost
 
 
 
Balance at beginning of period
(3,807,156
)
 
(3,561,553
)
Shares repurchased
(7,163
)
 
(151,242
)
Shares reissued
20,933

 
38,248

Balance at end of period
(3,793,386
)
 
(3,674,547
)
 
 
 
 
Total shareholders’ equity
$
5,264,395

 
$
6,230,365

 
 
 
 


    


See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
 
2018
 
2017
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
73,202

 
$
19,855

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Net investment losses
8,909

 
25,050

Net realized and unrealized gains on other investments
(12,950
)
 
(18,211
)
Amortization of fixed maturities
9,895

 
12,498

Interest in loss of equity method investments
—

 
5,766

Other amortization and depreciation
68,397

 
6,467

Share-based compensation expense, net of cash payments
(1,481
)
 
(24,758
)
Non-cash foreign exchange losses

—

 
24,149

Changes in:
 
 
 
Accrued interest receivable
3,350

 
5,596

Reinsurance recoverable balances
(113,656
)
 
348,942

Deferred acquisition costs
(253,369
)
 
(171,493
)
Prepaid reinsurance premiums
(218,772
)
 
(86,534
)
Reserve for loss and loss expenses
184,511

 
(237,773
)
Unearned premiums
1,056,045

 
654,475

Insurance and reinsurance balances, net
(854,993
)
 
(559,456
)
Other items
(36,973
)
 
(40,834
)
Net cash used in operating activities
(87,885
)
 
(36,261
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of:
 
 
 
Fixed maturities
(2,474,418
)
 
(2,670,518
)
Equity securities
(42,522
)
 
(98,559
)
Mortgage loans
(59,838
)
 
—

Other investments
(31,755
)
 
(63,742
)
Equity method investments
—

 
(1,000
)
Short-term investments
(57,688
)
 
(2,320
)
Proceeds from the sale of:
 
 
 
Fixed maturities
2,442,673

 
2,429,084

Equity securities
194,970

 
70,575

Other investments
44,493

 
131,777

Short-term investments
46,719

 
7,087

Proceeds from redemption of fixed maturities
319,526

 
521,716

Proceeds from redemption of short-term investments
16,022

 
111,931

Proceeds from the repayment of mortgage loans

20,237

 
10,233

Purchase of other assets
—

 
(4,427
)
Net cash provided by investing activities
418,419

 
441,837

 
 
 
 
Cash flows from financing activities:
 
 
 
Repurchase of common shares - open market
—

 
(120,549
)
Taxes paid on withholding shares
(7,163
)
 
(23,260
)
Dividends paid - common shares
(35,273
)
 
(38,541
)
Dividends paid - preferred shares
(10,656
)
 
(14,841
)
Net cash used in financing activities
(53,092
)
 
(197,191
)
 
 
 
 
Effect of exchange rate changes on foreign currency cash, cash equivalents, and restricted cash
3,354

 
1,678

Increase in cash, cash equivalents, and restricted cash
280,796

 
210,063

Cash, cash equivalents, and restricted cash - beginning of period
1,363,786

 
1,241,507

Cash, cash equivalents, and restricted cash - end of period
$
1,644,582

 
$
1,451,570

 
 
 
 
Supplemental disclosures of cash flow information: Consideration paid related to an agreement for the Reinsurance to Close ("RITC") of the 2015 and prior years of account of Syndicate 2007 was $688 million in the quarter of which $513 million was settled by transfer of securities and was treated as a non cash activity on the Consolidated Statement of Cash Flows. Also refer to Note 6 'Reserve for Losses and Loss Expenses'.

See accompanying notes to Consolidated Financial Statements.

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited Consolidated Financial Statements (the "financial statements") have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the U.S. Securities and Exchange Commission's ("SEC") instructions to Form 10-Q and Article 10 of Regulation S-X and include AXIS Capital Holdings Limited ("AXIS Capital") and its subsidiaries (the "Company"). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in AXIS Capital's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC.

In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position and results of operations for the periods presented.
The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated.

To facilitate comparison of information across periods, certain reclassifications have been made to prior year amounts to conform to the current year's presentation. These reclassifications did not impact results of operations, financial condition or liquidity.

Tabular dollar and share amounts are in thousands, except per share amounts. All amounts are reported in U.S. dollars.

Significant Accounting Policies

There was one notable change in our significant accounting policies subsequent to our Annual Report on Form 10-K for the year ended December 31, 2017.

a)
Investments
Recognition and Measurement of Financial Assets and Financial Liabilities
Fixed maturities and equity securities are reported at fair value at the balance sheet date (see Note 4 'Fair Value Measurements'). Effective January 1, 2018, the Company adopted ASU 2016-01 "Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities," which requires:

•
equity investments (except those accounted for under the equity method of accounting, investments that are consolidated or those that meet a practicability exception) to be measured at fair value with changes in fair value recognized in net income,
•
simplifies the impairment assessment of equity investments without readily determinable values by requiring a qualitative assessment to identify impairment, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost,
•
requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes,
•
requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liabilities in accordance with the fair value option,
•
requires the separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and
•
clarifies that the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the organization’s other deferred tax assets.

Upon adoption of this guidance, net unrealized gains on equity securities of $70 million, net of deferred income taxes of $13 million, were reclassified from accumulated other comprehensive income into retained earnings. As prescribed, the prior period has not been restated to conform to the current presentation.




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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


New Accounting Standards Adopted in 2018

Revenue From Contracts With Customers

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU" ) 2014-09 "Revenue from Contracts with Customers (Topic 606)," using the modified retrospective transition approach. This guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards, such as accounting for insurance contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company generated fee income of $10 million for the three months ended March 31, 2018 which is within the scope of this ASU. These fees represents service fees and reimbursement of expenses earned by the Company's reinsurance segment related to services provided to its strategic capital partners. These fees are recognized when the related services have been performed and are reported in other insurance related income (losses) in the Consolidated Statements of Operations. Given that the timing and measurement of revenue associated with impacted contracts did not change, the adoption of this guidance did not have a material impact on the Company's results of operations, financial condition and liquidity.

Classification of Certain Cash Receipts and Cash Payments

Effective January 1, 2018, the Company adopted ASU 2016-15, "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments," which addresses diversity in practice in how eight specific cash receipts and cash payments should be presented and classified on the statement of cash flows. The adoption of this guidance did not impact the Company's results of operations, financial condition and liquidity.

Restricted Cash

Effective January 1, 2018, the Company adopted ASU 2016-18, "Statement of Cash Flows (Topic 230) - Restricted Cash," which addresses diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. This guidance requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented on the statement of cash flows. To facilitate comparison of the Company's Consolidated Statements of Cash Flows, the Company adopted this guidance utilizing the full retrospective approach for all periods presented in the Company's Consolidated Financial Statements. As a result, the Company's Consolidated Statements of Cash Flows now explains the change during the period in the total of cash, cash equivalents, and restricted cash. Therefore, restricted cash is now included with cash and cash equivalents in the reconciliation of the beginning of period and end of period total amounts shown on the statement of cash flows. The adoption of this guidance did not impact the Company's results of operations, financial condition and liquidity.

Stock Compensation - Scope of Modification Accounting

Effective January 1, 2018, the Company adopted ASU 2017-09 "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting," which provides clarity and reduces diversity in practice of applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance states that an entity should account for the effects of a modification unless all the following are met:

1.
the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified;
2.
the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.



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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update. The adoption of this guidance did not impact the Company's results of operations, financial condition and liquidity.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Effective January 1, 2018, the Company adopted ASU 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" which was a response to a financial reporting issue that arose as a consequence of the U.S. federal government tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 ("U.S. Tax Reform"), which was enacted on December 22, 2017.

U.S. GAAP currently requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. This guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income rather than in income from continuing operations. As the adjustment of deferred taxes due to the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate is required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects for purposes of this Update) do not reflect the appropriate tax rate.

The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from U.S. Tax Reform. Consequently, the amendments eliminate the stranded tax effects resulting from U.S. Tax Reform and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of U.S. Tax Reform, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.

As a consequence of U.S. Tax Reform, the Company recognized a tax benefit of $2 million related to the revaluation of net deferred tax liabilities associated with the reduction in the U.S. corporate income tax rate from 35% to 21%, attributable to net unrealized investment gains associated with investments held by the Company's U.S. domiciled entities. Upon adoption of this guidance, the tax benefit of $2 million was reclassified from accumulated other comprehensive income into retained earnings.

Recently Issued Accounting Standards Not Yet Adopted
Leases

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" which provides a new comprehensive model for lease accounting. The guidance will require a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company's results of operations, financial condition and liquidity.

Measurement of Credit Losses on Financial Instrument

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments" which replaces the "incurred loss" impairment methodology with an approach based on "expected losses" to estimate credit losses on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The guidance also provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its results of operations, financial condition and liquidity.


13
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment" that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The guidance will be adopted on a prospective basis.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08 "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities" which shortens the amortization period for certain purchased callable debt securities held at a premium. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.




14
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.
SEGMENT INFORMATION

AXIS Capital's underwriting operations are organized around its global underwriting platforms, AXIS Insurance and AXIS Re. The Company has determined that it has two reportable segments, insurance and reinsurance. The Company does not allocate its assets by segment, with the exception of goodwill and intangible assets, as it evaluates the underwriting results of each segment separately from the results of its investment portfolio.

During the three months ended March 31, 2018, the Company realigned its accident and health business by integrating this business and its operations into the Company's insurance and reinsurance segments. Financial results relating to the Company's accident and health line of business were previously included in the Company's insurance segment. As a result of the realignment, accident and health results are included in the results of both the insurance and reinsurance segments of the Company with effect from January 1, 2018.

Insurance
The Company's insurance segment offers specialty insurance products to a variety of niche markets on a worldwide basis. The product lines in this segment are property, marine, terrorism, aviation, credit and political risk, professional lines, liability, accident and health, together with discontinued lines, which represents lines of business that Novae Group plc ("Novae") exited or placed into run-off in the three month period ended December 31, 2016 and in the three month period ended March 31, 2017.
 
Reinsurance
The Company's reinsurance segment provides non-life treaty reinsurance to insurance companies on a worldwide basis. The product lines in this segment are catastrophe, property, professional lines, credit and surety, motor, liability, agriculture, engineering, marine and other, accident and health, together with discontinued lines, which represents lines of business that Novae exited or placed into run-off in the three month period ended December 31, 2016 and in the three month period ended March 31, 2017. The reinsurance segment also wrote derivative based risk management products designed to address weather and commodity price risks until July 1, 2017.


15
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2.
SEGMENT INFORMATION (CONTINUED)


The following tables present the underwriting results of the Company's reportable segments, as well as the carrying values of allocated goodwill and intangible assets:
 
  
2018
 
2017
 
 
Three months ended and at March 31,
Insurance
 
Reinsurance
 
Total
 
Insurance
 
Reinsurance
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross premiums written
$
880,848

 
$
1,781,947

 
$
2,662,795

 
$
545,261

 
$
1,366,610

 
$
1,911,871

 
 
Net premiums written
547,893

 
1,437,978

 
1,985,871

 
356,836

 
1,152,122

 
1,508,959

 
 
Net premiums earned
580,059

 
587,343

 
1,167,402

 
391,964

 
546,739

 
938,703

 
 
Other insurance related income (losses)
620

 
5,986

 
6,606

 
42

 
(3,825
)
 
(3,783
)
 
 
Net losses and loss expenses
(321,538
)
 
(339,807
)
 
(661,345
)
 
(241,085
)
 
(365,857
)
 
(606,942
)
 
 
Acquisition costs
(87,329
)
 
(141,931
)
 
(229,260
)
 
(54,004
)
 
(135,788
)
 
(189,792
)
 
 
General and administrative expenses
(102,370
)
 
(37,296
)
 
(139,666
)
 
(85,256
)
 
(36,545
)
 
(121,801
)
 
 
Underwriting income
$
69,442

 
$
74,295

 
143,737

 
$
11,661

 
$
4,724

 
16,385

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate expenses
 
 
 
 
(30,171
)
 
 
 
 
 
(39,459
)
 
 
Net investment income
 
 
 
 
100,999

 
 
 
 
 
98,664

 
 
Net investment losses
 
 
 
 
(14,830
)
 
 
 
 
 
(25,050
)
 
 
Foreign exchange losses
 
 
 
 
(37,860
)
 
 
 
 
 
(21,465
)
 
 
Interest expense and financing costs
 
 
 
 
(16,763
)
 
 
 
 
 
(12,791
)
 
 
Reorganization expenses
 
 
 
 
(13,054
)
 
 
 
 
 
—

 
 
Amortization of value of business acquired
 
 
 
 
(57,110
)
 
 
 
 
 
—

 
 
Amortization of intangibles
 
 
 
 
(2,782
)
 
 
 
 
 
—

 
 
Income before income taxes and interest in income (loss) of equity method investments
 
 
 
 
$
72,166

 
 
 
 
 
$
16,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss and loss expense ratio
55.4
%
 
57.9
%
 
56.7
%
 
61.5
%
 
66.9
%
 
64.7
%
 
 
Acquisition cost ratio
15.1
%
 
24.2
%
 
19.6
%
 
13.8
%
 
24.8
%
 
20.2
%
 
 
General and administrative expense ratio
17.6
%
 
6.3
%
 
14.5
%
 
21.8
%
 
6.7
%
 
17.2
%
 
 
Combined ratio
88.1
%
 
88.4
%
 
90.8
%
 
97.0
%
 
98.4
%
 
102.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible assets
$
506,747

 
$
—

 
$
506,747

 
$
84,613

 
$
—

 
$
84,613

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 


16
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS

a)     Fixed Maturities and Equity securities

Fixed maturities

The amortized cost and fair values of the Company's fixed maturities classified as available for sale were as follows:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,821,951

 
$
908

 
$
(25,894
)
 
$
1,796,965

 
$
—

 
 
Non-U.S. government
649,396

 
21,084

 
(9,256
)
 
661,224

 
—

 
 
Corporate debt
4,670,815

 
40,698

 
(71,082
)
 
4,640,431

 
—

 
 
Agency RMBS(1)
1,956,394

 
4,644

 
(46,193
)
 
1,914,845

 
—

 
 
CMBS(2)
1,042,704

 
1,964

 
(14,047
)
 
1,030,621

 
—

 
 
Non-Agency RMBS
39,930

 
1,997

 
(530
)
 
41,397

 
(866
)
 
 
ABS(3)
1,566,484

 
4,932

 
(4,718
)
 
1,566,698

 
—

 
 
Municipals(4)
150,386

 
781

 
(1,952
)
 
149,215

 
—

 
 
Total fixed maturities
$
11,898,060

 
$
77,008

 
$
(173,672
)
 
$
11,801,396

 
$
(866
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,727,643

 
$
1,735

 
$
(16,909
)
 
$
1,712,469

 
$
—

 
 
Non-U.S. government
798,582

 
17,240

 
(9,523
)
 
806,299

 
—

 
 
Corporate debt
5,265,795

 
61,922

 
(29,851
)
 
5,297,866

 
—

 
 
Agency RMBS(1)
2,414,720

 
8,132

 
(27,700
)
 
2,395,152

 
—

 
 
CMBS(2)
776,715

 
4,138

 
(3,125
)
 
777,728

 
—

 
 
Non-Agency RMBS
45,713

 
1,917

 
(799
)
 
46,831

 
(853
)
 
 
ABS(3)
1,432,884

 
5,391

 
(1,994
)
 
1,436,281

 
—

 
 
Municipals(4)
149,167

 
1,185

 
(972
)
 
149,380

 
—

 
 
Total fixed maturities
$
12,611,219

 
$
101,660

 
$
(90,873
)
 
$
12,622,006

 
$
(853
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities ("RMBS") originated by U.S. government-sponsored agencies.
(2)
Commercial mortgage-backed securities ("CMBS").
(3)
Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit card receivables collateralized debt obligations ("CDOs") and collateralized loan obligations ("CLOs").
(4)
Municipals include bonds issued by states, municipalities and political subdivisions.
(5)
Represents the non-credit component of the other-than-temporary impairment ("OTTI") losses, adjusted for subsequent sales, maturities and redemptions. It does not include the change in fair value subsequent to the impairment measurement date.






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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)

Equity Securities

The cost and fair values of the Company's equity securities were as follows:
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2018
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
Common stocks
$
23,251

 
$
1,668

 
$
(977
)
 
$
23,942

 
 
Exchange-traded funds
211,301

 
51,843

 
(514
)
 
262,630

 
 
Bond mutual funds
139,539

 
9,631

 
—

 
149,170

 
 
Total equity securities
$
374,091

 
$
63,142

 
$
(1,491
)
 
$
435,742

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
Common stocks
$
22,836

 
$
3,412

 
$
(590
)
 
$
25,658

 
 
Exchange-traded funds
356,252

 
71,675

 
(294
)
 
427,633

 
 
Bond mutual funds
173,779

 
9,440

 
(999
)
 
182,220

 
 
Total equity securities
$
552,867

 
$
84,527

 
$
(1,883
)
 
$
635,511

 
 
 
 
 
 
 
 
 
 
 

In the normal course of investing activities, the Company actively manages allocations to non-controlling tranches of structured securities (variable interests) issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS . The Company also invests in limited partnerships (hedge funds, direct lending funds, private equity funds and real estate funds) and CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 3(c) 'Other Investments'). The Company does not have the power to direct the activities that are most significant to the economic performance of the VIEs therefore the Company is not the primary beneficiary of any of these VIEs. The maximum exposure to loss on these interests is limited to the amount of investment by the Company. The Company has not provided financial or other support with respect to these structured securities other than the original investment.



18
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)

Contractual Maturities

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The contractual maturities of fixed maturities are shown below:
 
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
 
 
 
 
 
 
 
 
 
At March 31, 2018
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
513,226

 
$
507,980

 
4.3
%
 
 
Due after one year through five years
4,642,999

 
4,626,323

 
39.2
%
 
 
Due after five years through ten years
1,942,501

 
1,911,664

 
16.2
%
 
 
Due after ten years
193,822

 
201,868

 
1.7
%
 
 
 
7,292,548

 
7,247,835

 
61.4
%
 
 
Agency RMBS
1,956,394

 
1,914,845

 
16.2
%
 
 
CMBS
1,042,704

 
1,030,621

 
8.7
%
 
 
Non-Agency RMBS
39,930

 
41,397

 
0.4
%
 
 
ABS
1,566,484

 
1,566,698

 
13.3
%
 
 
Total
$
11,898,060

 
$
11,801,396

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
486,659

 
$
484,663

 
3.8
%
 
 
Due after one year through five years
4,906,207

 
4,912,189

 
38.9
%
 
 
Due after five years through ten years
2,338,964

 
2,350,433

 
18.6
%
 
 
Due after ten years
209,357

 
218,729

 
1.7
%
 
 
 
7,941,187

 
7,966,014

 
63.0
%
 
 
Agency RMBS
2,414,720

 
2,395,152

 
19.0
%
 
 
CMBS
776,715

 
777,728

 
6.2
%
 
 
Non-Agency RMBS
45,713

 
46,831

 
0.4
%
 
 
ABS
1,432,884

 
1,436,281

 
11.4
%
 
 
Total
$
12,611,219

 
$
12,622,006

 
100.0
%
 
 
 
 
 
 
 
 
 



19
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)

 Gross Unrealized Losses

The following table summarizes fixed maturities and equity securities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
  
12 months or greater
 
Less than 12 months
 
Total
 
 
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
179,214

 
$
(7,184
)
 
$
1,219,143

 
$
(18,710
)
 
$
1,398,357

 
$
(25,894
)
 
 
Non-U.S. government
47,017

 
(4,693
)
 
214,545

 
(4,563
)
 
261,562

 
(9,256
)
 
 
Corporate debt
335,415

 
(15,212
)
 
2,853,336

 
(55,870
)
 
3,188,751

 
(71,082
)
 
 
Agency RMBS
603,008

 
(24,241
)
 
1,011,088

 
(21,952
)
 
1,614,096

 
(46,193
)
 
 
CMBS
29,098

 
(1,272
)
 
684,264

 
(12,775
)
 
713,362

 
(14,047
)
 
 
Non-Agency RMBS
8,089

 
(453
)
 
108,548

 
(77
)
 
116,637

 
(530
)
 
 
ABS
43,804

 
(455
)
 
547,077

 
(4,263
)
 
590,881

 
(4,718
)
 
 
Municipals
11,101

 
(375
)
 
93,140

 
(1,577
)
 
104,241

 
(1,952
)
 
 
Total fixed maturities
$
1,256,746

 
$
(53,885
)
 
$
6,731,141

 
$
(119,787
)
 
$
7,987,887

 
$
(173,672
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
194,916

 
$
(5,963
)
 
$
1,389,792

 
$
(10,946
)
 
$
1,584,708

 
$
(16,909
)
 
 
Non-U.S. government
62,878

 
(6,806
)
 
204,110

 
(2,717
)
 
266,988

 
(9,523
)
 
 
Corporate debt
407,300

 
(11,800
)
 
2,041,845

 
(18,051
)
 
2,449,145

 
(29,851
)
 
 
Agency RMBS
759,255

 
(17,453
)
 
1,172,313

 
(10,247
)
 
1,931,568

 
(27,700
)
 
 
CMBS
31,607

 
(703
)
 
348,943

 
(2,422
)
 
380,550

 
(3,125
)
 
 
Non-Agency RMBS
8,029

 
(788
)
 
4,197

 
(11
)
 
12,226

 
(799
)
 
 
ABS
57,298

 
(570
)
 
392,170

 
(1,424
)
 
449,468

 
(1,994
)
 
 
Municipals
11,230

 
(269
)
 
65,632

 
(703
)
 
76,862

 
(972
)
 
 
Total fixed maturities
$
1,532,513

 
$
(44,352
)
 
$
5,619,002

 
$
(46,521
)
 
$
7,151,515

 
$
(90,873
)
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
—

 
$
—

 
$
3,202

 
$
(590
)
 
$
3,202

 
$
(590
)
 
 
Exchange-traded funds
—

 
—

 
12,323

 
(294
)
 
12,323

 
(294
)
 
 
Bond mutual funds
—

 
—

 
12,184

 
(999
)
 
12,184

 
(999
)
 
 
Total equity securities
$
—

 
$
—

 
$
27,709

 
$
(1,883
)
 
$
27,709

 
$
(1,883
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Effective January 1, 2018, the Company adopted ASU No. 2016-01 which requires equity securities to be measured at fair value with changes in fair value recognized in net income therefore equity securities at fair value are excluded from the table above at March 31, 2018.

Fixed Maturities

At March 31, 2018, 2,940 fixed maturities (2017: 2,424) were in an unrealized loss position of $174 million (2017: $91 million), of which $11 million (2017: $7 million) was related to securities below investment grade or not rated.

At March 31, 2018, 555 fixed maturities (2017: 627) had been in a continuous unrealized loss position for twelve months or greater and had a fair value of $1,257 million (2017: $1,533 million). Following a credit impairment review, it was concluded that these securities as well as the remaining securities in an unrealized loss position were temporarily impaired at March 31, 2018, and were expected to recover in value as the securities approach maturity. At March 31, 2018, the Company did not intend to sell the securities


20
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)

in an unrealized loss position and it is more likely than not that the Company will not be required to sell these securities before the anticipated recovery of their amortized costs.

b) Mortgage Loans

The following table provides a breakdown of the Company's mortgage loans held-for-investment:
 
  
March 31, 2018
 
December 31, 2017
 
 
  
Carrying Value
 
% of Total
 
Carrying Value
 
% of Total
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Commercial
$
364,769

 
100
%
 
$
325,062

 
100
%
 
 
 
364,769

 
100
%
 
325,062

 
100
%
 
 
Valuation allowances
—

 
—
%
 
—

 
—
%
 
 
Total Mortgage Loans held-for-investment
$
364,769

 
100
%
 
$
325,062

 
100
%
 
 
 
 
 
 
 
 
 
 
 

The primary credit quality indicator for commercial mortgage loans is the debt service coverage ratio which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan, (generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss) and the loan-to-value ratio which compares the unpaid principal balance of the loan to the estimated fair value of the underlying collateral (generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss). The debt service coverage ratio and loan-to-value ratio, as well as the values utilized in calculating these ratios, are updated annually, on a rolling basis.

The Company has a high quality mortgage loan portfolio with weighted average debt service coverage ratios in excess of 2.9x and weighted average loan-to-value ratios of less than 60%. At March 31, 2018 there are no credit losses associated with the commercial mortgage loans held by the Company.

At March 31, 2018, there are no past due amounts.
 


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)

c) Other Investments

The following tables provide a breakdown of the Company's other investments, together with additional information relating to the liquidity of each category:
 
 
Fair Value
 
Redemption Frequency
(if currently eligible)
 
  Redemption  
  Notice Period  
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2018
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
25,489

 
3
%
 
Annually
 
60 days
 
 
Multi-strategy funds
283,298

 
28
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
37,680

 
4
%
 
Annually
 
45 days
 
 
Direct lending funds
261,902

 
26
%
 
n/a
 
n/a
 
 
Private equity funds
65,811

 
7
%
 
n/a
 
n/a
 
 
Real estate funds
54,720

 
5
%
 
n/a
 
n/a
 
 
CLO-Equities
28,556

 
2
%
 
n/a
 
n/a
 
 
Other privately held investments
48,787

 
5
%
 
n/a
 
n/a
 
 
Overseas deposits
203,344

 
20
%
 
n/a
 
n/a
 
 
Total other investments
$
1,009,587

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2017
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
38,470

 
4
%
 
Annually
 
60 days
 
 
Multi-strategy funds
286,164

 
28
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
39,177

 
4
%
 
Annually
 
45 days
 
 
Direct lending funds
250,681

 
25
%
 
n/a
 
n/a
 
 
Private equity funds
68,812

 
7
%
 
n/a
 
n/a
 
 
Real estate funds
50,009

 
5
%
 
n/a
 
n/a
 
 
CLO-Equities
31,413

 
2
%
 
n/a
 
n/a
 
 
Other privately held investments
46,430

 
5
%
 
n/a
 
n/a
 
 
Overseas deposits
198,217

 
20
%
 
n/a
 
n/a
 
 
Total other investments
$
1,009,373

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
n/a - not applicable

The investment strategies for the above funds are as follows:

•
Long/short equity funds: Seek to achieve attractive returns primarily by executing an equity trading strategy involving both long and short investments in publicly-traded equity securities.

•
Multi-strategy funds: Seek to achieve above-market returns by pursuing multiple investment strategies to diversify risks and reduce volatility. This category includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies.

•
Event-driven funds: Seek to achieve attractive returns by exploiting situations where announced or anticipated events create opportunities.

•
Direct lending funds: Seek to achieve attractive risk-adjusted returns, including current income generation, by investing in funds which provide financing directly to borrowers.

•
Private equity funds: Seek to achieve attractive risk-adjusted returns by investing in private transactions over the course of several years.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)


•
Real estate funds: Seek to achieve attractive risk-adjusted returns by making and managing investments in real estate and real estate securities and businesses.

Two common redemption restrictions which may impact the Company's ability to redeem hedge 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 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. During the three months ended March 31, 2018 and 2017, neither of these restrictions impacted the Company's redemption requests. At March 31, 2018, $25 million (2017: $38 million), representing 7% (2017: 11%) of total hedge funds, relate to a holding where the Company is still within the lockup period. The expiration of this lockup period is in March 2019. 

At March 31, 2018, the Company had $128 million (2017: $137 million) of unfunded commitments as a limited partner in direct lending funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until the completion of the fund's investment term. These funds have investment terms ranging from five to ten years and the General Partners of certain funds have the option to extend the term by up to three years.
At March 31, 2018, the Company had $17 million (2017: $16 million) of unfunded commitments as a limited partner in multi-strategy hedge funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until after the completion of the funds' investment term. These funds have investment terms ranging from two years to the dissolution of the underlying fund.
At March 31, 2018, the Company had $105 million (2017: $115 million) of unfunded commitments as a limited partner in funds which invest in real estate and real estate securities and businesses. These funds have investment terms ranging from seven years to the dissolution of the underlying fund.
 
At March 31, 2018, the Company had $18 million (2017: $21 million) of unfunded commitments as a limited partner in a private equity fund. The life of the fund is subject to the dissolution of the underlying funds. The Company expects the overall holding period to be over ten years.

During 2015, the Company made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund has an investment term of seven years and the General Partners have the option to extend the term by up to two years. At March 31, 2018, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.

During 2017, the Company made a $75 million commitment as a limited partner of an open-ended commercial mortgage income fund. At March 31, 2018, this commitment remains unfunded.

Syndicate 2007 holds overseas deposits which include investments in private funds where the underlying investments are primarily U.S. government, Non-U.S. government and corporate debt securities. The funds do not trade on an exchange therefore are not included within available for sale investments.


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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.
INVESTMENTS (CONTINUED)

d) Equity Method Investments

During 2016, the Company paid $108 million including direct transaction costs to acquire 19% of the common equity of Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capital and The Blackstone Group L.P. ("Blackstone"). Through long-term service agreements, AXIS Capital will serve as Harrington Re's reinsurance underwriting manager and Blackstone will serve as exclusive investment management service provider. As an investor, the Company expects to benefit from underwriting profit generated by Harrington Re and the income and capital appreciation Blackstone seeks to deliver through its investment management services. In addition, the Company has entered into an arrangement with Blackstone under which underwriting and investment related fees will be shared equally. Harrington is not a variable interest entity. Given that the Company exercises significant influence over the operating and financial policies of this investee, the Company accounts for the ownership in Harrington under the equity method of accounting. The Company's proportionate share of the underlying equity in net assets resulted in a basis difference of $5 million which represents initial transactions costs.

During the three months ended March 31, 2017, the Company recorded an impairment charge of $6 million, related to a U.S. based insurance company, which reduced the carrying value of the investment from $9 million to $3 million. During the three months ended June 30, 2017, the carrying value of the investment was reduced to $nil. These charges were included in interest in income (loss) of equity method investments in the Consolidated Statement of Operations.

e) Net Investment Income

Net investment income was derived from the following sources:
 
  
Three months ended March 31,
 
 
  
2018
 
2017
 
 
 
 
 
 
 
 
Fixed maturities
$
83,958

 
$
77,407

 
 
Other investments
13,704

 
18,962

 
 
Equity securities
1,758

 
3,478

 
 
Mortgage loans
3,125

 
2,477

 
 
Cash and cash equivalents