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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 September 30,2017 2020
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)
BERMUDABermuda
(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)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common shares, par value $0.0125 per shareAXSNew York Stock Exchange
Depositary Shares, each representing a 1/100th interest in a 5.50% Series E preferred shareAXS PRENew York Stock Exchange
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 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  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"large accelerated filer”filer", “accelerated filer”"accelerated filer", “smaller"smaller reporting company”company", and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    Accelerated filer
Non-accelerated filer Smaller reporting company
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
As ofAt October 31, 2017,26, 2020, there were 83,158,962 Common Shares,84,321,136 common shares outstanding, $0.0125 par value per share, of the registrant outstanding.registrant.

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AXIS CAPITAL HOLDINGS LIMITED
INDEX TO FORM 10-Q




 
Page
PART IPage
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 IFINANCIAL INFORMATION


PART I     FINANCIAL INFORMATION


This quarterly reportQuarterly Report on Form 10-Q contains forward-looking statements within the meaning of section 27A of the United States federal securities laws.Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts included in this report, including statements regarding our estimates, beliefs, expectations, intentions, strategies or projections are forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States ("U.S.") federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”"may", “should”"should", “could”"could", “anticipate”"anticipate", “estimate”"estimate", “expect”"expect", “plan”"plan", “believe”"believe", “predict”"predict", “potential”"potential", "intend" or similar expressions. These forward-looking statements are not historical facts, and “intend”. are based on current expectations, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond management's control.
Forward-looking statements contained in this report may include, but are not limited to, information regarding our estimates of losses related tofor catastrophes and other large losses including losses related to the COVID-19 pandemic, measurements of potential losses in the fair market value of our investment portfolio and derivative contracts, our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, 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 related to our 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 prices, credit spreads, equity securities' prices 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 events or results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to, the following:
the adverse impact of the ongoing COVID-19 pandemic on our business, results of operations, financial condition and liquidity;
the cyclical nature of the re(insurance)insurance and reinsurance business leading to periods with excess underwriting capacity and unfavorable premium rates,rates;
the occurrence and magnitude of natural and man-made disasters,disasters;
the impact of global climate change on our business, including the possibility that we do not adequately assess or reserve for the increased frequency and severity of natural catastrophes;
losses from war, terrorism and political unrest or other unanticipated losses,losses;
actual claims exceeding our loss reserves,reserves;
general economic, capital and credit market conditions,conditions;
the failure of any of the loss limitation methods we employ,employ;
the effects of emerging claims, coverage and regulatory issues, including uncertainty related to coverage definitions, limits, terms and conditions,conditions;
our inability to purchase reinsurance or collect amounts due to us,us;
the breach by third parties in our program business of their obligations to us,us;
difficulties with technology and/or data security,security;
the failure of our policyholders and intermediaries to pay premiums,premiums;
the failure of our cedants to adequately evaluate risks,risks;
inability to obtain additional capital on favorable terms, or at all,all;
the loss of one or more of our key executives,executives;
a decline in our ratings with rating agencies,agencies;
the loss of business provided to us by our major brokers and credit risk due to our reliance on brokers,brokers;
changes in accounting policies or practices,practices;
the use of industry catastrophe models and changes to these models,models;

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changes in governmental regulations and potential government intervention in our industry,industry;
inadvertent failure to comply with certain laws and regulations relating to sanctions and foreign corrupt practices,practices;
increased competition,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,Union;
fluctuations in interest rates, credit spreads, equity securities' prices and/or foreign currency values,values;
the failure to successfully integrate acquired businesses or to realize the expected synergies resulting from such acquisitions,acquisitions;
the failure to realize the expected benefits or synergies relating to our transformation initiative;
changes in tax laws; and
the other matters set forthfactors including but not limited to those described under Item 1A, ‘Risk Factors’ and Item 7, ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ included'Risk Factors' in our most recent Annual Report on Form 10-K forand under Part II, Item 1A, 'Risk Factors' herein filed with the year ended December 31, 2016.
Securities and Exchange Commission ("SEC"), as those factors may be updated from time to time in our periodic and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. Readers are urged to carefully consider all such factors as the COVID-19 pandemic may have the effect of heightening many of the other risks and uncertainties described.



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


Website and Social Media Disclosure

We use our website (www.axiscapital.com) and our corporate Twitter (@AXIS_Capital) and LinkedIn (AXIS Capital) accounts as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, e-mail alerts and other information about AXIS Capital may be received when enrolled in our "E-mail Alerts" program in the Investor Information section of our website (www.axiscapital.com). The contents of our website and social media channels are not part of this Quarterly Report on Form 10-Q.



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ITEM 1.     CONSOLIDATED FINANCIAL STATEMENTS




Page  
Page  
Consolidated Balance Sheets at September 30, 20172020 (Unaudited) and December 31, 20162019
Consolidated Statements of Operations for the three and nine months ended September 30, 20172020 and 20162019 (Unaudited)
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20172020 and 20162019 (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 20172020 and 20162019 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 and 20162019 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Business CombinationsSegment Information
Note 3 - Segment InformationInvestments
Note 4 - Investments
Note 5 - Fair Value Measurements
Note 65 - Derivative Instruments
Note 76 - Reserve for Losses and Loss Expenses
Note 87 - Earnings Per Common Share
Note 8 - Share-Based Compensation
Note 9 - Share-Based CompensationShareholders' Equity
Note 10 - Shareholders' Equity
Note 11 - Debt and Financing Arrangements
Note 1211 - Commitments and Contingencies
Note 12 - Reorganization Expenses
Note 13 - Other Comprehensive Income (Loss)
Note 14 - Subsequent Events











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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,2017 2020 (UNAUDITED) AND DECEMBER 31,2016 2019
 
20202019
 (in thousands)
Assets
Investments:
Fixed maturities, available for sale, at fair value
    (Amortized cost 2020: $12,201,832; 2019: $12,263,240
    Allowance for expected credit losses 2020: $2,498)
$12,609,241 $12,468,205 
Equity securities, at fair value
    (Cost 2020: $356,176; 2019: $398,956)
417,886 474,207 
Mortgage loans, held for investment, at fair value
     (Allowance for expected credit losses 2020: $NaN)
544,095 432,748 
Other investments, at fair value760,206 770,923 
Equity method investments104,242 117,821 
Short-term investments, at fair value69,996 38,471 
Total investments14,505,666 14,302,375 
Cash and cash equivalents1,000,781 1,241,109 
Restricted cash and cash equivalents440,035 335,348 
Accrued interest receivable70,013 78,085 
Insurance and reinsurance premium balances receivable
     (Allowance for expected credit losses 2020: $10,727)
3,131,791 3,071,390 
Reinsurance recoverable on unpaid losses and loss expenses
     (Allowance for expected credit losses 2020: $22,825)
4,337,683 3,877,756 
Reinsurance recoverable on paid losses and loss expenses373,431 327,795 
Deferred acquisition costs520,706 492,119 
Prepaid reinsurance premiums1,278,672 1,101,889 
Receivable for investments sold17,513 35,659 
Goodwill102,003 102,003 
Intangible assets222,362 230,550 
Value of business acquired4,881 8,992 
Operating lease right-of-use assets131,776 111,092 
Other assets315,683 287,892 
Total assets$26,452,996 $25,604,054 
Liabilities
Reserve for losses and loss expenses$13,653,488 $12,752,081 
Unearned premiums4,070,649 3,626,246 
Insurance and reinsurance balances payable1,244,846 1,349,082 
Debt1,309,384 1,808,157 
Payable for investments purchased458,111 32,985 
Operating lease liabilities140,058 115,584 
Other liabilities310,565 375,911 
Total liabilities21,187,101 20,060,046 
Shareholders’ equity
Preferred shares550,000 775,000 
Common shares (shares issued 2020: 176,580; 2019: 176,580
    shares outstanding 2020: 84,309; 2019: 83,959)
2,206 2,206 
Additional paid-in capital2,325,196 2,317,212 
Accumulated other comprehensive income350,111 171,710 
Retained earnings5,804,637 6,056,686 
Treasury shares, at cost (2020: 92,271; 2019: 92,621 shares)
(3,766,255)(3,778,806)
Total shareholders’ equity5,265,895 5,544,008 
Total liabilities and shareholders’ equity$26,452,996 $25,604,054 
 2017 2016
 (in thousands)
Assets   
Investments:   
Fixed maturities, available for sale, at fair value
(Amortized cost 2017: $11,043,394; 2016: $11,523,316)
$11,086,386
 $11,397,114
Equity securities, available for sale, at fair value
(Cost 2017: $563,110; 2016: $597,366)
659,751
 638,744
Mortgage loans, held for investment, at amortized cost and fair value360,381
 349,969
Other investments, at fair value830,253
 830,219
Equity method investments108,597
 116,000
Short-term investments, at amortized cost and fair value15,282
 127,461
Total investments13,060,650
 13,459,507
Cash and cash equivalents1,350,613
 1,039,494
Restricted cash and cash equivalents280,514
 202,013
Accrued interest receivable68,023
 74,971
Insurance and reinsurance premium balances receivable2,968,096
 2,313,512
Reinsurance recoverable on unpaid and paid losses2,360,821
 2,334,922
Deferred acquisition costs562,774
 438,636
Prepaid reinsurance premiums734,129
 556,344
Receivable for investments sold9,357
 14,123
Goodwill and intangible assets87,206
 85,049
Other assets335,967
 295,120
Total assets$21,818,150
 $20,813,691
    
Liabilities   
Reserve for losses and loss expenses$10,787,575
 $9,697,827
Unearned premiums3,521,063
 2,969,498
Insurance and reinsurance balances payable670,292
 493,183
Senior notes993,797
 992,950
Payable for investments purchased122,065
 62,550
Other liabilities268,659
 325,313
Total liabilities16,363,451
 14,541,321
    
Shareholders’ equity   
Preferred shares775,000
 1,126,074
Common shares (2017: 176,580; 2016: 176,580 shares issued and
2017: 83,157; 2016: 86,441 shares outstanding)
2,206
 2,206
Additional paid-in capital2,291,516
 2,299,857
Accumulated other comprehensive income (loss)141,613
 (121,841)
Retained earnings6,051,659
 6,527,627
Treasury shares, at cost (2017: 93,423; 2016: 90,139 shares)
(3,807,295) (3,561,553)
Total shareholders’ equity5,454,699
 6,272,370
    
Total liabilities and shareholders’ equity$21,818,150
 $20,813,691


See accompanying notes to Consolidated Financial Statements.


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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30,2017 2020 AND 20162019



 Three months endedNine months ended
2020201920202019
 (in thousands, except for per share amounts)
Revenues
Net premiums earned$1,091,312 $1,157,307 $3,283,941 $3,415,126 
Net investment income101,956 115,763 240,098 361,014 
Other insurance related income (loss)1,440 1,533 (5,270)11,385 
Net investment gains:
Allowance for expected credit losses3,759 (2,498)
Impairment losses(184)(1,486)
Other-than-temporary impairment ("OTTI") losses0 (1,458)0 (6,328)
Other realized and unrealized investment gains52,034 15,985 49,761 54,850 
Total net investment gains55,609 14,527 45,777 48,522 
Total revenues1,250,317 1,289,130 3,564,546 3,836,047 
Expenses
Net losses and loss expenses879,677 850,913 2,464,012 2,187,403 
Acquisition costs230,564 260,026 697,716 762,807 
General and administrative expenses138,823 155,522 436,538 496,008 
Foreign exchange losses (gains)60,734 (59,543)8,760 (64,868)
Interest expense and financing costs15,574 18,042 59,641 49,545 
Reorganization expenses1,413 11,215 822 29,310 
    Amortization of value of business acquired1,028 4,368 4,111 24,666 
    Amortization of intangible assets2,838 2,831 8,564 8,744 
Total expenses1,330,651 1,243,374 3,680,164 3,493,615 
Income (loss) before income taxes and interest in income (loss) of equity method investments(80,334)45,756 (115,618)342,432 
Income tax (expense) benefit12,056 (8,147)6,030 (23,850)
Interest in income (loss) of equity method investments2,896 792 (13,579)5,645 
Net income (loss)(65,382)38,401 (123,167)324,227 
Preferred share dividends7,563 10,656 22,688 31,969 
Net income (loss) available (attributable) to common shareholders$(72,945)$27,745 $(145,855)$292,258 
Per share data
Earnings (loss) per common share:
Earnings (loss) per common share$(0.87)$0.33 $(1.73)$3.48 
Earnings (loss) per diluted common share$(0.87)$0.33 $(1.73)$3.46 
Weighted average common shares outstanding84,308 83,947 84,235 83,872 
Weighted average diluted common shares outstanding84,308 84,582 84,235 84,420 

 Three months ended Nine months ended
 2017 2016 2017 2016
 (in thousands, except for per share amounts)
Revenues       
Net premiums earned$1,017,131
 $934,415
 $2,937,265
 $2,783,746
Net investment income95,169
 116,923
 299,899
 257,818
Other insurance related income (losses)(3,197) 5,944
 (4,420) 4,850
Bargain purchase gain
 
 15,044
 
Net realized investment gains (losses):       
Other-than-temporary impairment ("OTTI") losses(5,412) (4,247) (13,493) (20,346)
Other realized investment gains (losses)20,044
 9,452
 (1,318) (19,949)
Total net realized investment gains (losses)14,632
 5,205
 (14,811) (40,295)
Total revenues1,123,735
 1,062,487
 3,232,977
 3,006,119
        
Expenses       
Net losses and loss expenses1,235,367
 532,328
 2,447,640
 1,663,584
Acquisition costs194,724
 189,810
 588,879
 559,570
General and administrative expenses124,629
 142,906
 433,704
 439,554
Foreign exchange losses (gains)32,510
 (13,795) 90,093
 (69,781)
Interest expense and financing costs12,835
 12,839
 38,377
 38,586
Transaction related expenses5,970
 
 5,970
 
Total expenses1,606,035
 864,088
 3,604,663
 2,631,513
        
Income (loss) before income taxes and interest in income (loss) of equity method investments(482,300) 198,399
 (371,686) 374,606
Income tax (expense) benefit25,877
 (9,352) 38,547
 (7,712)
Interest in loss of equity method investments(661) (2,434) (8,402) (2,434)
Net income (loss)(457,084) 186,613
 (341,541) 364,460
Preferred share dividends10,656
 9,969
 36,154
 29,906
Net income (loss) available to common shareholders$(467,740) $176,644
 $(377,695) $334,554
        
Per share data       
Net income (loss) per common share:       
Basic net income (loss)$(5.61) $1.97
 $(4.47) $3.64
Diluted net income (loss)$(5.61) $1.96
 $(4.47) $3.61
Weighted average number of common shares outstanding - basic83,305
 89,621
 84,479
 91,852
Weighted average number of common shares outstanding - diluted83,305
 90,351
 84,479
 92,579
Cash dividends declared per common share$0.38
 $0.35
 $1.14
 $1.05




See accompanying notes to Consolidated Financial Statements.


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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30,2017 2020 AND 20162019
 
Three months ended Nine months ended Three months endedNine months ended
2017 2016 2017 2016 2020201920202019
(in thousands) (in thousands)
Net income (loss)$(457,084) $186,613
 $(341,541) $364,460
Net income (loss)$(65,382)$38,401 $(123,167)$324,227 
Other comprehensive income, net of tax:       Other comprehensive income, net of tax:
Available for sale investments:       Available for sale investments:
Unrealized investment gains arising during the period62,505
 36,336
 206,461
 238,656
Adjustment for reclassification of net realized investment (gains) losses and OTTI losses recognized in net income(13,286) (2,642) 10,169
 42,620
Unrealized investment gains arising during the period, net of reclassification adjustment49,219
 33,694
 216,630
 281,276
Unrealized gains arising during the period for which an allowance for expected credit losses has not been recognizedUnrealized gains arising during the period for which an allowance for expected credit losses has not been recognized95,112 39,569 210,383 361,220 
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has been recognizedUnrealized gains (losses) arising during the period for which an allowance for expected credit losses has been recognized220 (112)
Adjustment for reclassification of net realized gains, impairment losses and OTTI losses recognized in net income (loss)Adjustment for reclassification of net realized gains, impairment losses and OTTI losses recognized in net income (loss)(29,130)(14,808)(30,289)(8,423)
Unrealized gains arising during the period, net of reclassification adjustmentUnrealized gains arising during the period, net of reclassification adjustment66,202 24,761 179,982 352,797 
Foreign currency translation adjustment8,088
 1,722
 46,824
 5,694
Foreign currency translation adjustment2,310 (4,610)(1,581)609 
Total other comprehensive income, net of tax57,307
 35,416
 263,454
 286,970
Total other comprehensive income, net of tax68,512 20,151 178,401 353,406 
Comprehensive income (loss)$(399,777) $222,029
 $(78,087) $651,430
Comprehensive incomeComprehensive income$3,130 $58,552 $55,234 $677,633 





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 AND NINE MONTHS ENDED SEPTEMBER 30, 20172020 AND 20162019

Three months endedNine months ended
2017 20162020201920202019
(in thousands) (in thousands)
Preferred shares   Preferred shares
Balance at beginning of period$1,126,074
 $627,843
Balance at beginning of period$550,000 $775,000 $775,000 $775,000 
Shares repurchased(351,074) (2,843)Shares repurchased0 (225,000)
Balance at end of period775,000
 625,000
Balance at end of period550,000 $775,000 $550,000 $775,000 
   
Common shares (par value)   Common shares (par value)
Balance at beginning of period2,206
 2,202
Shares issued
 4
Balance at end of period2,206
 2,206
Balance at beginning and end of periodBalance at beginning and end of period2,206 2,206 2,206 2,206 
   
Additional paid-in capital   Additional paid-in capital
Balance at beginning of period2,299,857
 2,241,388
Balance at beginning of period2,317,354 2,303,592 2,317,212 2,308,583 
Shares issued - common shares
 (4)
Cost of treasury shares reissued(39,033) (19,647)
Settlement of accelerated share repurchase
 60,000
Treasury shares reissuedTreasury shares reissued(197)(57)(19,348)(20,114)
Share-based compensation expense30,692
 26,129
Share-based compensation expense8,039 5,948 27,332 21,014 
Balance at end of period2,291,516
 2,307,866
Balance at end of period2,325,196 2,309,483 2,325,196 2,309,483 
   
Accumulated other comprehensive income   Accumulated other comprehensive income
Balance at beginning of period(121,841) (188,465)Balance at beginning of period281,599 156,145 171,710 (177,110)
Unrealized gains (losses) on available for sale investments, net of tax:   Unrealized gains (losses) on available for sale investments, net of tax:
Balance at beginning of period(82,323) (149,585)Balance at beginning of period295,301 159,671 181,521 (168,365)
Unrealized gains arising during the period, net of reclassification adjustment216,630
 281,276
Unrealized gains arising during the period, net of reclassification adjustment66,202 24,761 179,982 352,797 
Balance at end of period134,307
 131,691
Balance at end of period361,503 184,432 361,503 184,432 
Cumulative foreign currency translation adjustments, net of tax:   Cumulative foreign currency translation adjustments, net of tax:
Balance at beginning of period(39,518) (38,880)Balance at beginning of period(13,702)(3,526)(9,811)(8,745)
Foreign currency translation adjustment46,824
 5,694
Foreign currency translation adjustment2,310 (4,610)(1,581)609 
Balance at end of period7,306
 (33,186)Balance at end of period(11,392)(8,136)(11,392)(8,136)
Balance at end of period141,613
 98,505
Balance at end of period350,111 176,296 350,111 176,296 
   
Retained earnings   Retained earnings
Balance at beginning of period6,527,627
 6,194,353
Balance at beginning of period5,913,029 6,108,577 6,056,686 5,912,812 
Net income (loss)(341,541) 364,460
Net income (loss)(65,382)38,401 (123,167)324,227 
Preferred share dividends(36,154) (29,906)Preferred share dividends(7,563)(10,656)(22,688)(31,969)
Common share dividends(98,273) (98,334)Common share dividends(35,447)(34,420)(106,194)(103,168)
Balance at end of period6,051,659
 6,430,573
Balance at end of period5,804,637 6,101,902 5,804,637 6,101,902 
   
Treasury shares, at cost   Treasury shares, at cost
Balance at beginning of period(3,561,553) (3,010,439)Balance at beginning of period(3,766,368)(3,779,043)(3,778,806)(3,791,420)
Shares repurchased for treasury(285,659) (449,086)
Cost of treasury shares reissued39,917
 21,033
Shares repurchasedShares repurchased(84)(31)(8,685)(9,445)
Shares reissuedShares reissued197 57 21,236 21,848 
Balance at end of period(3,807,295) (3,438,492)Balance at end of period(3,766,255)(3,779,017)(3,766,255)(3,779,017)
   
Total shareholders’ equity$5,454,699
 $6,025,658
Total shareholders’ equity$5,265,895 $5,585,870 $5,265,895 $5,585,870 
   






See accompanying notes to Consolidated Financial Statements.


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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDEDSEPTEMBER 30,2017 2020 AND 20162019
 2017 2016
 (in thousands)
Cash flows from operating activities:   
Net income (loss)$(341,541) $364,460
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Net realized investment losses14,811
 40,295
Net realized and unrealized gains on other investments(56,759) (23,117)
Amortization of fixed maturities32,528
 51,660
Interest in loss of equity method investments8,402
 2,434
Other amortization and depreciation19,279
 17,370
Share-based compensation expense, net of cash payments1,516
 28,580
Non-cash foreign exchange losses

24,149
 
Bargain purchase gain(15,044) 
Changes in:   
Accrued interest receivable8,730
 3,286
Reinsurance recoverable balances60,522
 (163,212)
Deferred acquisition costs(123,961) (73,759)
Prepaid reinsurance premiums(178,464) (184,648)
Reserve for loss and loss expenses918,511
 216,828
Unearned premiums540,108
 682,686
Insurance and reinsurance balances, net(465,436) (623,170)
Other items(135,266) (74,383)
Net cash provided by operating activities312,085
 265,310
    
Cash flows from investing activities:   
Purchases of:   
Fixed maturities(6,250,608) (6,624,573)
Equity securities(108,804) (295,827)
Mortgage loans(20,812) (131,087)
Other investments(135,526) (177,500)
Equity method investments(1,000) (103,548)
Short-term investments(20,792) (81,479)
Proceeds from the sale of:   
Fixed maturities5,354,398
 6,067,663
Equity securities232,755
 296,182
Other investments203,896
 170,111
Short-term investments19,284
 67,408
Proceeds from redemption of fixed maturities1,546,998
 977,852
Proceeds from redemption of short-term investments116,261
 8,185
Proceeds from the repayment of mortgage loans

10,702
 4,808
Purchase of other assets(25,842) (19,055)
Change in restricted cash and cash equivalents(78,501) (42,445)
Purchase of subsidiary, net(73,067) 
Net cash provided by investing activities769,342
 116,695
    
Cash flows from financing activities:   
Repurchase of common shares(290,496) (389,086)
Dividends paid - common shares(102,868) (100,670)
Repurchase of preferred shares(351,074) (2,843)
Dividends paid - preferred shares(42,188) (29,940)
Proceeds from issuance of common shares
 8
Net cash used in financing activities(786,626) (522,531)
    
Effect of exchange rate changes on foreign currency cash and cash equivalents16,318
 593
Increase (decrease) in cash and cash equivalents311,119
 (139,933)
Cash and cash equivalents - beginning of period1,039,494
 988,133
Cash and cash equivalents - end of period$1,350,613
 $848,200
    
Supplemental disclosures of cash flow information: Non-cash foreign exchange losses are attributable to the reclassification of the cumulative translation adjustment related to AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses due to the wind-down of this operation which was substantially complete as of March 31, 2017. Also refer to Note 7 'Reserve for Losses and Loss Expenses' and Note 13 'Other Comprehensive Income'.
Nine months ended
20202019
 (in thousands)
Cash flows from operating activities:
Net income (loss)$(123,167)$324,227 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net investment gains(45,777)(48,522)
Net realized and unrealized (gains) losses on other investments14,574 (49,271)
Amortization of fixed maturities24,398 13,616 
Interest in (income) loss of equity method investments13,579 (5,645)
Amortization of value of business acquired4,111 24,666 
Other amortization and depreciation46,734 56,964 
Share-based compensation expense, net of cash payments17,650 21,160 
Changes in:
Accrued interest receivable7,792 (1,291)
Reinsurance recoverable balances on unpaid and paid losses(506,705)(165,247)
Deferred acquisition costs(29,126)(20,249)
Prepaid reinsurance premiums(177,624)(228,973)
Reserve for losses and loss expenses910,106 216,086 
Unearned premiums448,035 517,798 
Insurance and reinsurance balances, net(166,708)(377,826)
Other items(89,093)(35,978)
Net cash provided by operating activities348,779 241,515 
Cash flows from investing activities:
Purchases of:
Fixed maturities(8,543,641)(7,705,671)
Equity securities(40,027)(45,086)
Mortgage loans(115,290)(129,711)
Other investments(93,044)(166,728)
Short-term investments(206,400)(126,960)
Proceeds from the sale of:
Fixed maturities7,856,524 6,022,475 
Equity securities95,960 32,682 
Other investments133,536 222,982 
Short-term investments117,097 243,293 
Proceeds from redemption of fixed maturities1,155,648 885,128 
Proceeds from redemption of short-term investments57,948 15,794 
Proceeds from the repayment of mortgage loans

4,245 20,759 
Purchase of other assets(36,582)(41,800)
Net cash provided by (used in) investing activities385,974 (772,843)
Cash flows from financing activities:
Taxes paid on withholding shares(8,685)(9,445)
Dividends paid - common shares(106,595)(103,526)
Repurchase of preferred shares(225,000)
Dividends paid - preferred shares(24,269)(31,969)
Net proceeds from issuance of senior notes0 296,334 
Redemption of senior notes(500,000)(250,000)
Net cash used in financing activities(864,549)(98,606)
Effect of exchange rate changes on foreign currency cash, cash equivalents and restricted cash(5,845)8,465 
Decrease in cash, cash equivalents and restricted cash(135,641)(621,469)
Cash, cash equivalents and restricted cash - beginning of period1,576,457 1,830,020 
Cash, cash equivalents and restricted cash - end of period$1,440,816 $1,208,551 
Supplemental disclosures of cash flow information:
Income taxes paid (refund)$(5,309)$12,149 
Interest paid$47,108 $37,875 


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



1.BASIS OF PRESENTATION AND ACCOUNTING POLICIES




Basis of Presentation


These interim consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”unaudited Consolidated Financial Statements (the "financial statements") and its subsidiaries (herein referred to as “we,” “us,” “our,” or the “Company”).

The consolidated balance sheet at September 30,2017 and the consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for the periods ended September 30,2017 and 2016 have not been audited. The balance sheet at December 31, 2016 is derived from our audited financial statements.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. Generally Accepted Accounting Principles (“U.S. GAAP”GAAP") for interim financial information and with the U.S. Securities and Exchange Commission's (“SEC”("SEC") instructions to Form 10-Q and Article 10 of Regulation S-X.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 footnotesnotes 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, 2019, 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 ourthe 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.


The following information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016. Tabular dollar and share amounts are in thousands, except per share amounts. All amounts are reported in U.S. dollars.


Significant Accounting Policies


There were no notable changes in ourwas one change noted below to the Company's significant accounting policies subsequent to ourits Annual Report on Form 10-K for the year ended December 31, 2016.2019.


New Accounting Standards Adopted in 2017Measurement of Credit Losses on Financial Instruments


Stock Compensation - Improvements to Employee Share-Based Payment Accounting

Effective January 1, 2017,2020, the Company adopted Accounting Standards Update ("ASU" ) ASU 2016-09, "Compensation2016-13, "Financial Instruments - Stock CompensationCredit Losses (Topic 718)326) - ImprovementsMeasurement of Credit Losses on Financial Instruments," using the modified retrospective approach for insurance and reinsurance premium balances receivable, reinsurance recoverable on unpaid losses and loss expenses and mortgage loans, held for investment. The Company assessed that the impact of adoption of ASU 2016-13 was $NaN. This guidance replaced the "incurred loss" impairment methodology with an approach based on "expected losses" to Employee Share-Based Payment Accounting" which simplifies several aspectsestimate credit losses on certain types of the accounting for share-based paymentsfinancial instruments and requires consideration of a broader range of reasonable and supportable information to employees including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.inform credit loss estimates. The guidance requires all excess tax benefitsfinancial assets 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 cost of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset.

Insurance and tax deficienciesreinsurance premium balances receivable of $3,132 million and $3,071 million at September 30, 2020 and December 31, 2019, respectively, were presented net of an allowance for expected credit losses. The allowance for expected credit losses was estimated based on the Company's analysis of amounts due, historical delinquencies and write-offs, and current economic conditions, together with reasonable and supportable forecasts of short-term economic conditions, giving consideration to the potential impact from the COVID-19 pandemic. At September 30, 2020, the allowance for credit losses expected to be recognized over the life of premium balances receivable was $11 million, compared to an allowance for uncollectible premium balances receivable of $7 million at December 31, 2019. The allowance for expected credit losses is recognized in net income (loss). Any adjustment to the allowance for expected credit losses is recognized in the income statement with the tax effects of exercised or vested awards to be treated as discrete items in the reporting period in which they occur. Excess tax benefits should be classified alongit is determined. Write-offs of premium balances receivable, together with other income tax cash flows as an operating activity on the statement of cash flows. In addition, companies will be required to make an entity-wide accounting policy election to either estimate the number of awards thatassociated allowances for expected credit losses, are expected to vest or account for forfeitures when they occur. The guidance allows withholding up to the maximum statutory tax ratesrecognized in the applicable jurisdictions to cover income taxes on share-based compensation awards without requiring liability classification. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity.period in which balances are deemed uncollectible. The adoption of this guidance didCompany does not have a material impacthistory of significant write-offs.

Reinsurance recoverable on our resultsunpaid losses and loss expenses of operations, financial condition$4,338 million and liquidity.

Issued Accounting Standards Not Yet Adopted

Revenue From Contracts With Customers

$3,878 million at September 30, 2020 and December 31, 2019, respectively, were presented net of an allowance for expected credit losses. The allowance for expected credit losses was estimated based on the Company's analysis of amounts due, historical delinquencies and write-offs, and disputes. In May 2014,addition, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)". This guidance affects any entity that either enters into contracts with customersCompany used a default analysis based on the reinsurers' credit rating and the length of collection periods to transfer goods or services or enters into contractsestimate allowances for credit expected losses on the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts are not in scoperemainder of the new guidance).reinsurance recoverable balance. The core principledefault analysis considered current and forecasted economic conditions including the potential impact from the COVID-19 pandemic. At September 30, 2020, the allowance for credit losses expected to be recognized over the life 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

reinsurance recoverable balances was $23 million, compared



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

1.BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)


1.    BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
those goods or services. In August 2015,to an allowance for estimated uncollectible reinsurance recoverable balances of $18 million at December 31, 2019. The allowance for expected credit losses is recognized in net income (loss). Any adjustment to the FASB delayed the effective date by one year through the issuance of ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". This guidanceallowance for expected credit losses is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2016. Accounting for insurance contracts is outside the scope of ASU 2014-09. The Company generates an insignificant amount of fee income, primarily from strategic capital partners, which is reported in other insurance related income (losses) in the Consolidated Statements of Operations and is subject to this accounting standard update. The Company's current accounting policy to recognize fee incomerecognized in the period when related servicesin which it is determined. Write-offs of reinsurance recoverable balances, together with associated allowances for expected credit losses, are performed, principally aligns with this update. As a result,recognized in the period in which balances are deemed uncollectible. The Company does not expect the adoption of this guidance to have a material impacthistory of significant write-offs.

Mortgage loans, held for investment of $544 million and $433 million at September 30, 2020 and December 31, 2019, respectively, were presented net of an allowance for expected credit losses. The allowance for expected credit losses was estimated based on the Company’s analysis of projected lifetime losses. These projections take into account the Company’s experience with loan losses, defaults and loss severity, and loss expectations for loans with similar risk characteristics. These evaluations are revised as conditions change and new information becomes available. At September 30, 2020 and December 31, 2019, the allowance for credit losses expected to be recognized over the life of our results of operations, financial condition and liquidity.

Recently Issued Accounting Standards Not Yet Adopted

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 periodmortgage loans was $NaN. The allowance for certain purchased callable debt securities held at a premium. This guidanceexpected credit losses 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.

Stock Compensation - Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017-09 "Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting" to provide clarity and reduce diversityrecognized in practice of applying the guidance in Topic 718 to a changenet investment gains (losses). Any adjustment to the terms or conditions of a share-based payment award. This ASU provides guidance aboutallowance for expected credit losses is recognized in the period in which it is determined.

Effective January 1, 2020, the Company adopted the targeted changes to the terms or conditionsimpairment model for available for sale securities introduced in ASU 2016-13 using the prospective transition approach. The updated guidance amends the previous other-than-temporary impairment model by requiring the recognition of impairments related to credit losses through an allowance account and limits the amount of credit loss to the difference between a share-based payment award requiresecurity's amortized cost basis and its fair value. In addition, the length of time a security has been in an entity to apply modification accounting in Topic 718. The guidance states that an entity should accountunrealized loss position no longer impacts the determination of whether a credit loss exists.

An available for the effects of a modification unless all the following are met: (1)sale fixed maturity is impaired if the fair value of the modified awardinvestment is below amortized cost. If a fixed maturity is impaired and the same Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the full amount of the impairment loss is charged to net income and is included in net investment gains (losses). In instances where the Company intends to hold the impaired fixed maturity, and it does not anticipate to fully recover the amortized cost, an allowance for expected credit losses is established. At September 30, 2020, the allowance for expected credit losses was $2.5 million.The allowance for expected credit losses is charged to net income and is included in net investment gains (losses). The non-credit impairment amount of the loss is recognized in other comprehensive income.
On a quarterly basis, the Company assesses whether unrealized losses on fixed maturities represent credit impairments by considering the following factors:

a.    the extent to which the fair value is less than amortized cost;

b.    adverse conditions related to the security, industry, or geographical area;

c.    downgrades in the security's credit rating by a credit rating agency; and

d.    failure of the original award immediately beforeissuer to make scheduled principal or interest payments.

If a security is assessed to be credit impaired, it is subject to a discounted cash flow analysis by comparing the original awardpresent value of expected future cash flows with the amortized cost basis. If the present value of expected cash flows is modified; (2)less than the vesting conditionsamortized cost, a credit loss exists and an allowance for expected credit losses is recognized. If the present value of expected future cash flows is equal to or greater than the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award asamortized cost basis, an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. 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. This guidance is effective for interim and annual reporting periods, beginning after December 15, 2017, with early adoption permitted. expected credit loss does not exist.

The Company is currently evaluatingreports accrued interest receivable related to available for sale debt securities separately and has elected not to measure an allowance for expected credit losses for accrued interest receivable. Write-offs of accrued interest receivable balances are recognized in net investment gains (losses) in the impact of this guidance on our results of operations, financial condition and liquidity.period in which they are deemed uncollectible.





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


2.    BUSINESS COMBINATIONSSEGMENT INFORMATION

On April 1, 2017 ("the closing date" or the "acquisition date"), the Company acquired a 100% ownership interest in Compagnie Belge d'Assurances Aviation NV/SA (“Aviabel”). Aviabel is an insurer operating under Belgian law that has its head office in Belgium, a branch office in the Netherlands and a re-insurance company, Aviabel RE S.A. (“Aviabel RE”), in Luxembourg. The Company acquired Aviabel to increase its scale and relevance in the global aviation market.

The purchase price was allocated to the acquired assets and liabilities of Aviabel based on estimated fair values on the closing date. Consequently, the Company recognized investments with a fair value of $182 million, reserves for losses and loss expenses with a fair value of $79 million, and a bargain purchase gain of $15 million. The bargain purchase gain arose as the fair values of the net identifiable assets acquired exceeded the fair value of the consideration transferred at the acquisition date.

The allocation of the purchase price was based on information included in unaudited financial statements prepared by Aviabel's management at March 31, 2017. The allocation is subject to change if additional information becomes available within the measurement period, which cannot exceed 12 months from the acquisition date. The fair values of the acquired assets and liabilities may be subject to adjustments, which may impact the amounts recorded for the acquired assets and liabilities, as well as the bargain purchase gain.

The underwriting results of Aviabel are included in the underwriting results of the Company's insurance segment from the acquisition date.






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

3.SEGMENT INFORMATION

OurCapital's underwriting operations are organized around ourits global underwriting platforms, AXIS Insurance and AXIS Re, therefore we haveRe. The Company has determined that we have twoit has 2 reportable segments, insurance and reinsurance. We doThe Company does not allocate ourits assets by segment, with the exception of goodwill and intangible assets, as we evaluateit evaluates the underwriting results of each segment separately from the results of ourits investment portfolio.

Insurance
OurThe Company's insurance segment providesoffers specialty insurance coverageproducts 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, and accident and health.health, and discontinued lines - Novae.
 
Reinsurance
OurThe 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, and marine and other. The reinsurance segment also writes derivative based risk management products designed to address weatherother, accident and commodity price risks.

health, and discontinued lines - Novae.
The following tables summarizepresent the underwriting results of ourthe Company's reportable segments, as well as the carrying values of allocated goodwill and intangible assets:

   2017 2016 
 Three months ended and at September 30,Insurance Reinsurance Total Insurance Reinsurance Total 
              
 Gross premiums written$744,366
 $441,208
 $1,185,574
 $675,430
 $284,532
 $959,962
 
 Net premiums written500,022
 332,721
 832,743
 433,131
 162,300
 595,431
 
 Net premiums earned496,004
 521,127
 1,017,131
 444,691
 489,724
 934,415
 
 Other insurance related income (losses)526
 (3,723) (3,197) 39
 5,905
 5,944
 
 Net losses and loss expenses(628,865) (606,502) (1,235,367) (273,226) (259,102) (532,328) 
 Acquisition costs(74,231) (120,493) (194,724) (61,755) (128,055) (189,810) 
 General and administrative expenses(75,038) (21,658) (96,696) (84,588) (29,635) (114,223) 
 Underwriting income (loss)$(281,604) $(231,249) (512,853) $25,161
 $78,837
 103,998
 
              
 Corporate expenses    (27,933)     (28,683) 
 Net investment income    95,169
     116,923
 
 Net realized investment gains    14,632
     5,205
 
 Foreign exchange (losses) gains    (32,510)     13,795
 
 Interest expense and financing costs    (12,835)     (12,839) 
 Transaction related expenses    (5,970)     
 
 Income (loss) before income taxes and interest in income (loss) of equity method investments    $(482,300)     $198,399
 
              
 Net loss and loss expense ratio126.8% 116.4% 121.5% 61.4% 52.9% 57.0% 
 Acquisition cost ratio15.0% 23.1% 19.1% 13.9% 26.1% 20.3% 
 General and administrative expense ratio15.1% 4.2% 12.3% 19.1% 6.1% 15.3% 
 Combined ratio156.9% 143.7% 152.9% 94.4% 85.1% 92.6% 
              
 Goodwill and intangible assets$87,206
 $
 $87,206
 $85,501
 $
 $85,501
 
              

  20202019
Three months ended and at September 30,InsuranceReinsuranceTotalInsuranceReinsuranceTotal
Gross premiums written$935,817$395,361$1,331,178$894,902$511,604$1,406,506
Net premiums written544,857271,125815,982517,050339,031856,081
Net premiums earned570,184521,1281,091,312536,451620,8561,157,307
Other insurance related income6887521,4407338001,533
Net losses and loss expenses(443,389)(436,288)(879,677)(338,966)(511,947)(850,913)
Acquisition costs(114,569)(115,995)(230,564)(115,551)(144,475)(260,026)
Underwriting-related general and administrative expenses(94,379)(23,456)(117,835)(100,559)(26,060)(126,619)
Underwriting loss$(81,465)$(53,859)(135,324)$(17,892)$(60,826)(78,718)
Net investment income101,956115,763
Net investment gains55,60914,527
Corporate expenses(20,988)(28,903)
Foreign exchange (losses) gains(60,734)59,543
Interest expense and financing costs(15,574)(18,042)
Reorganization expenses(1,413)(11,215)
Amortization of value of business acquired(1,028)(4,368)
Amortization of intangible assets(2,838)(2,831)
Income (loss) before income taxes and interest in income (loss) of equity method investments$(80,334)$45,756
Net losses and loss expenses ratio77.8 %83.7 %80.6 %63.2 %82.5 %73.5 %
Acquisition cost ratio20.1 %22.3 %21.1 %21.5 %23.3 %22.5 %
General and administrative expense ratio16.5 %4.5 %12.8 %18.8 %4.1 %13.4 %
Combined ratio114.4 %110.5 %114.5 %103.5 %109.9 %109.4 %
Goodwill and intangible assets$324,365$0$324,365$346,356$0$346,356



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

3.SEGMENT INFORMATION (CONTINUED)


2.    SEGMENT INFORMATION (CONTINUED)
20202019
Nine months ended and at September 30,InsuranceReinsuranceTotalInsuranceReinsuranceTotal
Gross premiums written$2,914,100$2,564,419$5,478,519$2,714,322$2,923,169$5,637,491
Net premiums written1,729,2681,821,6923,550,9601,638,1972,065,2633,703,460
Net premiums earned1,709,2681,574,6733,283,9411,630,4731,784,6533,415,126
Other insurance related income (loss)2,091(7,361)(5,270)1,7799,60611,385
Net losses and loss expenses(1,252,569)(1,211,443)(2,464,012)(961,444)(1,225,959)(2,187,403)
Acquisition costs(343,579)(354,137)(697,716)(344,981)(417,826)(762,807)
Underwriting-related general and administrative expenses(284,909)(76,714)(361,623)(311,491)(87,049)(398,540)
Underwriting income (loss)$(169,698)$(74,982)(244,680)$14,336$63,42577,761
Net investment income240,098361,014
Net investment gains45,77748,522
Corporate expenses(74,915)(97,468)
Foreign exchange (losses) gains(8,760)64,868
Interest expense and financing costs(59,641)(49,545)
Reorganization expenses(822)(29,310)
Amortization of value of business acquired(4,111)(24,666)
Amortization of intangible assets(8,564)(8,744)
Income (loss) before income taxes and interest in income (loss) of equity method investments$(115,618)$342,432
Net losses and loss expenses ratio73.3 %76.9 %75.0 %59.0 %68.7 %64.1 %
Acquisition cost ratio20.1 %22.5 %21.2 %21.2 %23.4 %22.3 %
General and administrative expense ratio16.7 %4.9 %13.4 %19.0 %4.9 %14.5 %
Combined ratio110.1 %104.3 %109.6 %99.2 %97.0 %100.9 %
Goodwill and intangible assets$324,365$0$324,365$346,356$0$346,356


14
   2017 2016 
 Nine months ended and at September 30,Insurance Reinsurance Total Insurance Reinsurance Total 
              
 Gross premiums written$2,234,395
 $2,225,377
 $4,459,772
 $2,112,796
 $2,126,762
 $4,239,558
 
 Net premiums written1,533,029
 1,764,689
 3,297,718
 1,433,058
 1,855,529
 3,288,587
 
 Net premiums earned1,448,270
 1,488,995
 2,937,265
 1,322,649
 1,461,097
 2,783,746
 
 Other insurance related income (losses)1,077
 (5,497) (4,420) (57) 4,907
 4,850
 
 Net losses and loss expenses(1,241,495) (1,206,145) (2,447,640) (853,771) (809,813) (1,663,584) 
 Acquisition costs(223,665) (365,214) (588,879) (184,982) (374,588) (559,570) 
 General and administrative expenses(253,308) (82,474) (335,782) (252,652) (99,980) (352,632) 
 Underwriting income (loss)$(269,121) $(170,335) (439,456) $31,187
 $181,623
 212,810
 
              
 Corporate expenses    (97,922)     (86,922) 
 Net investment income    299,899
     257,818
 
 Net realized investment losses    (14,811)     (40,295) 
 Foreign exchange (losses) gains    (90,093)     69,781
 
 Interest expense and financing costs    (38,377)     (38,586) 
 Bargain purchase gain    15,044
     
 
 Transaction related expenses    (5,970)     
 
 Income (loss) before income taxes and interest in income (loss) of equity method investments    $(371,686)     $374,606
 
              
 Net loss and loss expense ratio85.7% 81.0% 83.3% 64.6% 55.4% 59.8% 
 Acquisition cost ratio15.4% 24.5% 20.0% 14.0% 25.6% 20.1% 
 General and administrative expense ratio17.6% 5.6% 14.8% 19.0% 6.9% 15.8% 
 Combined ratio118.7% 111.1% 118.1% 97.6% 87.9% 95.7% 
              
 Goodwill and intangible assets$87,206
 $
 $87,206
 $85,501
 $
 $85,501
 
              
              



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

4.INVESTMENTS


3.    INVESTMENTS
a)     Fixed Maturities and EquitiesEquity securities


Fixed maturities

The following table provides the amortized cost or cost and fair values of ourthe Company's fixed maturities classified as available for sale:
Amortized
cost
Allowance for expected credit lossesGross
unrealized
gains
Gross
unrealized
losses
Fair
value
At September 30, 2020
Fixed maturities
U.S. government and agency$1,929,224 $0 $62,872 $(630)$1,991,466 
Non-U.S. government659,744 0 18,099 (4,042)673,801 
Corporate debt4,607,629 (2,462)214,924 (23,360)4,796,731 
Agency RMBS(1)
1,630,014 0 48,465 (1,373)1,677,106 
CMBS(2)
1,291,291 0 92,012 (2,565)1,380,738 
Non-agency RMBS131,937 (36)2,733 (1,104)133,530 
ABS(3)
1,679,839 0 12,374 (20,038)1,672,175 
Municipals(4)
272,154 0 11,982 (442)283,694 
Total fixed maturities$12,201,832 $(2,498)$463,461 $(53,554)$12,609,241 
At December 31, 2019    
Fixed maturities
U.S. government and agency$2,102,849 $$16,345 $(6,313)$2,112,881 
Non-U.S. government564,505 14,535 (2,448)576,592 
Corporate debt4,797,384 140,426 (7,556)4,930,254 
Agency RMBS(1)
1,570,823 25,215 (3,454)1,592,584 
CMBS(2)
1,340,156 29,838 (4,942)1,365,052 
Non-agency RMBS84,381 1,393 (852)84,922 
ABS(3)
1,599,867 4,706 (5,880)1,598,693 
Municipals(4)
203,275 4,359 (407)207,227 
Total fixed maturities$12,263,240 $$236,817 $(31,852)$12,468,205 
(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 and equities were as follows:collateralized loan obligations ("CLOs").
(4)Municipals include bonds issued by states, municipalities and political subdivisions.





  
Amortized
Cost or
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
            
 At September 30, 2017          
 Fixed maturities          
 U.S. government and agency$1,556,963
 $2,729
 $(12,374) $1,547,318
 $
 
 Non-U.S. government568,223
 13,961
 (8,544) 573,640
 
 
 Corporate debt4,460,337
 65,230
 (21,600) 4,503,967
 
 
 
Agency RMBS(1)
2,313,096
 12,218
 (18,492) 2,306,822
 
 
 
CMBS(2)
665,520
 5,954
 (1,738) 669,736
 
 
 Non-Agency RMBS42,653
 1,968
 (804) 43,817
 (867) 
 
ABS(3)
1,285,080
 4,572
 (782) 1,288,870
 
 
 
Municipals(4)
151,522
 1,379
 (685) 152,216
 
 
 Total fixed maturities$11,043,394
 $108,011
 $(65,019) $11,086,386
 $(867) 
            
 Equity securities          
 Common stocks$13,980
 $1,415
 $(569) $14,826
   
 Exchange-traded funds365,412
 88,782
 
 454,194
   
 Bond mutual funds183,718
 8,686
 (1,673) 190,731
   
 Total equity securities$563,110
 $98,883
 $(2,242) $659,751
   
            
 At December 31, 2016          
 Fixed maturities          
 U.S. government and agency$1,681,425
 $1,648
 $(27,004) $1,656,069
 $
 
 Non-U.S. government613,282
 2,206
 (49,654) 565,834
 
 
 Corporate debt4,633,834
 42,049
 (75,140) 4,600,743
 
 
 
Agency RMBS(1)
2,487,837
 13,275
 (35,977) 2,465,135
 
 
 
CMBS(2)
664,368
 5,433
 (3,564) 666,237
 
 
 Non-Agency RMBS57,316
 1,628
 (2,023) 56,921
 (823) 
 
ABS(3)
1,221,813
 3,244
 (2,843) 1,222,214
 
 
 
Municipals(4)
163,441
 1,510
 (990) 163,961
 
 
 Total fixed maturities$11,523,316
 $70,993
 $(197,195) $11,397,114
 $(823) 
            
 Equity securities          
 Common stocks$379
 $41
 $(342) $78
   
 Exchange-traded funds463,936
 53,405
 (2,634) 514,707
   
 Bond mutual funds133,051
 
 (9,092) 123,959
   
 Total equity securities$597,366
 $53,446
 $(12,068) $638,744
   
            
15
(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 cards, and other asset types. This asset class also includes collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs).
(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)

4.INVESTMENTS (CONTINUED)


In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we invest in limited partnerships (hedge funds, direct lending funds, private equity funds and real estate funds) and CLO equity tranched securities, which are variable interests issued by VIEs (see Note 4(c)). For these variable interests, we do not have the power to direct the activities that are most significant to the economic performance of the VIEs therefore we are not the primary beneficiary of any of these VIEs. Our maximum exposure to loss on these interests is limited to the amount of our investment. We have not provided financial or other support with respect to these structured securities other than our original investment.

Contractual Maturities

The contractual maturities of fixed maturities are shown below. 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.
3.    INVESTMENTS (CONTINUED)
  
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
        
 At September 30, 2017      
 Maturity      
 Due in one year or less$434,283
 $432,662
 4.0% 
 Due after one year through five years3,834,452
 3,850,174
 34.7% 
 Due after five years through ten years2,258,136
 2,276,190
 20.5% 
 Due after ten years210,174
 218,115
 2.0% 
  6,737,045
 6,777,141
 61.2% 
 Agency RMBS2,313,096
 2,306,822
 20.8% 
 CMBS665,520
 669,736
 6.0% 
 Non-Agency RMBS42,653
 43,817
 0.4% 
 ABS1,285,080
 1,288,870
 11.6% 
 Total$11,043,394
 $11,086,386
 100.0% 
        
 At December 31, 2016      
 Maturity      
 Due in one year or less$313,287
 $305,972
 2.8% 
 Due after one year through five years3,906,190
 3,850,149
 33.8% 
 Due after five years through ten years2,546,299
 2,510,975
 22.0% 
 Due after ten years326,206
 319,511
 2.8% 
  7,091,982
 6,986,607
 61.4% 
 Agency RMBS2,487,837
 2,465,135
 21.6% 
 CMBS664,368
 666,237
 5.8% 
 Non-Agency RMBS57,316
 56,921
 0.5% 
 ABS1,221,813
 1,222,214
 10.7% 
 Total$11,523,316
 $11,397,114
 100.0% 
        




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

4.INVESTMENTS (CONTINUED)

Gross Unrealized Losses

The following table summarizes fixed maturities and equities 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 September 30, 2017            
 Fixed maturities            
 U.S. government and agency$161,425
 $(5,641) $1,207,943
 $(6,733) $1,369,368
 $(12,374) 
 Non-U.S. government61,872
 (7,354) 163,477
 (1,190) 225,349
 (8,544) 
 Corporate debt412,832
 (12,553) 990,308
 (9,047) 1,403,140
 (21,600) 
 Agency RMBS350,010
 (8,130) 1,126,956
 (10,362) 1,476,966
 (18,492) 
 CMBS13,919
 (238) 221,941
 (1,500) 235,860
 (1,738) 
 Non-Agency RMBS8,342
 (803) 222
 (1) 8,564
 (804) 
 ABS16,816
 (409) 323,886
 (373) 340,702
 (782) 
 Municipals23,339
 (474) 40,913
 (211) 64,252
 (685) 
 Total fixed maturities$1,048,555
 $(35,602) $4,075,646
 $(29,417) $5,124,201
 $(65,019) 
              
 Equity securities            
 Common stocks$33
 $(135) $2,939
 $(434) $2,972
 $(569) 
 Exchange-traded funds
 
 
 
 
 
 
 Bond mutual funds
 
 24,145
 (1,673) 24,145
 (1,673) 
 Total equity securities$33
 $(135) $27,084
 $(2,107) $27,117
 $(2,242) 
              
 At December 31, 2016            
 Fixed maturities            
 U.S. government and agency$54,051
 $(2,729) $1,340,719
 $(24,275) $1,394,770
 $(27,004) 
 Non-U.S. government149,360
 (38,683) 283,796
 (10,971) 433,156
 (49,654) 
 Corporate debt230,218
 (30,652) 1,948,976
 (44,488) 2,179,194
 (75,140) 
 Agency RMBS76,694
 (1,101) 1,724,170
 (34,876) 1,800,864
 (35,977) 
 CMBS84,640
 (749) 193,499
 (2,815) 278,139
 (3,564) 
 Non-Agency RMBS13,642
 (1,752) 7,194
 (271) 20,836
 (2,023) 
 ABS362,110
 (1,950) 266,763
 (893) 628,873
 (2,843) 
 Municipals774
 (29) 68,598
 (961) 69,372
 (990) 
 Total fixed maturities$971,489
 $(77,645) $5,833,715
 $(119,550) $6,805,204
 $(197,195) 
              
 Equity securities            
 Common stocks$
 $
 $37
 $(342) $37
 $(342) 
 Exchange-traded funds4,959
 (461) 87,760
 (2,173) 92,719
 (2,634) 
 Bond mutual funds
 
 123,954
 (9,092) 123,954
 (9,092) 
 Total equity securities$4,959
 $(461) $211,751
 $(11,607) $216,710
 $(12,068) 
              




18


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

4.INVESTMENTS (CONTINUED)

Fixed Maturities

At September 30,2017, 1,625 fixed maturities (2016: 1,881) were in an unrealized loss position of $65 million (2016: $197 million), of which $6 million (2016: $15 million) was related to securities below investment grade or not rated.

At September 30,2017, 403 (2016: 330) securities had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $1,049 million (2016: $971 million). Following our credit impairment review, we concluded that these securities as well as the remaining securities in an unrealized loss position in the above table were temporarily impaired at September 30,2017, and were expected to recover in value as the securities approach maturity. Further, at September 30,2017, we did not intend to sell these securities in an unrealized loss position and it is more likely than not that we will not be required to sell these securities before the anticipated recovery of their amortized costs.

Equity Securities


The following table provides the cost and fair values of the Company's equity securities:
Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
At September 30, 2020
Equity securities
Common stocks$10,679 $35 $(1,419)$9,295 
Preferred stocks6,249 1,505 0 7,754 
Exchange-traded funds141,748 51,920 (1,466)192,202 
Bond mutual funds197,500 11,135 0 208,635 
Total equity securities$356,176 $64,595 $(2,885)$417,886 
At December 31, 2019    
Equity securities
Common stocks$504 $77 $(388)$193 
Preferred stocks
Exchange-traded funds215,986 81,444 (105)297,325 
Bond mutual funds182,466 (5,777)176,689 
Total equity securities$398,956 $81,521 $(6,270)$474,207 

In the normal course of investing activities, the Company actively manages allocations to non-controlling tranches of structured securities which are variable interests issued by Variable Interest Entities ("VIEs"). These structured securities include RMBS, CMBS and ABS.

The Company also invests in limited partnerships which represent 62% of the Company's other investments. The investments in limited partnerships include hedge funds, direct lending funds, private equity funds and real estate funds as well as CLO equity tranched securities, which are variable interests issued by VIEs (refer to 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 these VIEs therefore the Company is not the primary beneficiary of these VIEs.

The maximum exposure to loss on these interests is limited to the amount of commitment made by the Company. The Company has not provided financial or other support to these structured securities other than the original investment.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.    INVESTMENTS (CONTINUED)
Contractual Maturities of Fixed 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 table below provides the contractual maturities of fixed maturities:
Amortized
cost
Fair
value
% of Total
fair value
At September 30, 2020
Maturity
Due in one year or less$367,208 $371,864 2.8 %
Due after one year through five years4,318,770 4,446,778 35.3 %
Due after five years through ten years2,524,796 2,660,506 21.1 %
Due after ten years257,977 266,544 2.1 %
 7,468,751 7,745,692 61.3 %
Agency RMBS1,630,014 1,677,106 13.3 %
CMBS1,291,291 1,380,738 11.0 %
Non-agency RMBS131,937 133,530 1.1 %
ABS1,679,839 1,672,175 13.3 %
Total$12,201,832 $12,609,241 100.0 %
At December 31, 2019
Maturity
Due in one year or less$438,881 $443,228 3.6 %
Due after one year through five years4,810,202 4,884,837 39.2 %
Due after five years through ten years2,091,486 2,157,157 17.3 %
Due after ten years327,444 341,732 2.7 %
 7,668,013 7,826,954 62.8 %
Agency RMBS1,570,823 1,592,584 12.8 %
CMBS1,340,156 1,365,052 10.9 %
Non-agency RMBS84,381 84,922 0.7 %
ABS1,599,867 1,598,693 12.8 %
Total$12,263,240 $12,468,205 100.0 %




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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 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 greaterLess than 12 monthsTotal
  
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
At September 30, 2020
Fixed maturities
U.S. government and agency$0 $0 $237,349 $(630)$237,349 $(630)
Non-U.S. government28,253 (1,675)99,028 (2,367)127,281 (4,042)
Corporate debt57,768 (3,924)821,430 (19,436)879,198 (23,360)
Agency RMBS9,231 (21)242,263 (1,352)251,494 (1,373)
CMBS9,467 (907)121,193 (1,658)130,660 (2,565)
Non-agency RMBS5,048 (873)22,552 (231)27,600 (1,104)
ABS313,666 (9,127)667,236 (10,911)980,902 (20,038)
Municipals0 0 70,036 (442)70,036 (442)
Total fixed maturities$423,433 $(16,527)$2,281,087 $(37,027)$2,704,520 $(53,554)
At December 31, 2019      
Fixed maturities
U.S. government and agency$9,536 $(67)$614,705 $(6,246)$624,241 $(6,313)
Non-U.S. government99,466 (2,036)18,361 (412)117,827 (2,448)
Corporate debt121,635 (3,847)375,858 (3,709)497,493 (7,556)
Agency RMBS195,395 (1,816)326,402 (1,638)521,797 (3,454)
CMBS24,281 (64)364,641 (4,878)388,922 (4,942)
Non-agency RMBS6,345 (792)25,816 (60)32,161 (852)
ABS535,780 (4,667)404,641 (1,213)940,421 (5,880)
Municipals5,418 (34)46,684 (373)52,102 (407)
Total fixed maturities$997,856 $(13,323)$2,177,108 $(18,529)$3,174,964 $(31,852)

Fixed Maturities

At September 30,2017, 31 securities (2016: 23) 2020, 1,365 fixed maturities (2019: 1,190) were in an unrealized loss position of $2$54 million (2016: $12(2019: $32 million)., of which $21 million (2019: $5 million) was related to securities below investment grade or not rated.


At September 30,2017, 2 securities (2016: 3) was 2020, 234 fixed maturities (2019: 497) had been in a continuous unrealized loss position for 12twelve months or greater. Based on our impairment review processgreater and our ability and intent to hold these securities forhad a reasonable periodfair value of time sufficient for a full recovery, we$423 million (2019: $998 million). The Company concluded that the above equitiesunrealized loss on these securities as well as the remaining securities in an unrealized loss position were temporarily impaireddue to non-credit factors at September 30,2017. 2020, and were expected to recover in value as the securities approach maturity. At September 30, 2020, the Company did not intend to sell the securities 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.






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

3.    INVESTMENTS (CONTINUED)
b) Mortgage Loans


The following table provides a breakdowndetails of ourthe Company's mortgage loans held-for-investment:
 
  
September 30, 2017 December 31, 2016 
 
  
Carrying Value % of Total Carrying Value % of Total 
          
 Mortgage Loans held-for-investment:        
 Commercial$360,381
 100% $349,969
 100% 
  360,381
 100% 349,969
 100% 
 Valuation allowances
 % 
 % 
 Total Mortgage Loans held-for-investment$360,381
 100% $349,969
 100% 
          
  
September 30, 2020December 31, 2019
  
Carrying value% of TotalCarrying value% of Total
Mortgage Loans held-for-investment:
Commercial$544,095 100 %$432,748 100 %
Total Mortgage Loans held-for-investment$544,095 100 %$432,748 100 %


For commercial mortgage loans, theThe primary credit quality indicator for commercial mortgage loans is the debt service coverage ratio (whichwhich compares a property’s net operating income to amounts needed to service the principal and interest due under the loan, generally,(generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss) and the loan-to-value ratio (loan-to-value ratios comparewhich compares the unpaid principal balance of the loan to the estimated fair value of the underlying collateral generally,(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.


We haveThe Company has a high quality mortgage loan portfolio with a weighted average debt service coverage ratios in excessratio of 3.0x2.1x and a weighted average loan-to-value ratiosratio of less than 60%59%. ThereAt September 30, 2020, there are no0 credit losses or past due amounts associated with the commercial mortgage loans that we hold at September 30, 2017.held by the Company.

There are no past due amounts at September 30, 2017.





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.INVESTMENTS (CONTINUED)


3.    INVESTMENTS (CONTINUED)
c) Other Investments


The following table providestables provide a breakdownsummary of our investments in hedge funds, direct lending funds, private equity funds, real estate funds, CLO-Equities andthe Company's other privately held investments, together with additional information relating to the liquidity of each category:
Fair value
Redemption frequency
(if currently eligible)
  Redemption  
  notice period  
At September 30, 2020    
Long/short equity funds$24,815 3 %Annually60 days
Multi-strategy funds111,980 15 %Quarterly, Semi-annually60-95 days
Direct lending funds269,783 35 %n/an/a
Private equity funds106,701 14 %n/an/a
Real estate funds153,163 20 %n/an/a
CLO-Equities9,189 2 %n/an/a
Other privately held investments39,493 5 %n/an/a
Overseas deposits45,082 6 %n/an/a
Total other investments$760,206 100 % 
  
At December 31, 2019    
Long/short equity funds$31,248 %Annually60 days
Multi-strategy funds136,542 18 %Quarterly, Semi-annually60-90 days
Direct lending funds277,395 36 %n/an/a
Private equity funds80,412 10 %n/an/a
Real estate funds130,112 17 %n/an/a
CLO-Equities14,328 %n/an/a
Other privately held investments36,934 %n/an/a
Overseas deposits63,952 %n/an/a
Total other investments$770,923 100 %  
     
  Fair Value 
Redemption Frequency
(if currently eligible)
 
  Redemption  
  Notice Period  
 
          
 At September 30, 2017 
  
     
 Long/short equity funds$64,067
 8% Annually 60 days 
 Multi-strategy funds286,452
 35% Quarterly, Semi-annually 60-95 days 
 Event-driven funds48,578
 6% Annually 45 days 
 Direct lending funds232,389
 28% n/a n/a 
 Private equity funds71,896
 9% n/a n/a 
 Real estate funds46,691
 6% n/a n/a 
 CLO-Equities36,782
 3% n/a n/a 
 Other privately held investments43,398
 5% n/a n/a 
 Total other investments$830,253
 100%     
          
 At December 31, 2016 
  
     
 Long/short equity funds$118,619
 14% Semi-annually, Annually 45-60 days 
 Multi-strategy funds285,992
 34% Quarterly, Semi-annually 60-95 days 
 Event-driven funds93,539
 11% Annually 45 days 
 Direct lending funds134,650
 16% n/a n/a 
 Private equity funds81,223
 10% n/a n/a 
 Real estate funds13,354
 2% n/a n/a 
 CLO-Equities60,700
 8% n/a n/a 
 Other privately held investments42,142
 5% n/a n/a 
 Total other investments$830,219
 100%     
          
n/a -notapplicable


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 equities.

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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4.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 ourthe Company's ability to redeem our 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 2017the nine months ended September 30, 2020 and 2016,2019, neither of these restrictions impacted ourthe Company's redemption requests. At September 30, 2017, $64 2020, $25 million (2016: $60(2019: $69 million), representing 16% (2016: 12%18% (2019: 41%) of our total hedge funds, relate to holdings where we arethe Company is still within the lockup period. The expiration of these lockup periods range from December 2017March 2021 to March 2019. 2022. 


At September 30,2017, we 2020, the Company had $142153 million (2016: $176 (2019: $170 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 5-10five to fifteen years and the General Partners of certain funds have the option to extend the term by up to 3three years.
At September 30,2017, we 2020, the Company had $16$20 million (2016: $12 (2019: $24 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 2two years to the dissolution of the underlying fund.

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At September 30, 2017, we2020, the Company had $120$158 million (2016: $140 (2019: $82 million) of unfunded commitments as a limited partner in funds which invest in real estate and real estate securities and businesses. These funds haveinclude an open-ended fund and funds with investment terms ranging from 7seven years to the dissolution of the underlying fund.
At September 30, 2017, we2020, the Company had $21$163 million (2016: $24 (2019: $261 million) of unfunded commitments as a limited partner in a private equity fund.funds. The life of the fundfunds is subject to the dissolution of the underlying funds. We expectThe Company expects the overall holding period to be over 10five years.


During 2015, wethe Company made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund is subject tohas an investment term of 7seven years and the General Partners have the option to extend the term by up to 2two years. At September 30, 2017,2020, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.



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 and therefore are not included within available for sale investments.


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d) Equity Method Investments


During 2016, wethe 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, we expectthe 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, we havethe Company has entered into an arrangement with Blackstone under which underwriting and investment related fees will be shared equally. Harrington is not a variableVIE that is required to be included in the Company's consolidated financial statements. The Company accounts for its ownership interest entity. Given that we exercise significant influence over the operating and financial policies of this investee we account for our 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 nine months ended September 30, 2017, we recorded an impairment charge of $9 million, related to a U.S. based insurance company, which reduced the carrying value of the investment to $nil. This charge is 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 September 30,Nine months ended September 30,
  
2020201920202019
Fixed maturities$73,992 $96,311 $244,394 $285,062 
Other investments25,125 11,143 (14,574)49,271 
Equity securities1,871 2,232 6,258 7,757 
Mortgage loans3,609 3,984 11,322 10,735 
Cash and cash equivalents2,491 7,034 9,814 20,974 
Short-term investments440 973 2,303 5,975 
Gross investment income107,528 121,677 259,517 379,774 
Investment expenses(5,572)(5,914)(19,419)(18,760)
Net investment income$101,956 $115,763 $240,098 $361,014 
 
  
Three months ended September 30, Nine months ended September 30, 
 
  
2017 2016 2017 2016 
          
 Fixed maturities$74,978
 $75,827
 $230,603
 $229,423
 
 Other investments17,373
 38,248
 59,973
 25,770
 
 Equity securities3,223
 4,633
 11,048
 12,843
 
 Mortgage loans2,895
 2,191
 7,970
 5,683
 
 Cash and cash equivalents3,111
 3,768
 9,640
 7,071
 
 Short-term investments698
 337
 1,797
 708
 
 Gross investment income102,278
 125,004
 321,031
 281,498
 
 Investment expenses(7,109) (8,081) (21,132) (23,680) 
 Net investment income$95,169
 $116,923
 $299,899
 $257,818
 
          






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4.INVESTMENTS (CONTINUED)


3.    INVESTMENTS (CONTINUED)
f) Net Realized Investment Gains (Losses)


The following table provides an analysis of net realized investment gains (losses):gains:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Gross realized investment gains
Fixed maturities and short-term investments$39,926 $32,475 $130,874 $61,882 
Equity securities556 1,825 24,514 3,424 
Gross realized investment gains40,482 34,300 155,388 65,306 
Gross realized investment losses
Fixed maturities and short-term investments(10,394)(14,557)(88,216)(44,813)
Equity securities(37)(80)(5,839)(203)
Gross realized investment losses(10,431)(14,637)(94,055)(45,016)
Allowance for expected credit losses3,759 (2,498)
Impairment losses(1)
(184)(1,486)
OTTI losses0 (1,458)0 (6,328)
Change in fair value of investment derivatives(2)
(1,346)2,592 1,970 287 
Net unrealized gains (losses) on equity securities23,329 (6,270)(13,542)34,273 
Net investment gains$55,609 $14,527 $45,777 $48,522 
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Gross realized gains        
 Fixed maturities and short-term investments$19,297
 $26,211
 $57,524
 $67,833
 
 Equities17,980
 5,570
 33,794
 18,804
 
 Gross realized gains37,277
 31,781
 91,318
 86,637
 
 Gross realized losses        
 Fixed maturities and short-term investments(15,893) (21,908) (83,183) (90,702) 
 Equities(45) (576) (258) (15,923) 
 Gross realized losses(15,938) (22,484) (83,441) (106,625) 
 Net OTTI recognized in earnings(5,412) (4,247) (13,493) (20,346) 
 
Change in fair value of investment derivatives(1)
(1,295) 155
 (9,195) 39
 
 Net realized investment gains (losses)$14,632
 $5,205
 $(14,811) $(40,295) 
          
(1) Related to instances where the Company intends to sell securities or it is more likely than not that the Company will be required to sell securities before their anticipated recovery.
(1)(2) Refer to Note 65 'Derivative Instruments'.

The following table summarizes the OTTI recognized in earnings by asset class:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Fixed maturities:        
 Non-U.S. government$3,905
 $2,456
 $8,187
 $2,953
 
 Corporate debt1,507
 1,791
 5,306
 14,833
 
  5,412
 4,247
 13,493
 17,786
 
 Equity Securities        
 Exchange-traded funds
 
 
 2,560
 
  
 
 
 2,560
 
 Total OTTI recognized in earnings$5,412
 $4,247
 $13,493
 $20,346
 
          



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4.INVESTMENTS (CONTINUED)


The following table provides a roll forwardreconciliation of the beginning and ending balances of the allowance for expected credit losses before income taxes,on fixed maturities classified as available for which a portion of the OTTI was recognized in AOCI:sale:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Balance at beginning of period$6,257 $$0 $
Expected credit losses on securities where credit losses were not previously recognized194 22,570 
Additions (reductions) for expected credit losses on securities where credit losses were previously recognized(2,545)(9,424)
Impairments of securities which the Company intends to sell or more likely than not will be required to sell0 0 
Securities sold/redeemed/matured(1,408)(10,648)
Balance at end of period$2,498 $$2,498 $
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Balance at beginning of period$1,481
 $1,513
 $1,493
 $1,506
 
 Credit impairments recognized on securities not previously impaired
 
 
 
 
 Additional credit impairments recognized on securities previously impaired2
 
 2
 7
 
 Change in timing of future cash flows on securities previously impaired
 
 
 
 
 Intent to sell of securities previously impaired
 
 
 
 
 Securities sold/redeemed/matured
 (33) (12) (33) 
 Balance at end of period$1,483
 $1,480
 $1,483
 $1,480
 
          


g) Reverse Repurchase Agreements


At September 30, 2017, we2020, the Company held $34$259 million (December 31, 2016: $176 million)(2019: $NaN) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of cash and cash equivalents in the Consolidated Balance Sheet.Company's consolidated balance sheets. The required collateral for these loans is either cash or U.S. Treasuries at a minimum rate of 102% of the loan principal. Upon maturity, we receivethe Company receives principal and interest income. We monitorThe Company monitors the estimated fair value of the securities loaned and borrowed on a daily basis with additional collateral obtained as necessary throughout the duration of the transaction.






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5.FAIR VALUE MEASUREMENTS


4.    FAIR VALUE MEASUREMENTS
Fair Value Hierarchy


Fair value is defined as the price to sell an asset or transfer a liability (i.e. the “exit price”"exit price") in an orderly transaction between market participants. U.S. GAAP prescribes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. 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 hierarchy is broken down into three levels as follows:


Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we havethe Company has the ability to access.


Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.


Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect ourthe Company's own judgments about assumptions that market participants might use.


The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.


Accordingly, the degree of judgment exercised by management in determining fair value is greatest for financial instruments categorized inas Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many financial instruments. This may lead usthe Company to change the selection of our valuation technique (from market to cash flow approach) or may cause usthe Company to use multiple valuation techniques to estimate the fair value of a financial instrument. This circumstance could cause an instrument to be reclassified between levels within the fair value hierarchy.


Valuation Techniques


The valuation techniques, including significant inputs and assumptions generally used to determine the fair values of ourthe Company's financial instruments as well as the classification of the fair values of ourits financial instruments in the fair value hierarchy are described in detail below.


Fixed Maturities


At each valuation date, we usethe Company uses the market approach valuation technique to estimate the fair value of ourits fixed maturities portfolio, whenwhere possible. ThisThe market approach includes, but is not limited to, prices obtained from third partythird-party pricing services for identical or comparable securities and the use of “pricing"pricing matrix models”models" using observable market inputs such as yield curves, credit risks and spreads, measures of volatility, and prepayment speeds. Pricing from third partythird-party pricing services is sourced from multiple vendors, whenwhere available, and we maintainthe Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. WhenWhere prices are unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers who are active in the corresponding markets. The valuation techniques including significant inputs and assumptions generally used to determine the fair values of ourthe Company's fixed maturities by asset class as well as the classifications of the fair values of these securities in the fair value hierarchy are described in detail below.



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5.FAIR VALUE MEASUREMENTS (CONTINUED)


4.    FAIR VALUE MEASUREMENTS (CONTINUED)

U.S. governmentGovernment and agencyAgency


U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. As the fair values of U.S. Treasury securities are based on unadjusted quoted market prices in active markets, the fair values of these securities are classified as Level 1. The fair values of U.S. government agency securities are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of U.S. government agency securities are classified as Level 2.


Non-U.S. governmentGovernment


Non-U.S. government securities include bonds issued by non-U.S. governments and their agencies along with supranational organizations (collectively also known as sovereign debt securities). The fair values of these securities are based on prices obtained from international indices or valuation models that include inputs such as interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the sovereign bond in terms of issuer, maturity and seniority. As the significant inputs used to price these securities are observable market inputs, the fair values of non-U.S. government securities are classified as Level 2.


Corporate debtDebt


Corporate debt securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As the yields for the risk-free yield curve and the spreads are observable market inputs, the fair values of corporate debt securities are generally classified as Level 2. Where pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.


Agency RMBS


Agency RMBS consist of bonds issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. The fair values of these securities are priced using a mortgage pool specific model which uses daily inputs from the active to be announced market and the spread associated with each mortgage pool based on vintage. As the significant inputs used to price these securities are observable market inputs, the fair values of Agency RMBS are classified as Level 2.


CMBS


CMBS mainly include mostly investment-grade bonds originated by non-agencies. The fair values of these securities are determined using a pricing model which uses dealer quotes and other available trade information along with security level characteristics to determine deal specific spreads. As the significant inputs used to price these securities are observable market inputs, the fair values of CMBS securities are generally classified as Level 2. Where pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.


Non-Agency

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4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Non-agency RMBS


Non-AgencyNon-agency RMBS mainly include mostly investment-grade bonds originated by non-agencies. The fair values of these securities are determined using an option adjusted spread model or other relevant models, which use inputs including available trade information or broker quotes, prepayment and default projections based on historical statistics of the underlying collateral and current market data. As the significant inputs used to price these securities are observable market inputs, the fair values of Non-Agencynon-agency RMBS are generally classified as Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 2.3.



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5.FAIR VALUE MEASUREMENTS (CONTINUED)


ABS


ABS mainly include mostly investment-grade bonds backed by pools of loans with a variety of underlying collateral, including automobile loan receivables,auto loans, student loans, credit card receivables and CLO debtcollateralized loan obligations ("CLOs"), originated by a variety of financial institutions. The fair values of these securities are determined using a model which uses prepayment speeds and spreads sourced primarily from the new issue market. As the significant inputs used to price these securities are observable market inputs, the fair values of ABS are generally classified as Level 2. Where pricing is unavailable from pricing services, we obtainthe Company obtains non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, the fair values of these securities are classified as Level 3.


Municipals


Municipals comprise revenue and general obligation bonds issued by U.S. domiciled state and municipal entities. The fair values of these securities are determined using spreads obtained from the new issue market, trade prices and broker-dealers quotes. As the significant inputs used to price these securities are observable market inputs, the fair values of municipals are classified as Level 2.


Equity Securities


Equity securities include common stocks, preferred stocks, exchange-traded funds and bond mutual funds. As the fair values of common stocks, preferred stocks and exchange-traded funds are based on unadjusted quoted market prices in active markets, the fair values of these securities are classified as Level 1.
As bond mutual funds have daily liquidity, with redemption based on the Net Asset Values per share ("NAV") of the funds, the fair values of these securities are classified as Level 2.


Other Investments


The fair value of an indirect investment in CLO-Equities is estimated using an income approach valuation technique, specifically an externally developed discounted cash flow model due to the lack of observable and relevant trades in secondary markets. As the significant inputs used to price this security are unobservable, the fair value of the indirect investment in CLO-Equities is classified as Level 3.

Other privately held securitiesinvestments include convertible preferred shares, common shares, convertible notes and notes payable. These securitiesinvestments are initially valued at cost, which approximates fair value. In subsequent measurement periods, the fair values of these securitiesinvestments are generally determined using capital statements obtained from each investee company. In order to assess the reasonableness of the information received from each investee company, the Company maintains an internally developed discounted cash flow model.understanding of current market conditions, historical results, and emerging trends that may impact the results of operations, financial condition or liquidity of investee companies. In addition, the Company engages in regular communication with management at the investee companies. As the significant inputs used to price these securitiesinvestments are unobservable, the fair valuevalues of these securitiesother privately held investments are classified as Level 3.


IndirectOverseas deposits include investments in CLO-Equitiesprivate funds held by Syndicate 2007 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, and therefore are not included in available for sale investments. As the significant inputs used to price the underlying investments are observable market inputs, the fair values of overseas deposits are classified as Level 3 as the fair values2.

25

Short-term Investments


Short-term investments primarily comprise highly liquid securities with maturities greater than three months but less than one year from the date of purchase. These securities are classified as Level 2 because these securities are typically not actively traded due to their approaching maturity, and, as such,therefore their amortized cost approximates fair value. The fair values of short-term investments are classified as Level 2.


Derivative Instruments


Derivative Instrumentsinstruments include foreign currencyexchange forward contracts and exchange traded interest rate swaps and commodity contracts that are customized to ourthe Company's economic hedging strategies and trade in the over-the-counter derivative market. The fair values of these derivatives are determined using thea market approach valuation technique based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. Accordingly,As the significant inputs used to price these securities are observable market inputs, the fair values of these derivatives are classified as Level 2.

Weather derivatives relate to non-exchange traded derivative-based risk management products addressing weather risks. The fair values of these derivatives are determined using observable market inputs and unobservable inputs in combination with industry or internally developed valuation and forecasting techniques. Accordingly, the fair values of these derivatives are classified as Level 3.



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5.FAIR VALUE MEASUREMENTS (CONTINUED)


Other underwriting-related derivatives include insurance and reinsurance contracts that are required to be accounted for as derivatives. These derivative contracts are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these derivatives are determined using internally developed discounted cash flow models. As the significant inputs used to price these derivatives are unobservable, the fair valuevalues of these contracts are classified as Level 3.

Insurance-linked Securities

Insurance-linked securities comprise an investment in a catastrophe bond. As pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers to estimate the fair values of these securities. Pricing is generally unavailable when there is a low volume of trading activity and current transactions are not orderly. Accordingly, the fair values of these securities are classified as Level 3.


Cash Settled Awards


Cash settled awards comprise restricted stock units that form part of ourthe Company's compensation program. Although the fair values of these awards are determined using observable quoted market prices in active markets, the restricted stock units are not actively traded. Accordingly,As the significant inputs used to price these securities are observable market inputs, the fair values of these liabilities are classified as Level 2.






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5.FAIR VALUE MEASUREMENTS (CONTINUED)


4.    FAIR VALUE MEASUREMENTS (CONTINUED)
The tables below present the financial instruments measured at fair value on a recurring basis for the periods indicated:
Quoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)Fair value based on NAV practical expedientTotal fair value
At September 30, 2020
Assets
Fixed maturities
U.S. government and agency$1,911,014 $80,452 $0 $ $1,991,466 
Non-U.S. government0 673,801 0  673,801 
Corporate debt0 4,794,332 2,399  4,796,731 
Agency RMBS0 1,677,106 0  1,677,106 
CMBS0 1,378,115 2,623  1,380,738 
Non-agency RMBS0 123,898 9,632  133,530 
ABS0 1,661,665 10,510  1,672,175 
Municipals0 283,694 0  283,694 
 1,911,014 10,673,063 25,164  12,609,241 
Equity securities
Common stocks9,295 0 0  9,295 
Preferred stocks7,754 0 0  7,754 
Exchange-traded funds192,202 0 0  192,202 
Bond mutual funds0 208,635 0  208,635 
 209,251 208,635 0  417,886 
Other investments
Hedge funds (1)
0 0 0 136,795 136,795 
Direct lending funds0 0 0 269,783 269,783 
Private equity funds0 0 0 106,701 106,701 
Real estate funds0 0 0 153,163 153,163 
CLO-Equities0 0 9,189  9,189 
Other privately held investments0 0 39,493  39,493 
Overseas deposits0 45,082 0  45,082 
0 45,082 48,682 666,442 760,206 
Short-term investments0 69,996 0  69,996 
Other assets
Derivative instruments (refer to Note 5)0 7,267 0  7,267 
Total Assets$2,120,265 $11,004,043 $73,846 $666,442 $13,864,596 
Liabilities
Derivative instruments (refer to Note 5)$0 $1,578 $9,448 $ $11,026 
Cash settled awards (refer to Note 8)0 10,160 0  10,160 
 Total Liabilities$0 $11,738 $9,448 $ $21,186 
  Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair value based on NAV practical expedient Total Fair Value 
            
 At September 30, 2017          
 Assets          
 Fixed maturities          
 U.S. government and agency$1,495,423
 $51,895
 $
 $
 $1,547,318
 
 Non-U.S. government
 573,640
 
 
 573,640
 
 Corporate debt
 4,442,951
 61,016
 
 4,503,967
 
 Agency RMBS
 2,306,822
 
 
 2,306,822
 
 CMBS
 669,736
 
 
 669,736
 
 Non-Agency RMBS
 43,817
 
 
 43,817
 
 ABS
 1,264,855
 24,015
 
 1,288,870
 
 Municipals
 152,216
 
 
 152,216
 
  1,495,423
 9,505,932
 85,031
 
 11,086,386
 
 Equity securities          
 Common stocks14,826
 
 
 
 14,826
 
 Exchange-traded funds454,194
 
 
 
 454,194
 
 Bond mutual funds
 190,731
 
 
 190,731
 
  469,020
 190,731
 
 
 659,751
 
 Other investments          
 Hedge funds
 
 
 399,097
 399,097
 
 Direct lending funds
 
 
 232,389
 232,389
 
 Private equity funds
 
 
 71,896
 71,896
 
 Real estate funds
 
 
 46,691
 46,691
 
 Other privately held investments
 
 43,398
 
 43,398
 
 CLO-Equities
 
 36,782
 
 36,782
 
  
 
 80,180
 750,073
 830,253
 
 Short-term investments
 15,282
 
 
 15,282
 
 Other assets          
 Derivative instruments (see Note 6)
 5,859
 
 
 5,859
 
 Insurance-linked securities
 
 24,976
 
 24,976
 
 Total Assets$1,964,443
 $9,717,804
 $190,187
 $750,073
 $12,622,507
 
 Liabilities          
 Derivative instruments (see Note 6)$
 $1,873
 $11,844
 $
 $13,717
 
 Cash settled awards (see Note 9)
 18,369
 
 
 18,369
 
  Total Liabilities$
 $20,242
 $11,844
 $
 $32,086
 
            
(1) Includes Long/short equity and Multi-strategy funds.







27
29

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

5.FAIR VALUE MEASUREMENTS (CONTINUED)


4.    FAIR VALUE MEASUREMENTS (CONTINUED)


Quoted prices in active markets for identical assets (Level 1)Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)Fair value based on NAV practical expedientTotal fair value
At December 31, 2019
Assets
Fixed maturities
U.S. government and agency$2,053,622 $59,259 $$— $2,112,881 
Non-U.S. government576,592 — 576,592 
Corporate debt4,927,957 2,297 — 4,930,254 
Agency RMBS1,592,584 — 1,592,584 
CMBS1,359,817 5,235 — 1,365,052 
Non-agency RMBS84,922 — 84,922 
ABS1,598,204 489 — 1,598,693 
Municipals207,227 — 207,227 
 2,053,622 10,406,562 8,021 — 12,468,205 
Equity securities
Common stocks$193 $$$— $193 
Preferred stocks— 
Exchange-traded funds297,325 — 297,325 
Bond mutual funds176,689 — 176,689 
 297,518 176,689 — 474,207 
Other investments
Hedge funds (1)
167,790 167,790 
Direct lending funds277,395 277,395 
Private equity funds80,412 80,412 
Real estate funds130,112 130,112 
CLO-Equities14,328 — 14,328 
Other privately held investments36,934 — 36,934 
Overseas deposits63,952 — 63,952 
63,952 51,262 655,709 770,923 
Short-term investments38,471 — 38,471 
Other assets
Derivative instruments (refer to Note 5)3,174 — 3,174 
Total Assets$2,351,140 $10,688,848 $59,283 $655,709 $13,754,980 
Liabilities
Derivative instruments (refer to Note 5)$$3,965 $9,672 $— $13,637 
Cash settled awards (refer to Note 8)21,731 — 21,731 
Total Liabilities$$25,696 $9,672 $— $35,368 
(1) Includes Long/short equity and Multi-strategy funds.


  Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair value based on NAV practical expedient Total Fair Value 
            
 At December 31, 2016          
 Assets          
 Fixed maturities          
 U.S. government and agency$1,583,106
 $72,963
 $
 $
 $1,656,069
 
 Non-U.S. government
 565,834
 
 
 565,834
 
 Corporate debt
 4,524,868
 75,875
 
 4,600,743
 
 Agency RMBS
 2,465,135
 
 
 2,465,135
 
 CMBS
 663,176
 3,061
 
 666,237
 
 Non-Agency RMBS
 56,921
 
 
 56,921
 
 ABS
 1,204,750
 17,464
 
 1,222,214
 
 Municipals
 163,961
 
 
 163,961
 
  1,583,106
 9,717,608
 96,400
 
 11,397,114
 
 Equity securities          
 Common stocks78
 
 
 
 78
 
 Exchange-traded funds514,707
 
 
 
 514,707
 
 Bond mutual funds
 123,959
 
 
 123,959
 
  514,785
 123,959
 
 
 638,744
 
 Other investments          
 Hedge funds
 
 
 498,150
 498,150
 
 Direct lending funds
 
 
 134,650
 134,650
 
 Private equity funds
 
 
 81,223
 81,223
 
 Real estate funds
 
 
 13,354
 13,354
 
 Other privately held investments
 
 42,142
 
 42,142
 
 CLO-Equities
 
 60,700
 
 60,700
 
  
 
 102,842
 727,377
 830,219
 
 Short-term investments
 127,461
 
 
 127,461
 
 Other assets          
 Derivative instruments (see Note 6)
 14,365
 2,532
 
 16,897
 
 Insurance-linked securities
 
 25,023
 
 25,023
 
 Total Assets$2,097,891
 $9,983,393
 $226,797
 $727,377
 $13,035,458
 
 Liabilities          
 Derivative instruments (see Note 6)$
 $9,076
 $6,500
 $
 $15,576
 
 Cash settled awards (see Note 9)
 48,432
 
 
 48,432
 
 Total Liabilities$
 $57,508
 $6,500
 $
 $64,008
 
            
28

During 2017 and 2016, there were no transfers between Levels 1 and 2.










30

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

5.FAIR VALUE MEASUREMENTS (CONTINUED)


4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Except certain fixed maturities and insurance-linked securities priced using broker-dealer quotes (underlying inputs are not available), theThe following table quantifies the significant unobservable inputs used in estimating fair values at September 30,2017 for 2020 of investments classified as Level 3 in the fair value hierarchy.hierarchy:
Fair valueValuation techniqueUnobservable inputRange
Weighted
average
Other investments - CLO-Equities$9,189 Discounted cash flowDefault rates3.8%3.8%
  Loss severity rate50.0%50.0%
  Collateral spreads3.0%3.0%
Estimated maturity dates5 years5 years
Derivatives - Other underwriting-related derivatives$(9,448)Discounted cash flowDiscount rate0.5%0.5%
  Fair ValueValuation TechniqueUnobservable InputRange
Weighted
Average
 
        
 Other investments - CLO-Equities$32,141
Discounted cash flowDefault rates3.8%3.8% 
    Loss severity rate35.0%35.0% 
    Collateral spreads3.0%3.0% 
    Estimated maturity dates7 years7 years 
        
  4,641
Liquidation valueFair value of collateral100%100% 
    Discount margin0% - 17.8%2.7% 
        
 Other investments - Other privately held investments43,398
Discounted cash flowDiscount rate6.0% - 8.0%7.5% 
        
 Derivatives - Other underwriting-related derivatives$(11,844)Discounted cash flowDiscount rate2.3%2.3% 
        
Note: Fixed maturities of $25 million that are classified as Level 3 are excluded from the above table as these securities are priced using broker-dealer quotes. In addition, privately held investments of $39 million that are classified as Level 3 are excluded from the above table as these investments are priced using capital statements received from investee companies.


Other Investments - CLO-Equities

The CLO-Equities market continues to be relatively inactive with only a small number of transactions being observed, particularly as it relatesrelated to transactions involving our CLO-Equities.CLO-Equities held by the Company. Accordingly, the fair valuesvalue of investmentsthe Company's indirect investment in CLO-Equities areis determined using models. Given that all of our direct investments in CLO-Equities are past their reinvestment period, there is uncertainty over the remaining time to maturity. As such our direct investments in CLO-Equities are estimated using a liquidation valuation. Indirect investments in CLO-Equities are valued using a discounted cash flow model prepared by an external investment manager.


The liquidation valuation is based on the fair values of the net underlying collateral which is determined by applying market discount margins by credit quality bucket. An increase (decrease) in the market discount margin would result in a decrease (increase) in value of our CLO-Equities.

Regarding the discounted cash flow model, the default and loss severity rates are the most judgmental unobservable market inputs to the discounted cash flow model to which the valuation of the Company's indirect investment in CLO-Equities is most sensitive. A significant increase (decrease) in either of these significant inputs in isolation would result in a lower (higher) fair value estimatesestimate for investmentsthe investment in CLO-Equities and, in general, a change in default rate assumptions willwould be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs as they are based on the historical average of actual spreads and the weighted average life of the current underlying portfolios, respectively. A significant increase (decrease) in either of these significant inputs in isolation would result in a higher (lower) fair value estimatesestimate for investmentsthe investment in CLO-Equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.


On a quarterly basis, ourthe Company's valuation process for its indirect investment in CLO-Equities includes a review of the underlying collateral along with related discount margins by credit quality bucket used in the liquidation valuation and a review of the underlying cash flows and key assumptions used in the discounted cash flow model. The above significant unobservable inputs are reviewed and updated based on information obtained from secondary markets, including information received from the managers of ourthe Company's CLO-Equities portfolio.investment. In order to assess the reasonableness of the inputs we usethe Company uses in our models, we maintainthe discounted cash flow model, the Company maintains an understanding of current market conditions, historical results, as well asand emerging trends that may impact future cash flows. In addition,we update the assumptions we usethe Company uses in ourits models are updated through regular communication with industry participants and ongoing monitoring of the deals in which we participate (e.g. default and loss severity rate trends).the Company participates.


Derivatives - Other privately held securities are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these securities are determined using internally developed discounted cash flow models. These models include inputs that are specific to each investment. The inputs used in the fair value measurements include dividend or interest rates and appropriate discount rates. The selection of an appropriate discount rate is judgmental and is the most significant unobservable input used in the valuationUnderwriting-related Derivatives



31


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

5.FAIR VALUE MEASUREMENTS (CONTINUED)

of these securities. A significant increase (decrease) in this input in isolation could result in a significantly lower (higher) fair value measurement for other privately held securities. Where relevant, we also consider the contractual agreements which stipulate methodologies for calculating the dividend rate to be paid upon liquidation, conversion or redemption. In order to assess the reasonableness of the inputs we use in the discounted cash flow models, we maintain an understanding of current market conditions, historical results, as well as investee specific information that may impact future cash flows.


Other underwriting-related derivatives are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these derivatives are determined using internally developed discounted cash flow models which usesuse appropriate discount rates. The selection of an appropriate discount rate is judgmental and is the most significant unobservable input used in the valuation of these derivatives. A significant increase (decrease) in this input in isolation could result in a significantly lower (higher) fair value measurement for the derivative contracts. In order to assess the reasonableness of the inputs we usethe Company uses in the discounted cash flow model, we maintainthe Company maintains an understanding of current market conditions, historical results, as well as contract specific information that may impact future cash flows.



29


32



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

5.FAIR VALUE MEASUREMENTS (CONTINUED)


4.    FAIR VALUE MEASUREMENTS (CONTINUED)
The following tables present changes in Level 3 for financial instruments measured at fair value on a recurring basis forbasis:
Opening
balance
Transfers
into
Level 3
Transfers
out of
Level 3
Included in
net income(1)
Included
in OCI (2)
PurchasesSales
Settlements/
distributions
Closing
balance
Change in
unrealized
gains/(losses) (3)
  
Three months ended September 30, 2020
Fixed maturities          
Corporate debt$2,298 $0 $0 $0 $101 $0 $0 $0 $2,399 $0 
CMBS4,434 0 0 0 148 0 0 (1,959)2,623 0 
Non-agency RMBS9,562 0 0 0 70 0 0 0 9,632 0 
ABS441 10,060 0 0 9 0 0 0 10,510 0 
 16,735 10,060 0 0 328 0 0 (1,959)25,164 0 
Other investments
CLO-Equities9,943 0 0 (422)0 0 0 (332)9,189 (422)
Other privately held investments37,420 0 0 797 0 1,276 0 0 39,493 566 
 47,363 0 0 375 0 1,276 0 (332)48,682 144 
Total assets$64,098 $10,060 $0 $375 $328 $1,276 $0 $(2,291)$73,846 $144 
  
Other liabilities
Derivative instruments$9,818 $0 $0 $(370)$0 $0 $0 $0 $9,448 $(370)
Total liabilities$9,818 $0 $0 $(370)$0 $0 $0 $0 $9,448 $(370)
Nine months ended September 30, 2020
Fixed maturities          
Corporate debt$2,297 $0 $0 $0 $102 $0 $0 $0 $2,399 $0 
CMBS5,235 0 0 0 (64)0 0 (2,548)2,623 0 
Non-agency RMBS0 9,185 0 0 447 0 0 0 9,632 0 
ABS489 10,060 0 0 (39)0 0 0 10,510 0 
 8,021 19,245 0 0 446 0 0 (2,548)25,164 0 
Other investments
CLO-Equities14,328 0 0 (3,592)0 0 0 (1,547)9,189 (3,592)
Other privately held investments36,934 0 0 801 0 1,758 0 0 39,493 570 
 51,262 0 0 (2,791)0 1,758 0 (1,547)48,682 (3,022)
Total assets$59,283 $19,245 $0 $(2,791)$446 $1,758 $0 $(4,095)$73,846 $(3,022)
Other liabilities
Derivative instruments$9,672 $0 $0 $9,747 $0 $0 $0 $(9,971)$9,448 $(224)
Total liabilities$9,672 $0 $0 $9,747 $0 $0 $0 $(9,971)$9,448 $(224)
           
(1) Realized gains (losses) on fixed maturities and realized and unrealized gains (losses) on other assets and other liabilities included in net income are included in net investment gains (losses). Realized and unrealized gains (losses) on other investments included in net income are included in net investment income.
(2) Unrealized gains (losses) on fixed maturities are included in other comprehensive income ("OCI").
(3) Change in unrealized gains (losses) relating to assets held at the periods indicated:
  
Opening
Balance
 
Transfers
into
Level 3
 
Transfers
out of
Level 3
 
Included in
earnings (1)
 
Included
in OCI (2)
 Purchases Sales 
Settlements/
Distributions
 
Closing
Balance
 
Change in
unrealized
investment
gain/(loss) (3)
 
                      
 Three months ended September 30, 2017                 
 Fixed maturities                    
 Corporate debt$68,320
 $
 $(1,208) $(835) $(9) $
 $(2,274) $(2,978) $61,016
 $
 
 CMBS
 
 
 
 
 
 
 
 
 
 
 ABS5,999
 
 (6,001) 
 10
 24,007
 
 
 24,015
 
 
  74,319
 
 (7,209) (835) 1
 24,007
 (2,274) (2,978) 85,031
 
 
 Other investments                   
 Other privately held investments42,938
 
 
 460
 
 
 
 
 43,398
 460
 
 CLO - Equities47,076
 
 
 1,402
 
 
 
 (11,696) 36,782
 1,402
 
  90,014
 
 
 1,862
 
 
 
 (11,696) 80,180
 1,862
 
 Other assets                   
 Derivative instruments
 
 
 
 
 
 
 
 
 
 
 Insurance-linked securities25,047
 
 
 (71) 
 
 
 
 24,976
 (71) 
  25,047
 
 
 (71) 
 
 
 
 24,976
 (71) 
 Total assets$189,380
 $
 $(7,209) $956
 $1
 $24,007
 $(2,274) $(14,674) $190,187
 $1,791
 
                     
 
 Other liabilities                   
 Derivative instruments$12,209
 $
 $
 $(291) $
 $
 $
 $(74) $11,844
 $(291) 
 Total liabilities$12,209
 $
 $
 $(291) $
 $
 $
 $(74) $11,844
 $(291) 
                      
 Nine months ended September 30, 2017                 
 Fixed maturities 
  
  
  
  
  
  
  
  
  
 
 Corporate debt$75,875
 $1,536
 $(3,112) $(762) $(392) $19,181
 $(21,475) $(9,835) $61,016
 $
 
 CMBS3,061
 
 (9,418) 
 17
 9,400
 
 (3,060) 
 
 
 ABS17,464
 
 (24,949) 
 1,493
 30,007
 
 
 24,015
 
 
  96,400
 1,536
 (37,479) (762) 1,118
 58,588
 (21,475) (12,895) 85,031
 
 
 Other investments                    
 Other privately held investments42,142
 
 
 1,256
 
 
 
 
 43,398
 1,256
 
 CLO - Equities60,700
 
 
 3,930
 
 
 
 (27,848) 36,782
 3,930
 
  102,842
 
 
 5,186
 
 
 
 (27,848) 80,180
 5,186
 
 Other assets                   
 Derivative instruments2,532
 
 
 653
 
 
 
 (3,185) 
 
 
 Insurance-linked securities25,023
 
 
 (47) 
 
 
 
 24,976
 (47) 
  27,555
 
 
 606
 
 
 
 (3,185) 24,976
 (47) 
 Total assets$226,797
 $1,536
 $(37,479) $5,030
 $1,118
 $58,588
 $(21,475) $(43,928) $190,187
 $5,139
 
                      
 Other liabilities                   
 Derivative instruments$6,500
 $
 $
 $9,991
 $
 $12,135
 $
 $(16,782) $11,844
 $(291) 
 Total liabilities$6,500
 $
 $
 $9,991
 $
 $12,135
 $
 $(16,782) $11,844
 $(291) 
                      

reporting date.



30
33



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


5.
4.    FAIR VALUE MEASUREMENTS (CONTINUED)

  
Opening
Balance
 
Transfers
into
Level 3
 
Transfers
out of
Level 3
 
Included in
earnings (1)
 
Included
in OCI (2)
 Purchases Sales 
Settlements/
Distributions
 
Closing
Balance
 
Change in
unrealized
investment
gain/(loss) (3)
 
                      
 Three months ended September 30, 2016                 
 Fixed maturities                    
 Corporate debt$62,022
 $
 $
 $(9) $100
 $7,563
 $
 $(584) $69,092
 $
 
 CMBS10,210
 
 
 
 (48) 
 
 (1,242) 8,920
 
 
 ABS
 
 
 
 
 
 
 
 
 
 
  72,232
 
 
 (9) 52
 7,563
 
 (1,826) 78,012
 
 
 Other investments                    
 Other privately held investments41,755
 
 
 (355) 
 1,500
 
 
 42,900
 (355) 
 CLO - Equities65,883
 
 
 8,419
 
 
 
 (10,519) 63,783
 8,419
 
  107,638
 
 
 8,064
 
 1,500
 
 (10,519) 106,683
 8,064
 
 Other assets                   
 Derivative instruments5
 
 
 665
 
 1,818
 
 
 2,488
 665
 
 Insurance-linked securities25,025
 
 
 258
 
 
 
 
 25,283
 258
 
  25,030
 
 
 923
 
 1,818
 
 
 27,771
 923
 
 Total assets$204,900
 $
 $
 $8,978
 $52
 $10,881
 $
 $(12,345) $212,466
 $8,987
 
                      
 Other liabilities                   
 Derivative instruments$1,978
 $
 $
 $(169) $
 $6,384
 $
 $(9) $8,184
 $335
 
 Total liabilities$1,978
 $
 $
 $(169) $
 $6,384
 $
 $(9) $8,184
 $335
 
                      
 Nine months ended September 30, 2016                 
 Fixed maturities 
  
  
  
  
  
  
  
  
  
 
 Corporate debt$38,518
 $20,412
 $(1,955) $(988) $1,188
 $17,107
 $(4,015) $(1,175) $69,092
 $
 
 CMBS10,922
 
 
 
 (134) 
 
 (1,868) 8,920
 
 
 ABS
 
 
 
 
 
 
 
 
 
 
  49,440
 20,412
 (1,955) (988) 1,054
 17,107
 (4,015) (3,043) 78,012
 
 
 Other investments                    
 Other privately held investments
 
 
 (1,505) 
 44,405
 
 
 42,900
 (1,505) 
 CLO - Equities27,257
 36,378
 
 17,431
 
 
 
 (17,283) 63,783
 17,431
 
  27,257
 36,378
 
 15,926
 
 44,405
 
 (17,283) 106,683
 15,926
 
 Other assets                   
 Derivative instruments4,395
 
 
 3,255
 
 3,623
 
 (8,785) 2,488
 669
 
 Insurance-linked securities24,925
 
 
 358
 
 
 
 
 25,283
 358
 
  29,320
 
 
 3,613
 
 3,623
 
 (8,785) 27,771
 1,027
 
 Total assets$106,017
 $56,790
 $(1,955) $18,551
 $1,054
 $65,135
 $(4,015) $(29,111) $212,466
 $16,953
 
                      
 Other liabilities                   
 Derivative instruments$10,937
 $
 $
 $2,445
 $
 $7,189
 $
 $(12,387) $8,184
 $457
 
 Total liabilities$10,937
 $
 $
 $2,445
 $
 $7,189
 $
 $(12,387) $8,184
 $457
 
                      
Opening
balance
Transfers
into
Level 3
Transfers
out of
Level 3
Included in
net income(1)
Included
in OCI (2)
PurchasesSales
Settlements/
distributions
Closing
balance
Change in
unrealized
gains/(losses)(3)
  
Three months ended September 30, 2019
Fixed maturities          
Corporate debt$39,137 $$(489)$$(97)$$$$38,551 $
CMBS9,892 5,285 (13)(390)14,774 
Non-agency RMBS
ABS491 492 
 49,520 5,285 (489)(109)(390)53,817 
Other investments
CLO-Equities17,798 (1,308)(1,036)15,454 (1,308)
Other privately held investments28,452 2,016 15,000 (14,749)30,719 2,502 
 46,250 708 15,000 (14,749)(1,036)46,173 1,194 
Total assets$95,770 $5,285 $(489)$708 $(109)$15,000 $(14,749)$(1,426)$99,990 $1,194 
Other liabilities
Derivative instruments$10,262 $$$(126)$$$$$10,136 $(126)
Total liabilities$10,262 $$$(126)$$$$$10,136 $(126)
Nine months ended September 30, 2019
Fixed maturities          
Corporate debt$49,012 $$(489)$(1,459)$836 $$(5,578)$(3,771)$38,551 $
CMBS19,134 5,285 (4,767)151 (5,029)14,774 
Non-agency RMBS
ABS18,533 (27,966)175 9,750 492 
 86,679 5,285 (33,222)(1,459)1,162 9,750 (5,578)(8,800)53,817 
Other investments
CLO-Equities21,271 (60)(5,757)15,454 (60)
Other privately held investments44,518 16,877 17,500 (48,176)30,719 3,936 
 65,789 16,817 17,500 (48,176)(5,757)46,173 3,876 
Total assets$152,468 $5,285 $(33,222)$15,358 $1,162 $27,250 $(53,754)$(14,557)$99,990 $3,876 
Other liabilities
Derivative instruments$10,299 $$$(163)$$$$$10,136 $(163)
Total liabilities$10,299 $$$(163)$$$$$10,136 $(163)
           
(1)Gains and losses included in earnings
(1) Realized gains (losses) on fixed maturities and realized and unrealized gains (losses) on other assets and other liabilities included in net income are included in net realized investment gains (losses). Realized and unrealized gains (losses) on other investments included in net income are included in net investment income.
(2) Unrealized gains (losses). Gains and (losses) included in earnings on other investments are included in net investment income. Gains (losses) on weather derivatives included in earnings are included in other insurance-related income.
(2)Gains and losses included in other comprehensive income (“OCI”) on fixed maturities are included in other comprehensive income ("OCI").
(3) Change in unrealized gains (losses) arising during the period.
(3)Change in unrealized investment gain (loss) relating to assets held at the reporting date.

The transfers into and out of fair value hierarchy levels reflect the fair value of the securities at the endreporting date.









31



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

4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Transfers into Level 3 from Level 2


There were noThe transfers tointo Level 3 from Level 2 made during the three months ended September 30, 2017. The transfers to Level 3 from Level 2 made during theand nine months ended September 30, 20172020 and 2019 were primarily due to the lack of observable market inputs and multiple quotes from pricing vendors and broker-dealers for certain fixed maturities.



34


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

5.FAIR VALUE MEASUREMENTS (CONTINUED)


There were no transfers to Level 3 from Level 2 made during the three months ended September 30, 2016. The transfers into Level 3 made during the nine months ended September 30, 2016 were primarily due to the lack of observable market inputs and multiple quotes from pricing vendors and broker-dealers for certain fixed maturities and as a result of a change in the valuation methodology used to fair value the CLO-equity fund. An income approach valuation technique (discounted cash flow model) was used to estimate the fair value of the CLO-equity fund at September 30, 2016. As the NAV practical expedient was not used to determine the fair value of the CLO-equity fund, the fair value of the fund was categorized within the fair value hierarchy.


Transfers out of Level 3 into Level 2


TheThere were no transfers out of Level 3 into Level 2 from Level 3 made during the three and nine months ended September 30, 20172020. The transfers out of Level 3 into Level 2 during the three and nine months ended September 30, 2019 were primarily due to the availability of observable market inputs and multiple quotes from pricing vendors onfor certain fixed maturities.

There were no transfers to Level 2 from Level 3 made during the three months ended September 30, 2016. The transfers to Level 2 from Level 3 made during the nine months ended September 30, 2016 were primarily due to the availability of observable market inputs and quotes from pricing vendors on certain fixed maturities.


Measuring the Fair Value of Other Investments Using Net Asset Valuations


The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are estimated using NAVsnet asset valuations ("NAVs") as advised by external fund managers or third party administrators. For these funds, NAVs are based on the manager's or administrator's valuation of the underlying holdings in accordance with the fund's governing documents and in accordance with U.S. GAAP.


If there is a reporting lag between the current period end and reporting date of the latest available fund valuation for any hedge fund, we estimatethe Company estimates fair values by starting with the most recently availablerecent fund valuation and adjusting for return estimates as well as any subscriptions, redemptions and distributions that took place during the current period. Return estimates are obtained from the relevant fund managers. Accordingly, we domanagers therefore the Company does not typically have a reporting lag in fair value measurements of these funds. Historically, ourthe Company's valuation estimates incorporating these return estimates have not significantly diverged from the subsequently received NAVs.


For direct lending funds, private equity funds, real estate funds and two2 of ourthe Company's hedge funds, valuation statements are typically released on a three month reporting lag therefore we estimatethe Company estimates the fair value of these funds by starting with the prior quarter-endmost recent fund valuations and adjusting for capital calls, redemptions, drawdowns and distributions. Return estimates are not available from the relevant fund managers for these funds. Accordingly, wefunds therefore the Company typically havehas a reporting lag in ourits fair value measurements of these funds. In 2017,At September 30, 2020, funds reported on a lag represented 51% (2016: 35%74% (2019: 68%) of ourthe Company's total other investments balance.


WeThe Company often dodoes not have access to financial information relating to the underlying securities held within the funds, therefore management is unable to corroborate the fair values placed on the securities underlying the asset valuations provided by fund managers or fund administrators. In order to assess the reasonableness of the NAVs, we performthe Company performs a number of monitoring procedures on a quarterly basis, to assess the quality of the information provided by fund managers and fundsfund administrators. These procedures include, but are not limited to, regular review and discussion of each fund's performance with its manager, regular evaluation of fund performance against applicable benchmarks and the backtesting of ourthe Company's fair value estimates against subsequently received NAVs. Backtesting involves comparing ourthe Company's previously reported fair values for each fund against NAVs per audited financial statements (for year-end values) and final NAVs from fund managers and fund administrators (for interim values).


The fair values of hedge funds, direct lending funds, private equity funds and real estate funds are measured using the NAV practical expedient, therefore the fair values of these funds have not been categorized within the fair value hierarchy.






32
35



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

5.FAIR VALUE MEASUREMENTS (CONTINUED)


4.    FAIR VALUE MEASUREMENTS (CONTINUED)
Financial Instruments Disclosed, But Not Carried, at Fair Value


The fair value of financial instruments accounting guidance also applies to financial instruments disclosed, but not carried, at fair value, except for certain financial instruments, including insurance contracts.
TheAt September 30, 2020, the carrying values of cash and cash equivalents (includingincluding restricted amounts),amounts, accrued investment income, receivable for investments sold, certain other assets, payable for investments purchased and certain other liabilities approximated their fair values at September 30,2017, due to their respective short maturities. As these financial instruments are not actively traded, their fair values are classified as Level 2.


TheAt September 30, 2020, the carrying value of mortgage loans held-for-investment approximated their fair value at September 30,2017.value. The fair values of mortgage loans are primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk or are determined from pricing for similar loans. As mortgage loans are not actively traded their fair values are classified as Level 3.


At September 30,2017, senior notes are 2020, the Company's debt was recorded at amortized cost with a carrying value of $994$1,309 million (2016: $993(2019: $1,808 million) and a fair value of $1.1 billion (2016: $1.0 billion)$1,431 million (2019: $1,896 million). The fair valuesvalue of these notes arethe Company's debt is based on prices obtained from a third partythird-party pricing service and areis determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve and the spreads are observable market inputs, the fair valuesvalue of senior notes arethe Company's debt is classified as Level 2.


6.DERIVATIVE INSTRUMENTS

5.    DERIVATIVE INSTRUMENTS

The following table summarizesprovides the balance sheet classificationclassifications of derivatives recorded at fair value. value:
  September 30, 2020December 31, 2019
  
Derivative
notional
amount
Derivative
asset
fair
value(1)
Derivative
liability
fair
value(1)
Derivative
notional
amount
Derivative
asset
fair
value(1)
Derivative
liability
fair
value(1)
Relating to investment portfolio:
Foreign exchange forward contracts$256,338 $1,804 $201 $68,998 $$1,405 
Relating to underwriting portfolio:
Foreign exchange forward contracts1,009,860 5,463 1,377 1,038,630 3,174 2,560 
Other underwriting-related contracts75,000 0 9,448 85,000 9,672 
Total derivatives$7,267 $11,026 $3,174 $13,637 
(1)Asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

The notional amountamounts of derivative contracts representsrepresent the basis uponon which payamounts paid or receive amountsreceived are calculated and isare presented in the above table to quantify the volume of ourthe Company's derivative activities. Notional amounts are not reflective of credit risk.


None of ourthe Company's derivative instruments are designated as hedges under current accounting guidance.

   September 30, 2017 December 31, 2016 
   
Derivative
Notional
Amount
 
Derivative
Asset
Fair
Value(1)
 
Derivative
Liability
Fair
Value(1)
 
Derivative
Notional
Amount
 
Derivative
Asset
Fair
Value(1)
 
Derivative
Liability
Fair
Value(1)
 
              
 Relating to investment portfolio:            
 Foreign exchange forward contracts$147,015
 $
 $439
 $195,979
 $12,331
 $87
 
 Interest rate swaps180,000
 393
 
 
 
 
 
 Relating to underwriting portfolio:            
 Foreign exchange forward contracts479,818
 5,466
 1,434
 492,899
 2,034
 8,989
 
 Weather-related contracts
 
 
 67,957
 2,532
 6,500
 
 Commodity contracts
 
 
 
 
 
 
 Other underwriting-related contracts85,000
 
 11,844
 
 
 
 
 Total derivatives  $5,859
 $13,717
   $16,897
 $15,576
 
              
(1)Asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.






33
36



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

6.DERIVATIVE INSTRUMENTS (CONTINUED)


5.    DERIVATIVE INSTRUMENTS (CONTINUED)
Offsetting Assets and Liabilities


OurThe Company's derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements which establish terms that apply to all transactions. In the event of a bankruptcy or other stipulated event, master netting agreements provide that individual positions be replaced with a new amount, usually referred to as the termination amount, determined by taking into account market prices and converting into a single currency. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure.

The following table below presentsprovides a reconciliation of our gross derivative assets and liabilities to the net amounts presented in the Consolidated Balance Sheets,consolidated balance sheets, with the difference being attributable to the impact of master netting agreements.agreements:
September 30, 2020December 31, 2019
Gross amountsGross amounts offset
Net
amounts(1)
Gross amountsGross amounts offset
Net
amounts(1)
Derivative assets$14,376 $(7,109)$7,267 $7,673 $(4,499)$3,174 
Derivative liabilities$18,135 $(7,109)$11,026 $18,136 $(4,499)$13,637 
  September 30, 2017 December 31, 2016 
  Gross AmountsGross Amounts Offset
Net
Amounts(1)
 Gross AmountsGross Amounts Offset
Net
Amounts(1)
 
          
 Derivative assets$9,682
$(3,823)$5,859
 $22,270
$(5,373)$16,897
 
 Derivative liabilities$17,540
$(3,823)$13,717
 $20,949
$(5,373)$15,576
 
          
(1)Net asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.

(1)Net asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

Refer to Note 43 'Investments' for information on reverse repurchase agreements.


a) Relating to Investment Portfolio


Foreign Currency Risk


Within ourThe Company's investment portfolio we areis exposed to foreign currency risk. Accordingly,risk therefore the fair values of our investment portfolioits investments are partially influenced by the changechanges in foreign exchange rates. WeThe Company may enter into foreign currency exchange forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes.


Interest Rate Risk


OurThe Company's investment portfolio contains a large percentage of fixed maturities which exposes usit to significant interest rate risk. As part of our overall management of this risk, wethe Company may use interest rate swaps.


b) Relating to Underwriting Portfolio


Foreign Currency Risk


Our (re)The Company's insurance and reinsurance subsidiaries and branches operate in various foreign countries. Consequently, someSome of ourits business is written in currencies other than the U.S. dollar, and, therefore ourthe underwriting portfolio is exposed to significant foreign currency risk. We manageThe Company manages foreign currency risk by seeking to match ourits foreign-denominated net liabilities under (re)insurance and reinsurance contracts with cash and investments that are denominated in suchthe same currencies. We may also useThe Company uses derivative instruments, specifically, forward contracts and currency options, to economically hedge foreign currency exposures.




37


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

6.DERIVATIVE INSTRUMENTS (CONTINUED)

Weather Risk

We write derivative-based risk management products designed to address weather risks with the objective of generating profits on a portfolio basis. The majority of this business consists of receiving a payment at contract inception in exchange for bearing the risk of variations in a quantifiable weather-related phenomenon, such as temperature. Where a client wishes to minimize the upfront payment, these transactions may be structured as swaps or collars. In general, our portfolio of such derivative contracts is of short duration, with contracts being predominantly seasonal in nature. In order to economically hedge a portion of this portfolio, we may also purchase weather derivatives.

Commodity Risk

Within our (re)insurance portfolio we are exposed to commodity price risk. We may hedge a portion of this price risk by entering into commodity derivative contracts.


Other Underwriting-related Risks


We enterThe Company enters into insurance and reinsurance contracts that are required to be accounted for as derivatives. These insurance or reinsurance contract providescontracts provide indemnification to an insured or cedant as a result of a change in a variable as opposed to a change in an identifiable insuredinsurable event. We considerThe Company considers these contracts to be part of ourits underwriting operations.


The total unrealized and realized gains (losses) recognized in earnings for derivatives not designated as hedges were as follows:

   Location of Gain (Loss) Recognized in Income on DerivativeThree months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
           
          
 Relating to investment portfolio:         
 Foreign exchange forward contractsNet realized investment gains (losses)$(1,815) $155
 $(6,534) $39
 
 Interest rate swapsNet realized investment gains (losses)520
 
 (2,661) 
 
 Relating to underwriting portfolio:         
 Foreign exchange forward contractsForeign exchange losses (gains)(12,481) (182) (26,109) (2,958) 
 Weather-related contractsOther insurance related income (losses)
 833
 (9,629) 809
 
 Commodity contractsOther insurance related income (losses)
 1,799
 
 1,499
 
 Other underwriting-related contractsOther insurance related income (losses)514
 
 852
 
 
 Total $(13,262) $2,605
 $(44,081) $(611) 
           
34



38



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


7.5.    DERIVATIVE INSTRUMENTS (CONTINUED)
The total unrealized and realized gains (losses) recognized in net income for derivatives not designated as hedges are shown in the following table:
  Location of gain (loss) recognized in net incomeThree months ended September 30,Nine months ended September 30,
  2020201920202019
Relating to investment portfolio:
Foreign exchange forward contractsNet investment gains (losses)$(1,346)$2,592 $1,970 $3,964 
Interest rate swapsNet investment gains (losses)0 0 (3,677)
Relating to underwriting portfolio:
Foreign exchange forward contractsForeign exchange gains (losses)16,370 (6,883)14,811 (16,598)
Other underwriting-related contractsOther insurance related income (losses)370 417 (9,361)1,035 
Total$15,394 $(3,874)$7,420 $(15,276)


6.    RESERVE FOR LOSSES AND LOSS EXPENSES


Reserve Roll-Forward


The following table presents a reconciliation of ourthe Company's beginning and ending gross reserve for losses and loss expenses and net reservereserves for unpaid losses and loss expenses for the periods indicated:expenses:
Nine months ended September 30,
20202019
Gross reserve for losses and loss expenses, beginning of period$12,752,081 $12,280,769 
Less reinsurance recoverable on unpaid losses and loss expenses, beginning of period(3,877,756)(3,501,669)
Net reserve for unpaid losses and loss expenses, beginning of period8,874,325 8,779,100 
Net incurred losses and loss expenses related to:
Current year2,473,363 2,252,424 
Prior years(9,351)(65,021)
 2,464,012 2,187,403 
Net paid losses and loss expenses related to:
Current year(227,332)(329,519)
Prior years(1,831,192)(1,791,233)
 (2,058,524)(2,120,752)
Foreign exchange and other35,992 (53,037)
Net reserve for unpaid losses and loss expenses, end of period9,315,805 8,792,714 
Reinsurance recoverable on unpaid losses and loss expenses, end of period4,337,683 3,705,793 
Gross reserve for losses and loss expenses, end of period$13,653,488 $12,498,507 



35


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

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
      
 Nine months ended September 30,2017 2016 
      
 Gross reserve for losses and loss expenses, beginning of period$9,697,827
 $9,646,285
 
 Less reinsurance recoverable on unpaid losses, beginning of period(2,276,109) (2,031,309) 
 Net reserve for unpaid losses and loss expenses, beginning of period7,421,718
 7,614,976
 
      
 Net incurred losses and loss expenses related to:    
 Current year2,591,135
 1,887,715
 
 Prior years(143,495) (224,131) 
  2,447,640
 1,663,584
 
 Net paid losses and loss expenses related to:    
 Current year(328,751) (233,124) 
 Prior years(1,384,510) (1,334,772) 
  (1,713,261) (1,567,896) 
      
 Foreign exchange and other333,456
 (112,649) 
      
 Net reserve for unpaid losses and loss expenses, end of period8,489,553
 7,598,015
 
 Reinsurance recoverable on unpaid losses, end of period2,298,022
 2,276,792
 
 Gross reserve for losses and loss expenses, end of period$10,787,575
 $9,874,807
 
      

We writeThe Company writes business with loss experience generally characterized as low frequency and high severity in nature, which can result in volatility in ourits financial results. During the nine months ended September 30, 20172020, the Company recognized catastrophe and 2016, we recognized aggregate netweather-related losses, and loss expenses, net of reinstatement premiums of $702$576 million and $145 million, respectively, in relation to catastrophe and weather related events.(2019: $206 million).


The transfer of the insurance business of AXIS Specialty Australia to a reinsurer was approved by the Irish High Court on February 1, 2017 and the Federal Court of Australia on February 10, 2017. Consequently, the insurance policies, assets and liabilities of AXIS Specialty Australia were transferred to the reinsurer with effect from February 13, 2017. This resulted in the reduction ofEstimates for Significant Catastrophe Events

At September 30, 2020, net reserves for losses and loss expenses by $223 millionincluded estimated amounts for numerous catastrophe events. The magnitude and a reductioncomplexity of losses arising from certain of these events inherently increase the level of uncertainty, and therefore, increase the level of management judgment involved in reinsurance recoverables on unpaidarriving at estimated net reserves for losses and paidloss expenses. These events include the COVID-19 pandemic, Hurricanes Laura and Sally, and wildfires across the West Coast of the United States in 2020, Japanese Typhoons Hagibis, Faxai and Tapah, Hurricane Dorian, and the Australia Wildfires in 2019, Hurricanes Michael and Florence, California Wildfires, and Typhoon Jebi in 2018, and Hurricanes Harvey, Irma and Maria, and the California Wildfires in 2017. Actual losses by $223 million.for these events may ultimately differ materially from the Company's current estimates.


On April 1, 2017, the Company acquired a 100% ownership interest in Aviabel. Foreign exchange and other includesThe estimate of net reserves for losses and loss expenses of $79 million and reinsurance recoverables on unpaid and paid losses of $5 million related to this acquisition.the COVID-19 pandemic represented the Company's best estimate of losses and loss adjustment expenses that have been incurred at September 30, 2020. The determination of the Company's net reserves for losses and loss expenses for its insurance segment was based on its ground-up assessment of coverage from individual contracts and treaties, including a review of contracts with potential exposure to the COVID-19 pandemic. The determination of the Company's net reserves for losses and loss expenses for its reinsurance segment was largely based on a range of industry insured loss estimates and market share analyses, supplemented by a review of in-force treaties that may provide coverage and catastrophe modeling analyses, where appropriate. In addition, the Company considered preliminary information received from clients, brokers and loss adjusters.

The estimate of net reserves for losses and loss expenses related to the COVID-19 pandemic was subject to significant uncertainty. This uncertainty was driven by the inherent difficulty in making assumptions around the impact of the COVID-19 pandemic due to the lack of comparable events, the ongoing nature of the event, and its far-reaching impacts on world-wide economies and the health of the population. These assumptions include:



the nature and the duration of the pandemic;

the effects on human health, the economy and the Company's customers;

the response of government bodies including legislative, regulatory or judicial actions and social influences that could alter the interpretation of the Company's contracts;
the coverage provided under the Company's contracts;
the coverage provided by its ceded reinsurance; and
the evaluation of the loss and impact of loss mitigation actions.

While the Company believes its estimate of net reserves for losses and loss expenses is adequate for losses and loss adjustment expenses that have been incurred at September 30, 2020 based on current facts and circumstances, the Company will continue to monitor the appropriateness of its assumptions as new information comes to light and will adjust its estimate of net reserves for losses and loss adjustment expenses, as appropriate. Actual losses for these events may ultimately differ materially from the Company's current estimates.

The estimate of net reserves for losses and loss expenses related to catastrophe events other than COVID-19 were derived from ground-up assessments of in-force contracts and treaties providing coverage in the affected regions. These assessments took into account the latest information available from clients, brokers and loss adjusters. In addition, the Company considered industry insured loss estimates, market share analyses and catastrophe modeling analyses, where appropriate. Estimates are subject to change as additional loss data becomes available. Actual losses for these events may ultimately differ materially from the Company's current estimates.

The Company continues to monitor paid and incurred loss development for catastrophe events and updates estimates of ultimate losses accordingly.



36
39



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

7.RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)


6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
Prior Year Reserve Development


PriorThe Company's net favorable prior year reserve development arises from changes to lossestimates of losses and loss expense estimatesexpenses related to losses incurredloss events that occurred in previous calendar years. Such development is summarized by segment in theThe following table:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Insurance$2,603
 $20,688
 $30,740
 $43,181
 
 Reinsurance45,165
 55,331
 112,755
 180,950
 
 Total$47,768
 $76,019
 $143,495
 $224,131
 
          

Net favorabletable presents net prior year reserve development forby segment:

  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Insurance$270 $14,609 $4,521 $42,849 
Reinsurance314 12,118 4,830 22,172 
Total$584 $26,727 $9,351 $65,021 

The following tables map the three months ended September 30, 2017 included significant contributions from our mediumCompany's lines of business to reserve classes and long tail reserve classes. Net favorable prior year reserve development for the nine months ended September 30, 2017 included significant contributions from short, medium, and long tail reserve classes. Net favorable prior year reserve development for the three and nine months ended September 30, 2016 included significant contributions from our short and long tail reserve classes.expected claim tails:

Insurance segment
Reserve class and tail
Property and otherMarineAviationCredit and political riskProfessional linesLiability
ShortShortShort/MediumMediumMediumLong
Reported lines of business
PropertyX
MarineX
TerrorismX
AviationX
Credit and political riskX
Professional linesX
LiabilityX
Accident and healthX
Discontinued lines - NovaeXXX
Our short
Reinsurance segment
Reserve class and tail
Property and otherCredit and suretyProfessional linesMotorLiability
ShortMediumMediumLongLong
Reported lines of business
CatastropheX
PropertyX
Credit and suretyX
Professional linesX
MotorX
LiabilityX
EngineeringX
AgricultureX
Marine and otherX
Accident and healthX
Discontinued lines - NovaeXXX


37


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

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
Short-tail business

Short-tail business includes the underlying exposures in our property and other, marine and aviation reserve classes within ourin the insurance segment, and the property and other reserve class within ourin the reinsurance segment. Development from

For the three months ended September 30, 2020, these reserve classes contributed $5 million and $41 million of net favorable prior year reserve development forof $14 million, including net favorable prior year reserve development of $7 million contributed by the insurance property and other reserve class, net favorable prior year development of $4 million contributed by the insurance marine reserve class and net favorable prior year reserve development of $3 million contributed by the reinsurance property and other reserve class.

For the nine months ended September 30, 2020, these reserve classes contributed net favorable prior year reserve development of $44 million, including net favorable prior year reserve development of $43 million contributed by the insurance property and other reserve class and net favorable prior year development of $6 million contributed by the insurance aviation reserve class, partially offset by net adverse prior year reserve development of $5 million recognized by the reinsurance property and other reserve class.

For the three months ended September 30, 2019, these reserve classes contributed net favorable prior year reserve development of $2 million, including net favorable prior year reserve development of $11 million contributed by the insurance property and other reserve class and net favorable prior year reserve development of $3 million contributed by the insurance marine and aviation reserve classes, partially offset by net adverse prior year development of $12 million recognized by the reinsurance property and other reserve class.

For the nine months ended September 30, 2019, these reserve classes recognized net adverse prior year reserve development of $50 million, including net adverse prior year reserve development of $71 million recognized by the reinsurance property and other reserve class and net adverse prior year reserve development of $4 million recognized by the insurance property and other reserve class, partially offset by net favorable prior year reserve development of $24 million contributed by the insurance marine reserve class. The net adverse prior year reserve development of $71 million recognized by the reinsurance property and other reserve class was due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2018 accident year.

Medium-tail business

Medium-tail business consists primarily of insurance and reinsurance professional lines reserve classes, insurance credit and political risk reserve class and reinsurance credit and surety reserve class.

For the three and nine months ended September 30, 2017, respectively. These short-tail2020, the insurance professional lines contributed $41 million and $116 million ofreserve class recorded net favorableadverse prior year reserve development forof $7 million and $19 million, respectively, reflecting reserve strengthening mainly related to the 2018 and 2019 accident years and an increase in case reserves attributable to a specific large claim related to the 2009 accident year. For the three and nine months ended September 30, 2016, respectively. The2019, the insurance professional lines reserve class recorded net favorable prior year reserve development for these classes primarily reflectedof $4 million and $14 million, respectively, reflecting generally favorable experience mainly related to the recognition of better than expected loss emergence.2013 to 2015 accident years as the Company continued to transition to more experience based actuarial methods.


Our medium-tail business consists primarily ofFor the three and nine months ended September 30, 2020, the reinsurance professional insurance and reinsurance reserve classes, credit and political risk insurancelines reserve class recorded net adverse prior year reserve development of $14 million and credit$13 million respectively, reflecting an increase in case reserves attributable to a specific large claim related to the 2016 accident year and surety reinsurance reserve class.strengthening mainly related to the 2016 to 2018 accident years. For the three months ended September 30, 2019, the reinsurance professional lines reserve class recorded net adverse prior year reserve development of $7 million reflecting reserve strengthening within the Company's European book of business.

For the nine months ended September 30, 2019, the insurance credit and political risk reserve class recorded net favorable prior year reserve development of $10 million reflecting better than expected loss emergence.

For the three and nine months ended September 30, 2020, the reinsurance credit and surety reserve class recorded net favorable prior year reserve development of $11 million (2019: $6 million) and $28 million (2019: $33 million), respectively, reflecting better than expected loss emergence.

38


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

6.    RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)
Long-tail business

Long-tail business consists primarily of insurance and reinsurance liability reserve classes and reinsurance motor reserve class.

For the three and nine months ended September 30, 2020, the insurance liability reserve class recognized net adverse prior year reserve development of $4 million (2019: $4 million) and $25 million, respectively, primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.

For the professionalnine months ended September 30, 2020, the reinsurance liability reserve class recognized net adverse prior year reserve development of $23 million due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 through 2019 accident years. For the nine months ended September 30, 2019, the reinsurance liability reserve class contributed net favorable prior year reserve development of $9 million. For the nine months ended September 30, 2017, the professional insurance and reinsurance reserve class contributed net favorable prior year reserve development of $54 million. For the three and nine months ended September 30, 2017, the credit and surety reinsurance reserve class recorded net favorable prior year development of $17$26 million and $18 million, respectively. This net favorable prior year reserve development reflected the recognition of generally better than expected loss emergence. For the three and nine months ended September 30, 2016, the professional reserve classes contributed net favorable prior year reserve development of $12 million and $28 million, respectively. The net favorable prior year reserve development on these reserve classes reflected generally favorable experience as we continueddue to transition to more experience based methods.

Our long-tail business consists primarily of liability and motor reserve classes. For the nine months ended September 30, 2017, the liability reinsurance reserve class contributed net favorable prior year reserve development of $40 million. For the three and nine months ended and September 30, 2016, the liability reinsurance reserve class contributed net favorable prior year development of $10 million and $32 million, respectively. The net favorable prior year reserve development for our liability reinsurance reserve class in both years primarily reflected the progressively increased weight given by management to experience based indications on older accident years, which has generally been favorable. years.

For the nine months ended September 30, 2017,2020, the liability insurancereinsurance motor reserve class recordedrecognized net adversefavorable prior year reserve development of $6$19 million (2019: $34 million) primarily attributable to reserve strengthening within our run-off Bermuda excess casualty book ofnon-proportional treaty business.

For the three and nine months ended September 30, 2017, the motor reinsurance reserve class recorded net favorable prior year development of $16 million and net adverse prior year reserve development of $4 million, respectively. For the three months ended September 30, 2017,2019, the reinsurance motor reserve class recognized net favorable prior year reserve development relatedof $23 million primarily attributable to favorable loss emergence trends on several classes of business spanning multiple accident years. For the nine months ended, the net adverse prior year development was driven by the U.K. Ministry of Justice’s recent announcement of a decrease in the discount rate used to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden rate. Effective March 20, 2017, the Ogden rate changed from plus 2.5% to minus 0.75%. For the three and nine months ended September 30, 2016, the motor reinsurance reserve class contributed $7 million and $40 million, respectively, of net favorable prior year reserve development related to favorable loss emergence trends on several classes of business spanning multiple accident years.non-proportional treaty business.





39
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7.RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)


7.    EARNINGS PER COMMON SHARE

Our September 30, 2017 net reserves for losses and loss expenses includes estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Hurricanes Harvey, Irma and Maria and the two earthquakes in Mexico, as well as Hurricane Matthew, the Fort McMurray wildfires, Storm Sandy, the 2011 Japanese earthquake and tsunami, the 2010-11 New Zealand earthquakes and the Tianjin port explosion, inherently increases the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.

8.EARNINGS PER COMMON SHARE

The following table presents a comparison of basic and diluted earnings (loss) per common share and earnings (loss) per diluted common share:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Earnings (loss) per common share
Net income (loss)$(65,382)$38,401 $(123,167)$324,227 
Less: Preferred share dividends7,563 10,656 22,688 31,969 
Net income (loss) available (attributable) to common shareholders(72,945)27,745 (145,855)292,258 
Weighted average common shares outstanding84,308 83,947 84,235 83,872 
Earnings (loss) per common share$(0.87)$0.33 $(1.73)$3.48 
Earnings (loss) per diluted common share
Net income (loss) available (attributable) to common shareholders$(72,945)$27,745 $(145,855)$292,258 
Weighted average common shares outstanding84,308 83,947 84,235 83,872 
    Share-based compensation plans(1)
0 635 0 548 
Weighted average diluted common shares outstanding84,308 84,582 84,235 84,420 
Earnings (loss) per diluted common share$(0.87)$0.33 $(1.73)$3.46 
Weighted average anti-dilutive shares excluded from the dilutive computation859 1,019 204 
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Basic earnings (loss) per common share        
 Net income (loss)$(457,084) $186,613
 $(341,541) $364,460
 
 Less: preferred share dividends10,656
 9,969
 36,154
 29,906
 
 Net income (loss) available to common shareholders(467,740) 176,644
 (377,695) 334,554
 
 
Weighted average common shares outstanding - basic (1)
83,305
 89,621
 84,479
 91,852
 
 Basic earnings (loss) per common share$(5.61) $1.97
 $(4.47) $3.64
 
          
 Diluted earnings (loss) per common share        
 Net income (loss) available to common shareholders$(467,740) $176,644
 $(377,695) $334,554
 
          
 
Weighted average common shares outstanding - basic (1)
83,305
 89,621
 84,479
 91,852
 
 
Share-based compensation plans (2)

 730
 
 727
 
 
Weighted average common shares outstanding - diluted (1)
83,305
 90,351
 84,479
 92,579
 
          
 Diluted earnings (loss) per common share$(5.61) $1.96
 $(4.47) $3.61
 
          
 Anti-dilutive shares excluded from the dilutive computation425
 
 712
 226
 
          
(1)
On August 17, 2015, the Company entered into an Accelerated Share Repurchase (“ASR”) agreement (see 'Note 10 - Shareholders' Equity' for additional detail). The weighted-average number of shares outstanding used in the computation of basic and diluted earnings per share reflects the Company’s receipt of 4,149,378 common shares delivered to the Company on August 20, 2015, and 1,358,380 common shares delivered to the company on January 15, 2016 under the Company's ASR agreement.
(2) Due to the net loss incurred inrecognized for the three and nine months ended September 30, 2017, all2020, the share equivalents were anti-dilutive.







40
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9.SHARE-BASED COMPENSATION


8.    SHARE-BASED COMPENSATION
ForShare-Settled Awards

The following table provides an activity summary of the three months ended September 30, 2017, the Company incurred share-based compensation costs of $13 million (2016: $14 million) related to restricted stock awards,Company's share-settled restricted stock units and cash-settled restricted stock units and recorded associated tax benefits of $3 million (2016: $3 million).

Forfor the nine months ended September 30, 2017, the Company incurred share-based compensation costs of $57 million (2016: $50 million). In addition, the Company recorded associated tax benefits of $20 million (2016: $11 million), including $7 million related to excess tax benefits associated with the vesting of restricted stock units.2020:

The fair value of share-settled restricted stock units and cash-settled restricted stock units that vested during the nine months ended September 30, 2017 was $125 million (2016: $66 million), including $44 million attributable to a grant of 3 year cliff vesting service-based awards made in 2014. At September 30, 2017 there were $99 million of unrecognized compensation costs (2016 $104 million), which are expected to be recognized over the weighted average period of 2.5 years.

Share-settled Awards

The following table provides a reconciliation of the beginning and ending balance of nonvested share-settled restricted stock units for the nine months endedSeptember 30,2017:
  Performance-based Stock Awards Service-based Stock Awards 
  
Number of
Restricted
Stock Units
 
Weighted 
Average
Grant Date
Fair Value(1)
 
Number of
Restricted
Stock Units
 
Weighted  Average
Grant Date
Fair Value(1)
 
          
 Nonvested restricted stock - beginning of period283
 $51.27
 1,593
 $48.88
 
      Granted87
 64.58
 525
 64.22
 
 
     Vested(2)
(119) 49.14
 (881) 47.37
 
      Forfeited
 
 (69) 54.66
 
 Nonvested restricted stock - end of period251
 $56.88
 1,168
 $57.08
 
          
Share-Settled Performance
Restricted Stock Units
Share-Settled Service
Restricted Stock Units
Number of
restricted
stock units
Weighted 
average
grant date
fair value(1)
Number of
restricted
stock units
Weighted  average
grant date
fair value(1)
Non-vested restricted stock units - beginning of period258 $53.31 1,273 $54.32 
     Granted97 62.26 802 60.60 
     Vested(27)64.01 (479)55.32 
     Forfeited(39)48.89 (63)58.00 
Non-vested restricted stock units - end of period289 $55.92 1,533 $57.14 
(1) Fair value is based on the closing price of ourthe Company's common shares on the grant approval date.
(2) Share-settled
Cash-Settled awards

The following table provides an activity summary of the Company's cash-settled restricted stock units vested duringfor the nine months ended September 30, 2017 included 313,3912020:
Cash-Settled Performance
Restricted Stock Units
Cash-Settled Service
Restricted Stock Units
Number of
restricted stock units
Number of
restricted stock units
Non-vested restricted stock units - beginning of period853 
     Granted
     Vested(6)(327)
     Forfeited(34)
Non-vested restricted stock units - end of period0 493 

The following table provides additional information related to share-based compensation:
Nine months ended September 30,20202019
Share-based compensation expense(1)
$36,178 $40,635 
Tax benefits associated with share-based compensation expense$6,036 $6,848 
Liability for cash-settled restricted stock units(2)
$10,160 $19,060 
Fair value of restricted stock units vested(3)
$46,939 $49,492 
Unrecognized share-based compensation expense$83,978 $89,872 
Expected weighted average period associated with the recognition of unrecognized share-based compensation expense2.5 years2.5 years
(1) Related to share-settled restricted stock units attributable to a grantand cash-settled restricted stock units.
(2) Included in other liabilities in the consolidated balance sheets.
(3) Fair value is based on the closing price of 3 year cliff vesting service-based awards made in 2014.


the Company's common shares on the vest date.



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


9.    SHARE-BASED COMPENSATION (CONTINUED)SHAREHOLDERS' EQUITY

Cash-settled awards

The following table provides a reconciliationpresents changes in common shares issued and outstanding:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Shares issued, balance at beginning of period176,580 176,580 176,580 176,580 
Shares issued0 0 
Total shares issued at end of period176,580 176,580 176,580 176,580 
Treasury shares, balance at beginning of period(92,274)(92,633)(92,621)(92,994)
Shares repurchased(2)(1)(155)(165)
Shares reissued5 505 526 
Total treasury shares at end of period(92,271)(92,633)(92,271)(92,633)
Total shares outstanding84,309 83,947 84,309 83,947 

Treasury Shares

The following table presents common shares repurchased from shares held in Treasury:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
In the open market:
Total shares0 0 
Total cost$0 $$0 $
Average price per share(1)
$0 $$0 $
From employees:(2)
Total shares2 155 165 
Total cost$84 $31 $8,685 $9,445 
Average price per share(1)
$46.85 $61.23 $55.94 $57.23 
Total shares repurchased:
Total shares2 155 165 
Total cost$84 $31 $8,685 $9,445 
Average price per share(1)
$46.85 $61.23 $55.94 $57.23 
(1) Calculated using whole numbers.
(2)  Shares are repurchased from employees to satisfy withholding tax liabilities related to the vesting of the beginning and ending balance of nonvested cash-settledshare-settled restricted stock units for the nine months endedSeptember 30,2017:units.













  Performance-based Cash Settled Awards Service-based Cash Settled Awards 
  
Number of
Restricted
Stock Units
 
Number of
Restricted
Stock Units
 
      
 Nonvested restricted stock units - beginning of period68
 1,392
 
      Granted15
 427
 
 
     Vested(1)
(38) (755) 
      Forfeited
 (60) 
 Nonvested restricted stock units - end of period45
 1,004
 
      
42
(1) Cash settled restricted stock units vested during the nine months ended September 30, 2017 included 307,556 restricted stock units attributable to a grant of 3 year cliff vesting service-based awards made in 2014.

At September 30, 2017, the liability for cash-settled restricted stock units, included in other liabilities in the Consolidated Balance Sheets, was $18 million (2016: $34 million).




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


10.9.    SHAREHOLDERS' EQUITY (CONTINUED)

Dividends

The following table presents dividends declared and paid related to the Company's common shares issued and outstanding:preferred shares:
Per share data
Dividends declaredDividends paid in period of declarationDividends paid in period following declaration
Three months ended September 30, 2019
   Common shares$0.40 $$0.40 
   Series D preferred shares$0.34 $$0.34 
   Series E preferred shares$34.38 $$34.38 
Three months ended September 30, 2020
   Common shares$0.41 $0 $0.41 
   Series E preferred shares$34.38 $0 $34.38 
Nine months ended September 30, 2019
   Common shares$1.20 $0.80 $0.40 
   Series D preferred shares$1.03 $0.69 $0.34 
   Series E preferred shares$103.13 $68.75 $34.38 
Nine months ended September 30, 2020
   Common shares$1.23 $0.82 $0.41 
   Series E preferred shares$103.13 $68.75 $34.38 



43
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Shares issued, balance at beginning of period176,580
 176,575
 176,580
 176,240
 
 Shares issued
 
 
 335
 
 Total shares issued at end of period176,580
 176,575
 176,580
 176,575
 
          
 Treasury shares, balance at beginning of period(93,377) (85,921) (90,139) (80,174) 
 Shares repurchased(51) (2,252) (4,284) (8,499) 
 Shares reissued from treasury5
 37
 1,000
 537
 
 Total treasury shares at end of period(93,423) (88,136) (93,423) (88,136) 
          
 Total shares outstanding83,157
 88,439
 83,157
 88,439
 
          

Treasury Shares

The following table presents share repurchases:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 In the open market:        
 
Total shares(1)
49
 2,232
 3,932
 8,236
 
 Total cost$3,237
 $124,948
 $261,180
 $434,948
 
 
Average price per share(2)
$65.80
 $56.00
 $66.43
 $52.81
 
          
 
From employees:(3)
        
 Total shares2
 20
 352
 263
 
 Total cost$110
 $1,088
 $24,479
 $14,137
 
 
Average price per share(2)
$64.04
 $54.13
 $69.53
 $53.68
 
          
 Total shares repurchased:        
 Total shares51
 2,252
 4,284
 8,499
 
 Total cost$3,347
 $126,036
 $285,659
 $449,085
 
 
Average price per share(2)
$65.74
 $55.98
 $66.68
 $52.84
 
          
(1)Total shares repurchased in the open market for the nine months ended September 30, 2016 includes 1,358,380 common shares acquired under the accelerated share repurchase program (see below for more detail).
(2)Calculated using whole numbers.
(3)To satisfy withholding tax liabilities upon the vesting of restricted stock and restricted stock units.











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

10.SHAREHOLDERS' EQUITY (CONTINUED)


Accelerated Share Repurchase Program

On August 17, 2015, the Company entered into an Accelerated Share Repurchase agreement with Goldman, Sachs & Co. (“Goldman Sachs”) to repurchase an aggregate of $300 million of the Company’s ordinary shares under an accelerated share repurchase program.

During August, 2015, under the terms of this agreement, the Company paid $300 million to Goldman Sachs and initially repurchased 4,149,378 ordinary shares. The initial shares acquired represented 80% of the $300 million total paid to Goldman Sachs and were calculated using the Company’s stock price at activation of the program. The ASR program is accounted for as an equity transaction. Accordingly, at December 31, 2015, $240 million of common shares repurchased were included as treasury shares in the Consolidated Balance Sheet with the remaining $60 million included as a reduction to additional paid-in capital.

On January 15, 2016, Goldman Sachs early terminated the ASR agreement and delivered 1,358,380 additional common shares to the Company, resulting in the reduction from additional paid-in capital of $60 million being reclassified to treasury shares. In total, the Company repurchased 5,507,758 common shares under the ASR agreement at an average price of $54.47.

Preferred Shares

On April 17, 2017, the Company redeemed the remaining 14,042,955 of its 6.875% Series C preferred shares, for an aggregate liquidation preference of $351 million.


11.10.    DEBT AND FINANCING ARRANGEMENTS

a)Debt

On June 1, 2020, AXIS Specialty Finance LLC, a 100% owned finance subsidiary, repaid $500 million aggregate principal amount of 5.875% Senior Notes at their stated maturity.

b)Letters of Credit

On March 27, 2017, the $250 million credit facility entered into by AXIS Capital and certain of its subsidiaries and a syndication of lenders expired.

On March 27, 2017,28, 2020, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") amended their existing $250 million secured letter of credit facility with Citibank Europe plc (the "$250 million Facility") to extend the expiration date to March 31, 2021.

The terms and conditions of the $500 million secured letter of credit facility (the “LOC Facility”"$500 million Facility") with Citibank Europe plc (“Citibank”) to include an additionalremain unchanged.
$250 million of secured letter
Letters of credit capacity (the “$250 Million Facility”) pursuant to a Committed Facility Letter and an amendment to the Master Reimbursement Agreement (the “LOC Facility Documents”). Under the terms ofissued under the $250 Millionmillion Facility letters of credit to a maximum aggregate amount of $250and the $500 million Facility are available for issuance on behalf of the Participating Subsidiaries. These letters of credit will principally be used to support the reinsurance obligations of the Participating Subsidiaries. The $250 Million Facility isParticipating Subsidiaries are subject to certain covenants, including the requirement to maintain sufficient collateral as defined in the LOC Facility Documents, to cover all of the obligations outstanding under the LOC Facility.

facilities. Such obligations include contingent reimbursement obligations for outstanding letters of credit and fees payable to Citibank.Citibank Europe plc. In the event of default, Citibank Europe plc may exercise certain remedies, including the exercise of control over pledged collateral and the termination of the availability of the LOC Facilityfacility to any or all of the Participating Subsidiaries.

11.    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under such proceedings are included in the reserve for losses and loss expenses in the consolidated balance sheets.

The $250Company is not party to any material legal proceedings arising outside the ordinary course of business.

Investments

Refer to Note 3 - 'Investments' for information on the Company's unfunded investment commitments related to the Company's other investment portfolio.

12.    REORGANIZATION EXPENSES

For the three and nine months ended months ended September 30, 2020, reorganization expenses were $1 million Facility expires March 31, 2018. The terms(2019: $11 million) and conditions$1 million (2019: $29 million), respectively, related to the Company's transformation program which was launched in 2017. This program encompasses the integration of Novae which commenced in the fourth quarter of 2017, the realignment of the $500 million Facility remain unchanged. 


Company's accident and health business, together with other initiatives designed to increase efficiency and enhance profitability while delivering a customer-centric operating model.



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

13.    OTHER COMPREHENSIVE INCOME (LOSS)


12.COMMITMENTS AND CONTINGENCIES

Reinsurance Agreements

We purchase reinsurance and retrocessional protection for our insurance and reinsurance lines of business. The minimum reinsurance premiums are contractually due in advance on a quarterly basis. At September 30,2017, we have unrecorded outstanding reinsurance purchase commitments of $97 million, of which $15 million is due in 2017 andfollowing table presents the remaining $82 million is due in 2018 and later years. Actual payments under the reinsurance contracts will depend on the underlying subject premium and may exceed the minimum premium.

Investments

Refer to Note 4 - 'Investments' for information on commitments related to our other investments.

13.OTHER COMPREHENSIVE INCOME

The tax effects allocated to each component of other comprehensive income were as follows:
(loss):
  2017 2016 
  Before Tax Amount Tax (Expense) Benefit Net of Tax Amount Before Tax Amount Tax (Expense) Benefit Net of Tax Amount 
              
 Three months ended September 30,            
 Available for sale investments:            
 Unrealized investment gains arising during the period$64,431
 $(1,926) $62,505
 $40,125
 $(3,789) $36,336
 
 Adjustment for reclassification of net realized investment gains and OTTI losses recognized in net income(15,925) 2,639
 (13,286) (5,050) 2,408
 (2,642) 
 Unrealized investment gains arising during the period, net of reclassification adjustment48,506
 713
 49,219
 35,075
 (1,381) 33,694
 
 Non-credit portion of OTTI losses
 
 
 
 
 
 
 Foreign currency translation adjustment8,088
 
 8,088
 1,722
 
 1,722
 
 Total other comprehensive income, net of tax$56,594
 $713
 $57,307
 $36,797
 $(1,381) $35,416
 
              
 Nine months ended September 30,            
 Available for sale investments:            
 Unrealized investment gains arising during the period$215,360
 $(8,899) $206,461
 $263,235
 $(24,579) $238,656
 
 Adjustment for reclassification of net realized investment losses and OTTI losses recognized in net income8,269
 1,900
 10,169
 40,338
 2,282
 42,620
 
 Unrealized investment gains arising during the period, net of reclassification adjustment223,629
 (6,999) 216,630
 303,573
 (22,297) 281,276
 
 Non-credit portion of OTTI losses
 
 
 
 
 
 
 Foreign currency translation adjustment46,824
 
 46,824
 5,694
 
 5,694
 
 Total other comprehensive income, net of tax$270,453
 $(6,999) $263,454
 $309,267
 $(22,297) $286,970
 
              
20202019
Before tax amountIncome tax (expense) benefitNet of tax amountBefore tax amountIncome tax (expense) benefitNet of Tax Amount
Three months ended September 30,
Available for sale investments:
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has not been recognized$105,932 $(10,820)$95,112 $45,939 $(6,370)$39,569 
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has been recognized218 2 220 
Adjustment for reclassification of net realized (gains) losses, impairment losses and OTTI losses recognized in net income (loss)(33,100)3,970 (29,130)(16,446)1,638 (14,808)
Unrealized gains (losses) arising during the period, net of reclassification adjustment73,050 (6,848)66,202 29,493 (4,732)24,761 
Foreign currency translation adjustment2,310 0 2,310 (4,610)(4,610)
Total other comprehensive income, net of tax$75,360 $(6,848)$68,512 $24,883 $(4,732)$20,151 
Nine months ended September 30,
Available for sale investments:
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has not been recognized$243,522 $(33,139)$210,383 $399,652 $(38,432)$361,220 
Unrealized gains (losses) arising during the period for which an allowance for expected credit losses has been recognized(110)(2)(112)
Adjustment for reclassification of net realized (gains) losses, impairment losses and OTTI losses recognized in net income (loss)(38,584)8,295 (30,289)(10,713)2,290 (8,423)
Unrealized gains (losses) arising during the period, net of reclassification adjustment204,828 (24,846)179,982 388,939 (36,142)352,797 
Foreign currency translation adjustment(1,581)0 (1,581)609 609 
Total other comprehensive income, net of tax$203,247 $(24,846)$178,401 $389,548 $(36,142)$353,406 




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TableThe following table presents details of Contents

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

13.OTHER COMPREHENSIVE INCOME (CONTINUED)

Reclassifications out of AOCI into net income (loss) available to common shareholders were as follows:
   
Amount Reclassified from AOCI(1)
 
 Details About AOCI ComponentsConsolidated Statement of Operations Line Item That Includes ReclassificationThree months ended September 30, Nine months ended September 30, 
 2017 2016 2017 2016 
           
 Unrealized investment gains (losses) on available for sale investments         
  Other realized investment gains(losses)$21,337
 $9,297
 $5,224
 $(19,992) 
  OTTI losses(5,412) (4,247) (13,493) (20,346) 
  Total before tax15,925
 5,050
 (8,269) (40,338) 
  Income tax expense(2,639) (2,408) (1,900) (2,282) 
  Net of tax$13,286
 $2,642
 $(10,169) $(42,620) 
           
 Foreign currency translation adjustment         
  Foreign exchange loss$
 $
 $(24,149) $
 
  Income tax expense
 
 
 
 
  Net of tax$
 $
 $(24,149) $
 
           
(1)Amounts in parentheses are debits to net income (loss) available to common shareholders.

On March 27, 2017, as part of the wind down of our Australia operation, the Australia Prudential Regulation Authority revoked the authorization of AXIS Specialty Australia to carry on insurance business in Australia. As this resulted in the substantial liquidation of AXIS Specialty Australia, we have released the cumulative translation adjustment related to AXIS Specialty Australia of $24 millionamounts reclassified from accumulated other comprehensive income in the Consolidated Balance Sheet to foreign exchange losses in the Consolidated Statement of Operations.

14. SUBSEQUENT EVENTS

Acquisition of Novae Group plc

On July 5, 2017, the Company and the board of directors of Novae Group plc (“Novae”), a public limited company incorporated in England and Wales, announced that it had agreed on the terms of a recommended cash offer of 700 pence per share to be made by AXIS Capital to acquire the entire issued and to be issued share capital of Novae.

On August 24, 2017, the Company and the board of directors of Novae announced that it had agreed on the terms of an increased recommended cash offer of 715 pence per share (the "Offer"("AOCI") to be made by AXIS Capital for the acquisition of the entire issued andnet income (loss):
Amount reclassified from AOCI(1)
AOCI ComponentsConsolidated statement of operations line item that includes reclassification adjustmentThree months ended September 30,Nine months ended September 30,
2020201920202019
Unrealized gains on available for sale investments
Other realized gains (losses)$33,284 $17,904 $40,070 $17,041 
Impairment losses(184)(1,486)
OTTI losses0 (1,458)0 (6,328)
Total before tax33,100 16,446 38,584 10,713 
Income tax (expense) benefit(3,970)(1,638)(8,295)(2,290)
Net of tax$29,130 $14,808 $30,289 $8,423 
(1)     Amounts in parentheses are charges to be issued share capital of Novae.

The acquisition was effected by way of a Scheme of Arrangement (the “Scheme”) under the laws of the United Kingdom (“U.K.”) which requires the approval of a U.K. court and approval of a majority of Novae’s shareholders, representing at least 75% of the votes cast. The Scheme is also subject to receipt of certain regulatory approvals and other customary conditions. On August 29, 2017, Novae shareholders approved the Scheme.

On October 2, 2017, AXIS Capital acquired the shares of Novae for £462.9 million (approximately $615.6 million). The results of Novae will be included in the results of the Company's insurance and reinsurance segments from this date (the "Closing date")net income (loss).


On October 6, 2017, AXIS Capital received clearance from all applicable regulators, including the European Commission, and commenced management control and integration of the combined businesses from this date.45




47






14.    SUBSEQUENT EVENTS (CONTINUED)

Novae is a diversified property and casualty (re)insurance business operating through Syndicate 2007 at Lloyd’s of London. The acquisition of Novae is expected to accelerate the growth strategy of the Company's international insurance business, and significantly scale up its capabilities to enable the Company to even better serve its clients and brokers.

The Company incurred transaction related expenses including due diligence, legal, accounting, and investment banking fees and expenses, as well as integration expenses of $6 million in the three months ended September 30, 2017 related to the acquisition of Novae. In addition, the Company was contractually obligated to pay investment banking fees on the Closing date of the transaction. The Company expects substantially all of the integration costs related to the acquisition to be incurred in 2018. In addition, the Company expects to begin realizing cost savings in 2018.

The Company is currently in the process of determining the fair values of the underlying assets and liabilities at the acquisition date. Given the timing of the acquisition, a preliminary allocation of purchase price is not yet complete. The Company will include amounts recognized for net assets and liabilities acquired, together with goodwill, as of the acquisition date in the Company's Annual Report on Form 10-K.

California Wildfires

In October 2017, Northern California was impacted by a series of devastating wildfires ("California Wildfires") which caused widespread residential and commercial property damage. Current estimated industry insured losses for this event range between $4 billion and $8 billion.

Our preliminary pre-tax net loss estimate for this event is in the range of $35 million to $45 million. The Company's loss estimate is primarily based on a ground-up assessment of losses from individual contracts and treaties exposed to the affected regions, including preliminary information from clients, brokers and loss adjusters. Industry insured loss estimates, market share analyses and catastrophe modeling analyses were also taken into account where appropriate.
Due to the preliminary nature of the information available to prepare these estimates, the actual net ultimate amount of losses for this event may be materially different from the current estimate.




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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following is a discussion and analysis of our results of operations for the three and nine months ended September 30, 2020 and 2019 and our financial condition at September 30, 2020 and results of operations.December 31, 2019. This should be read in conjunction with the consolidated financial statements and related notes included in Item 1 'Consolidated Financial Statements' of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations containedincluded in our Annual Report on Form 10-K for the year ended December 31,2016. 2019. Tabular dollars are in thousands, except per share amounts. Amounts in tables may not reconcile due to rounding differences.
 
Page  
Page  
Third Quarter 20172020 Financial Highlights
Executive SummaryOverview
UnderwritingConsolidated Results – Groupof Operations
Results by Segment: For the three and nine months ended September 30, 2017 and 2016
i) Insurance Segment
i) Insuranceii) Reinsurance Segment
ii) Reinsurance Segment
Other Expenses (Revenues), Net
Net Investment Income and Net Realized Investment Gains (Losses)
Other Expenses (Revenues), Net
Financial Measures
Non-GAAP Financial Measures Reconciliation
Cash and Investments
Liquidity and Capital Resources
Critical Accounting Estimates
Recent Accounting Pronouncements
Off-Balance Sheet and Special Purpose Entity Arrangements






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THIRD QUARTER 20172020 FINANCIAL HIGHLIGHTS



Third Quarter 20172020 Consolidated Results of Operations
 
Net loss attributable to common shareholders of $46873 million, or $(5.61)(0.87) per common share and diluteddiluted common share
Operating loss(1) of $65 million, or $(0.77) per diluted common share(1)
Non-GAAP operating loss(1) of $446 million, or $(5.35) per diluted common share(1)
Gross premiums written of $1.2$1.3 billion
Net premiums written of $833 million
$0.8 billion
Net premiums earned of $1$1.1 billion
Net favorable prior year reserve development of $48 million
Estimated pre-tax catastrophe and weather-related pre-tax net losses, net of reinsurance and reinstatement premiums, of $617$240 million (insurance: $132 million and reinsurance: $108 million), or 61.422.2 points on the current accident year loss ratio, comparedprimarily attributable to $22Hurricanes Laura and Sally, the Midwest derecho, wildfires across the West Coast of the United States, the Beirut port explosion and other weather-related events.
Underwriting loss(2) of $135 million or 2.3 points for the third quarter and combined ratio of 2016:114.5%
Third quarter estimated catastrophe pre-tax losses, net of reinstatement premiums, of $617 million (Insurance: $315 million and Reinsurance: $302 million) included Hurricanes Harvey, Irma and Maria and the two earthquakes in Mexico;
Third quarter estimated weather-related pre-tax net losses of $6 million (Insurance: $4 million and Reinsurance: $2 million);
Favorable development on prior quarters' estimated catastrophe and weather related pre-tax net losses of $6 million (Insurance: $2 million and Reinsurance: $4 million) largely related to U.S. weather-related events
Underwriting loss(2) of $513 million and combined ratio of 152.9%
Net investment income of $102 million
Net investment incomegains of $95$56 million and net realized investment gains of $15 million
Foreign exchange losseslosses of $33$61 million

Third Quarter 20172020 Consolidated Financial Condition
Total cash and investments of $14.7$15.6 billion; fixed maturities, cash and short-term securities comprise 87%91% of total cash and investments and have an average credit rating of AA-
Total assets of $21.8of $26.5 billion
Reserve for losses and loss expenses of $13.7 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $10.8$4.7 billion and reinsurance recoverable of $2.4 billion
Total debt of $1.0$1.3 billion and the debt to total capital ratio(3) of 15.4%
19.9%
Total common shares repurchased for $3 million.
At November 8, 2017 the remaining authorization under the repurchase program approved by our Board of Directors was $739 million. Following the offer to acquire Novae Group plc ("Novae") on July 5, 2017, the Company suspended its open mark share repurchase program.
Common shareholders’ equityequity of $4.7 billion and diluted$4.7 billion; book value per diluted common share of $55.33$54.75




(1)Operating income (loss) and operating income (loss) per diluted common share are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliations to the most comparable GAAP financial measures, net income (loss) available (attributable) to common shareholders and earnings (loss) per diluted common share, respectively, and a discussion of the rationale for the presentation of these items are provided in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures Reconciliation'.
(2)Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to net income (loss), the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.
(3)The debt to total capital ratio is calculated by dividing debt by total capital. Total capital represents the sum of total shareholders’ equity and debt.

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(1)
Non-GAAP operating income (loss) and non-GAAP operating income (loss) per diluted common share are non-GAAP financial measures as defined in SEC Regulation G. The reconciliations of non-GAAP measures to the most comparable GAAP financial measures (net income (loss) available to common shareholders and diluted earnings per common share, respectively) are provided in the 'Results of Operations', which is included in the 'Executive Summary' section of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

OVERVIEW

(2)
Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to net income (loss) before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP measure, is presented in the 'Results of Operations', which is included in the 'Executive Summary' section of this MD&A.




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EXECUTIVE SUMMARY


Business Overview

We areAXIS Capital Holdings Limited ("AXIS Capital"), through its operating subsidiaries, is a Bermuda-based global provider of specialty lines insurance and treaty reinsurance products with operations in Bermuda, the United States ("U.S."), Europe, Singapore, Canada Latin America and the Middle East. Our underwriting operations are organized around our two global underwriting platforms, AXIS Insurance and AXIS Re.

Our mission is toWe provide our clients and distribution partners with a broad range of risk transfer products and services, and meaningful capacity, backed by significant financial strength. We manage our portfolio holistically, aiming to construct the optimum consolidated portfolio of funded and unfunded risks, consistent with our risk appetite and development of our franchise. We nurture an ethical, entrepreneurial and disciplined culture that promotes outstanding client service, intelligent risk taking and the achievement of superior risk-adjusted returns for our shareholders. We believe that the achievement of our objectives will position us as a global leader in specialty risks. OurThe execution on thisof our strategy for the first nine months of 2017 included: 2020 included the following:


continued growthimplementing a global response strategy to help manage and mitigate the impact of COVID-19, spanning underwriting, capital management, investments, operations and employee welfare;

increasing our accidentrelevance in a select number of attractive specialty lines insurance and health lines, which is focused on specialty accidenttreaty reinsurance markets, and health products;

growth of our syndicate at Lloyd's which provides us with access to Lloyd's worldwide licenses and an extensive distribution network. Duringcontinuing the first quarter of 2016 we commenced writing business through our underwriting division at Lloyd's in China. On July 14, 2017, we announced that we had received final authorization from Lloyd’s, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) for our own Lloyd’s managing agent, AXIS Managing Agency Limited (“AXIS Managing Agency”). Effective August 4, 2017, AXIS Managing Agency assumed management of AXIS Syndicate 1686 at Lloyd’s, replacing the Company’s third-party managing agency agreement with Asta Managing Agency Limited, which had been in place since 2014;

continued implementation of a more focused distribution strategystrategy;

continuing to grow a leadership position in the areas of our business with strong potential for profitable growth including U.S. excess and increased our scalesurplus lines, North America professional lines and relevance in key markets;Lloyd's specialty insurance business;


continued rebalancing ofcontinuing to re-balance our portfolio towards less volatile lines of business that carry attractive rates;


continued improvementcontinuing to improve in the effectiveness and efficiency of our operating platforms and processes;


increased investmentinvesting in data and analytics;technology capabilities, and tools to empower our underwriters and enhance the service that we provide to our customers;


broadenedbroadening risk-funding sources and developedthe development of vehicles that utilize third-party capital including:capital; and


Our investment in Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capitalgrowing our corporate citizenship program to give back to our communities and The Blackstone Group L.P. ("Blackstone"). Harrington Re’s strategy ishelp contribute to combine a multi-line reinsurance portfolio with a diversified allocation to alternative investment strategies to earn attractive risk-adjusted returns. Harrington has developed a portfolio that optimizes the risk-reward characteristics of both assets and liabilities, leveraging the respective strengths of AXIS Capital and Blackstone while deploying a disciplined and fully integrated approach to both underwriting and investing; andmore sustainable future.


AXIS Ventures Reinsurance Limited, which manages capital for investors interested in deploying funds directly into the property-catastrophe and other short-tail business.


On April 1, 2017, the Company acquired general aviation insurer and reinsurer Aviabel, increasing the Company's scale and relevance in the global aviation market. The Company will continue to maintain Aviabel's physical presence in Brussels and Amsterdam.


On April 17, 2017, the Company redeemed the remaining $351 million of its 6.875% Series C preferred shares. The execution of this transaction reduced the weighted average annual dividend rate on our preferred equity capital base by 88 basis points to 5.50%.














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Effective July 1, 2017, our reinsurance segment no longer writes derivative-based risk management products which address weather risks.

On July 5, 2017 the Company announced that it had agreed on the terms of a recommended offer to acquire Novae Group plc (“Novae”), a diversified specialty (re)insurer that operates through Lloyd’s of London. On October 2, 2017, the Company acquired the shares of Novae. The results of Novae will be included in the results of the Company's insurance and reinsurance segments from this date (the "Closing date"). On October 6, 2017, AXIS Capital received clearance from all applicable regulators, including the European Commission, and commenced management control and integration of the combined businesses from this date.

On July 6, 2017, S&P Global Ratings affirmed its 'A-' long-term counterparty credit and senior debt ratings of AXIS Capital, and its 'A+' long-term counterparty credit and financial strength ratings of the Company's core operating subsidiaries. At the same time, S&P Global Ratings revised its outlook on AXIS Capital to negative from stable based on the planned acquisition of Novae.

Outlook


We are committed to being a leaderleadership in specialty risk, an area in whichinsurance and global reinsurance, where we already have depth of talent and experience, and have earned an outstanding reputation. Committedexpertise. We believe we are well-positioned to itssucceed in the rapidly evolving marketplace. Through our hybrid strategy, AXIS Capital haswe have developed substantial platforms, inproviding us with both insurance and reinsurance, providing it with balance and diversification. Management believes itsdiversification, enabling us to take advantage of positive opportunities in either market to generate the most attractive risk-return portfolio for our shareholders. We believe our market positioning, franchise, expert underwritersunderwriting expertise, best-in-class claims management capabilities, and strong relationships with our distributors and clients will provide opportunities in 2018,for increased profitability, with variances amongstdifferences among our lines driven by our tactical response to market conditions. At the same time, we are broadening our risk-funding sources and developing vehicles that utilize the industry’s abundant third party capital. Therefore, we expect that our net premiums written will not grow as much as our gross premiums written, as we intend to share more of our risk with strategic capital partners.
 
CompetitiveRates, terms and conditions continueacross virtually all insurance lines continued to impact worldwidesee accelerating improvement. While the insurance marketsmarket remains competitive with greatest pressures impacting catastrophe exposed propertycapacity and certain global specialty lines of business. We have observed greater competitiveness for large accounts comparedcapital willing to smaller risks. These competitive pressures have led to price reductions across most lines ofsupport business with decreasesa broad range of return hurdles in international markets generallycertain pockets, there has been more severe than those observed in the U.S. During the monthconsistent signs of September, our industry experienced substantial natural catastrophe loss activity, comparable to full year levels incurred in 2005 and 2011, which were the highest catastrophe loss years on record.firming. We believe markets conditionsexpect many specialty segments will remain uncertain through the end of the year and possibly beyondexperience further pricing improvements as carriers assess pricing, portfolio construction and account preferences.preferences through the course of the year. In this challengingcompetitive market environment, we are focusing on lines of business and marketsmarket segments that remainare adequately priced, and we are trading off growth for profitability in other areas.
The reinsurance market is also experiencing acceleration in rates, and improved terms and conditions, as well as restructuring of treaties and demand for more reinsurance. This is being driven by meaningful adjustments to both supply and demand given the significant losses in recent years and mounting pressure in the industry with uncertainty of future loss costs, record low interest rates, and pressure on reserves in long-tail lines. We believe this will contribute to a healthier, more profitable market that still requires strong underwriting discipline and portfolio management. During the last few years, we have repositioned our portfolio while emphasizing strong underwriting and, at the same time, have achieved increased relevance with our clients in the markets where we choose to compete. The external environment is dynamic with reinsurance markets improving quickly, and conditions now expected to be favorable in several areas. These conditions allow for profitable growth in some areas and continued discipline in others. Overall, we believe our business is well-positioned for the current market environment.

We are encouraged by the pricing improvements that we are seeing across both the insurance and reinsurance segments and – at the same time – maintain a disciplined approach to our underwriting. While there is positive rate momentum across most lines and markets, not all lines are at adequate levels and, in multiple cases, more rate is needed to deliver adequate returns, particularly given recent high loss experience in the market, COVID-19, and lower interest rates. Where prices appropriately reflect these trends to deliver adequate profitability we will look to grow within our risk and volatility guidelines. With the most balanced book in the history of our company, we believe AXIS is well positioned to drive profitable growth within the current market environment.

Recent Developments Related to COVID-19

On March 11, 2020, COVID-19, a novel coronavirus outbreak, was declared a pandemic by the World Health Organization. The COVID-19 crisis upended the marketplace and society on a global scale, and its impact is being felt within the insurance and reinsurance industry and at AXIS Capital.

COVID-19, and its related impacts, are an emerging and evolving risk to which we are exposed from an underwriting, investments, capital and liquidity, operations and employee welfare perspective. We have implemented a global response strategy to help manage and mitigate these risks.

Our team continues to track the situation closely, including stress and scenario testing on existing underwriting and investment exposures, taking into consideration among other assumptions, the possible severity and duration of the outbreak.

Reserving

At September 30, 2020 estimated pre-tax catastrophe and weather-related losses, net of reinstatement premiums, associated with first party coverages attributable to the COVID-19 pandemic, remains unchanged from the first quarter at $235 million. First party losses are primarily associated with property related coverages, but also includes event cancellation, and accident and health coverages.

The estimate of net reserves for losses and loss expenses related to the COVID-19 pandemic is subject to significant uncertainty. This uncertainty is driven by the inherent difficulty in making assumptions around the impact of the COVID-19 pandemic due to the lack of comparable events, the ongoing nature of the event, and its far-reaching impacts to world-wide economies and the health of the global population.


49

The estimate does not include an explicit estimate of potential losses arising from the indirect impacts of COVID-19 which would primarily impact third party coverages such as professional lines, liability and credit lines. We expect that it may take several quarters, or potentially several years, for the full impact of COVID-19 and its economic repercussions on these lines of business to fully emerge.

While we believe the overall estimate of net reserves for losses and loss expenses is adequate for losses and loss adjustment expenses that have been incurred at September 30, 2020 based on current facts and circumstances, we will continue to assess pricing adequacymonitor the appropriateness of our assumptions as market conditionsnew information comes to light and trends evolve. Where necessary we also continuewill adjust the estimate of net reserves for losses and loss adjustment expenses, as appropriate. Refer to shift'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment' for further information.

Actual losses for this event may ultimately differ materially from current estimates.

Underwriting

As our business mix toward smaller, less volatile risk accounts which we believe will enable us to achieve better, more stable attritional loss experience. In addition, our recent acquisition of Novae increases our scaleindustry and relevance in the London marketplace, and we expect to be well-positioned to capitalize on new opportunities and benefit from improved market conditions emerging through the international specialty insurance market, including Lloyd’s of London.

The reinsurance markets' trading environment remains challenging in the many of lines of business and geographical regions. The marketsociety continues to be influencednavigate the challenges brought on by excess capacity, strong balance sheetsCOVID-19, we are closely monitoring cash receipts from our customers and reinsurers, giving due consideration to related directives issued by certain government agencies. At September 30, 2020, we considered the potential financial impact of established market participantsCOVID-19 when determining allowances for expected credit losses for insurance and a consolidation of reinsurance purchasing. As noted above, our industry experienced substantial natural catastrophe loss activity during the month ofpremium balances receivable and reinsurance recoverable balances on unpaid losses. Based on facts and circumstances at that time, we did not adjust allowances for expected credit losses at September which we believe will favorably impact pricing in our upcoming renewal cycle. The improvements will differ between lines of business and by geographical regions. These factors, combined with AXIS' customer-centric approach and opportunities in specific lines of business and geographies allow us to execute on our targeted growth strategy.30, 2020. We will continue to protectmonitor the qualityappropriateness of allowances for expected credit losses as new information comes to light. Adjustments to allowances for expected credit losses in subsequent periods could be material.

Our underwriters are reassessing risk appetite in light of the COVID-19 pandemic, in particular as it relates to exposure to communicable diseases, viruses, pathogens and profitabilityother similar risks. We are taking appropriate steps to mitigate exposure to these types of risks, including increasing pricing and adding policy terms and conditions, including exclusions. During the remainder of 2020, premium volume may be adversely impacted due to the disruption to both society and the insurance and reinsurance marketplace on a global scale. Adjustments to premiums in subsequent periods could be material.

Capital and Liquidity

Following two debt issuances in 2019 that raised $725 million at favorable rates, we redeemed our Series D preferred shares of $225 million at par in January 2020 and we repaid unsecured senior notes of $500 million at maturity in June 2020. At September 30, 2020, no long-term debt will mature until the end of 2027. In addition, our common share repurchase plan expired in 2017 and has not been renewed. We continue to have capital above the level required by our group regulator, the Bermuda Monetary Authority.

We have a prudently constructed fixed maturity portfolio of $13 billion, with an average credit rating of AA-, which closely matches the duration of our existing book, targeting larger sharesliabilities. Unrestricted cash and cash equivalents of $1 billion and equity securities of 0.4 billion at September 30, 2020 provide additional liquidity.

In the first quarter, we reduced our 2020 expense budget by approximately $50 million based on the specific impacts of the more attractive treaties, managingCOVID-19 pandemic on our business. A significant amount of these temporary expense savings were realized in recent quarters by reducing performance related compensation and travel and entertainment costs, given remote working. In addition, we have deferred non-critical hires and delayed certain projects.

We expect cash flows generated from operations, combined with liquidity provided by our investment portfolio, will be sufficient to cover cash outflows and other contractual commitments that become due within one year after the overall volatility ofdate that the financial statements are issued. We review each claim on an individual basis and where our reinsurance book, and expandingpolicies provide coverage, we make payments to help our already strong group of strategic capital partners with whom to share our risks.insureds overcome financial setbacks.







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CONSOLIDATED RESULTS OF OPERATIONS


  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Underwriting revenues:
Gross premiums written$1,331,178 (5%)$1,406,506 $5,478,519 (3%)$5,637,491 
Net premiums written815,982 (5%)856,081 3,550,960 (4%)3,703,460 
Net premiums earned1,091,312 (6%)1,157,307 3,283,941 (4%)3,415,126 
Other insurance related income (loss)1,440 (6%)1,533 (5,270)nm11,385 
Underwriting expenses:
Net losses and loss expenses(879,677)3%(850,913)(2,464,012)13%(2,187,403)
Acquisition costs(230,564)(11%)(260,026)(697,716)(9%)(762,807)
Underwriting-related general and administrative expenses(1)
(117,835)(7%)(126,619)(361,623)(9%)(398,540)
Underwriting income (loss)$(135,324)$(78,718)$(244,680)$77,761 
Net investment income101,956 (12%)115,763 240,098 (33%)361,014 
Net investment gains55,609 nm14,527 45,777 (6%)48,522 
Corporate expenses(1)
(20,988)(27%)(28,903)(74,915)(23%)(97,468)
Other (expenses) revenues, net(76,308)nm41,501 (68,401)nm15,323 
Reorganization expenses(1,413)nm(11,215)(822)nm(29,310)
Amortization of value of business acquired(1,028)nm(4,368)(4,111)nm(24,666)
Amortization of intangible assets(2,838)—%(2,831)(8,564)(2%)(8,744)
Income (loss) before income taxes and interest in income (loss) of equity method investments(80,334)45,756 (115,618)342,432 
Income tax (expense) benefit12,056 nm(8,147)6,030 nm(23,850)
Interest in income (loss) of equity method investments2,896 nm792 (13,579)nm5,645 
Net income (loss)$(65,382)$38,401 $(123,167)$324,227 
Preferred share dividends(7,563)(29%)(10,656)(22,688)(29%)(31,969)
Net income (loss) available (attributable) to common shareholders$(72,945)$27,745 $(145,855)$292,258 
nm – not meaningful
(1)Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $20,988 and $28,903 for the three months ended September 30, 2020 and 2019, respectively, and $74,915 and $97,468 for the nine months ended September 30, 2020 and 2019, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for additional information on corporate expenses. Refer also to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial MeasureMeasures Reconciliation' for additional information.


We present our results



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Underwriting Revenues

Underwriting revenues by segment were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Gross premiums written:
Insurance$935,817 5%$894,902 $2,914,100 7%$2,714,322 
Reinsurance395,361 (23%)511,604 2,564,419 (12%)2,923,169 
Total gross premiums written$1,331,178 (5%)$1,406,506 $5,478,519 (3%)$5,637,491 
Percent of gross premiums written ceded
Insurance42%— pts42%41%1 pt40%
Reinsurance31%(3) pts34%29%— pts29%
Total percent of gross premiums ceded39%— pts39%35%1 pt34%
Net premiums written:
Insurance$544,857 5%$517,050 $1,729,268 6%$1,638,197 
Reinsurance271,125 (20%)339,031 1,821,692 (12%)2,065,263 
Total net premiums written$815,982 (5%)$856,081 $3,550,960 (4%)$3,703,460 
Net premiums earned:
Insurance$570,184 6%$536,451 $1,709,268 5%$1,630,473 
Reinsurance521,128 (16%)620,856 1,574,673 (12%)1,784,653 
Total net premiums earned$1,091,312 (6%)$1,157,307 $3,283,941 (4%)$3,415,126 

Refer to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are "non-GAAP financial measures" under Securities and Exchange Commission rules and regulations. In this 'Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we present underwriting-related- Results by Segment' for additional information on underwriting revenues.

Underwriting Expenses

The components of the combined ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020
% Point
Change
20192020
% Point
Change
2019
Current accident year loss ratio excluding catastrophe and weather-related losses58.5 %(3.2)61.7 %57.8 %(2.3)60.1 %
Catastrophe and weather-related losses ratio22.2 %8.114.1 %17.5 %11.65.9 %
Current accident year loss ratio80.7 %4.975.8 %75.3 %9.366.0 %
Prior year reserve development ratio(0.1 %)2.2(2.3 %)(0.3 %)1.6(1.9 %)
Net losses and loss expenses ratio80.6 %7.173.5 %75.0 %10.964.1 %
Acquisition cost ratio21.1 %(1.4)22.5 %21.2 %(1.1)22.3 %
General and administrative expense ratio(1)
12.8 %(0.6)13.4 %13.4 %(1.1)14.5 %
Combined ratio114.5 %5.1109.4 %109.6 %8.7100.9 %
(1) The general and administrative expense ratio included corporate expenses consolidatednot allocated to underwriting income, non-GAAP operating income (in totalsegments of 1.9% and 2.5% for the three months ended September 30, 2020 and 2019, respectively, and 2.3% and 2.9% for the nine months endedSeptember 30, 2020 and 2019, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for further details.

Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for additional information on underwriting expenses.

52



RESULTS BY SEGMENT


Insurance Segment

Results for the insurance segment were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Revenues:
Gross premiums written$935,817 5%$894,902 $2,914,100 7%$2,714,322 
Net premiums written544,857 5%517,050 1,729,268 6%1,638,197 
Net premiums earned570,184 6%536,451 1,709,268 5%1,630,473 
Other insurance related income688 6%733 2,091 18%1,779 
Expenses:
Current accident year net losses and loss expenses(443,659)(353,575)(1,257,090)(1,004,293)
Prior year reserve development270 14,609 4,521 42,849 
Acquisition costs(114,569)(115,551)(343,579)(344,981)
Underwriting-related general and administrative expenses(94,379)(100,559)(284,909)(311,491)
Underwriting income (loss)$(81,465)$(17,892)$(169,698)$14,336 
Ratios:
% Point
Change
% Point
Change
Current accident year loss ratio excluding catastrophe and weather-related losses54.7 %(3.5)58.2 %54.8 %(2.9)57.7 %
Catastrophe and weather-related losses ratio23.1 %15.47.7 %18.7 %14.83.9 %
Current accident year loss ratio77.8 %11.965.9 %73.5 %11.961.6 %
Prior year reserve development ratio %2.7(2.7 %)(0.2 %)2.4(2.6 %)
Net losses and loss expenses ratio77.8 %14.663.2 %73.3 %14.359.0 %
Acquisition cost ratio20.1 %(1.4)21.5 %20.1 %(1.1)21.2 %
Underwriting-related general and administrative expense ratio16.5 %(2.3)18.8 %16.7 %(2.3)19.0 %
Combined ratio114.4 %10.9103.5 %110.1 %10.999.2 %
nm – not meaningful

53

Gross Premiums Written

Gross premiums written by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  20202019
%
Change
20202019
%
Change
Property$238,599 26 %$241,517 27 %(1%)$741,043 27 %$701,314 27 %6%
Marine82,810 9 %91,161 10 %(9%)355,503 12 %337,529 12 %5%
Terrorism14,767 2 %17,284 %(15%)42,296 1 %46,803 %(10%)
Aviation22,702 2 %17,623 %29%63,725 2 %53,832 %18%
Credit and political risk24,473 3 %32,528 %(25%)100,151 3 %114,511 %(13%)
Professional lines338,907 36 %272,362 30 %24%943,635 32 %820,953 30 %15%
Liability172,747 18 %186,253 21 %(7%)548,023 19 %518,925 19 %6%
Accident and health39,262 4 %34,054 %15%117,743 4 %113,228 %4%
Discontinued lines - Novae1,550  %2,120 — %(27%)1,981  %7,227 — %nm
Total$935,817 100 %$894,902 100 %5%$2,914,100 100 %$2,714,322 100 %7%
nm – not meaningful

Gross premiums written for the three months ended September 30, 2020, increased by $41 million, or 5%, ($31 million, or 3% on a per share basis)constant currency basis(1)), amountscompared to the three months ended September 30, 2019. The increase was primarily attributable to professional lines, accident and health, and aviation lines, partially offset by decreases in liability, marine, and credit and political risk lines.

The increase in professional lines was due to new business and favorable rate changes. The increase in accident and health lines was due to new business. The increase in aviation lines was due to a timing difference and favorable rate changes. The decreases in liability and credit and political risk lines were due to a higher level of non-renewals and reduced business opportunities related to the current economic climate. The decrease in marine lines was due to a timing difference and non-renewals.

Gross premiums written for the nine months ended September 30, 2020, increased by $200 million, or 7%, compared to the nine months ended September 30, 2019. The increase was primarily attributable to professional lines, property, liability, marine, and aviation lines, partially offset by a decrease in credit and political risk lines.

The increases in professional lines, property, liability, and marine lines were due to new business and favorable rate changes. The increase in aviation lines was due to timing differences. The decrease in credit and political risk lines was due to non-renewals and reduced business opportunities related to the current economic climate.

Ceded Premiums Written

Ceded premiums written for the three months ended September 30, 2020, was $391 million, or 42% of gross premiums written, compared to $378 million, or 42% of gross premiums written for the three months ended September 30, 2019. The increase in ceded premiums written of $13 million or 3% was primarily driven by increases in professional lines and property lines, partially offset by decreases in liability, marine, and credit and political risk lines.

Ceded premiums written for the nine months ended September 30, 2020, was $1,185 million, or 41% of gross premiums written, compared to $1,076 million, or 40% of gross premiums written for the nine months ended September 30, 2019. The increase in ceded premiums written of $109 million, or 10%, was primarily driven by increases in professional lines, property, liability, and marine lines, partially offset by a decrease in credit and political risk lines.




(1) Amounts presented on a constant currency basis and pre-tax total return on cash and investments excluding foreign exchange movements, which are “non-GAAPnon-GAAP financial measures”measures as defined in Item10 (e) of SEC Regulation G. We believe that these non-GAAP measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP.

Underwriting-Related General and Administrative Expenses

Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our individual underwriting operations. While this measure is presented in Item 1, Note 3 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.

Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our individual underwriting operations, we exclude them from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income. Our total general and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, includes corporate expenses.

S-K. The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP measure is presented in the 'Results of Operations'.

Consolidated Underwriting Income

Consolidated underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (losses) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses. While this measure is presented in Item 1, Note 3 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.

We evaluate our underwriting results separately from the performance of our investment portfolio. As such, we believe it appropriate to exclude net investment income and net realized investment gains (losses) from our underwriting profitability measure. Interest expense and financing costs primarily relate to interest payable on our senior notes and are excluded from consolidated underwriting income for the same reason.

Foreign exchange losses (gains) in our Consolidated Statements of Operations primarily relate to our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance and, therefore, exclude them from consolidated underwriting income.

Bargain purchase gain reflects the excess of the fair value of the net identifiable assets acquired over the fair value of consideration transferred. The bargain purchase gain is unrelated to underwriting operations and for this reason it is excluded from consolidated underwriting income.

Transaction related expenses are driven by business decisions, the nature and timing of which are unrelated to the underwriting process and for this reason they are excluded from consolidated underwriting income.

We believe that presentation of underwriting-related general and administrative expenses and consolidated underwriting income provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of



53




our underwriting activities. The reconciliation of consolidated underwriting income to income before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP measure is presented in the 'Results of Operations'.

Non-GAAP Operating Income

Non-GAAP operating income represents after-tax operational results without consideration of after-tax net realized investment gains (losses), foreign exchange losses (gains), bargain purchase gain, and transaction related expenses.

Although the investment of premiums to generate income and realized investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.

Foreign exchange losses (gains) in our Consolidated Statements of Operations are primarily driven by the impact of foreign exchange rate movements on net insurance related-liabilities. However, this movement is only one element of the overall impact of foreign exchange rate fluctuations on our financial position. In addition, we recognize unrealized foreign exchange losses (gains) on our available-for-sale investments in other comprehensive income and foreign exchange losses (gains) realized upon the sale of these investments in net realized investments gains (losses). These unrealized and realized foreign exchange losses (gains) generally offset a large portion of the foreign exchange losses (gains) reported separately in net income (loss), thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As such, the Statement of Operations foreign exchange losses (gains) in isolation is not a fair representation of the performance of our business.

Bargain purchase gain reflects the excess of the fair value of the net identifiable assets acquired over the fair value of consideration transferred and is not indicative of future revenues of the company.

Transaction related expenses are primarily driven by business decisions, the nature and timing of which are unrelated to the underwriting process and which are not representative of underlying business performance.

Certain users of our financial statements evaluate earnings excluding after-tax net realized investment gains (losses), foreign exchange losses (gains), bargain purchase gain, and transaction related expenses to understand the profitability of recurring sources of income.

We believe that showing net income available to common shareholders exclusive of net realized gains (losses), foreign exchange losses (gains), bargain purchase gain, and transaction related expenses reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. The reconciliation of non-GAAP operating income to net income available to common shareholders, the most comparable GAAP measure is presented in the 'Results of Operations'.

Constant Currency Basis

We present gross premiums written, net premiums written and net premiums earned on a constant currency basis in this MD&A. The amounts presented on a constant currency basis areis calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in the 'Group Underwriting Results' section of this MD&A.

Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movement

Pre-tax total return on cash and investments excluding foreign exchange movements measures net investment income (loss), net realized investments gains (losses), interest in income (loss) of equity method investments, and pre-tax change in unrealized gains (losses) generated by our average cash and investment balances. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure is presented in the 'Net Investment Income and Net Realized Investment Gains (Losses)'

balance.



54

Table of Contents




Net Premiums Earned
section
Net premiums earned by line of this release. We believe this presentation enables investors and other users of our financial information to analyze the performance of our investments.business were as follows:

Results of Operations
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Underwriting revenues:            
 Net premiums earned$1,017,131
 9% $934,415
 $2,937,265
 6% $2,783,746
 
 Other insurance related income (losses)(3,197) nm 5,944
 (4,420) nm 4,850
 
 Underwriting expenses:            
 Net losses and loss expenses(1,235,367) 132% (532,328) (2,447,640) 47% (1,663,584) 
 Acquisition costs(194,724) 3% (189,810) (588,879) 5% (559,570) 
 
Underwriting general and administrative expenses(1)
(96,696) (15%) (114,223) (335,782) (5%) (352,632) 
 Underwriting Income (Loss)$(512,853)   $103,998
 $(439,456)   $212,810
 
              
 
Corporate expenses(1)
(27,933) (3%) (28,683) (97,922) 13% (86,922) 
 Net investment income95,169
 (19%) 116,923
 299,899
 16% 257,818
 
 Net realized investment gains (losses)14,632
 nm 5,205
 (14,811) (63%) (40,295) 
 Other (expenses) revenues, net(45,345) nm 956
 (128,470) nm 31,195
 
 Bargain purchase gain
 nm 
 15,044
 nm 
 
 Transaction related expenses(5,970) nm 
 (5,970) nm 
 
 Income (loss) before income taxes and interest in income (loss) of equity method investments(482,300)   198,399
 (371,686)   374,606
 
 Income tax (expense) benefit25,877
   (9,352) 38,547
   (7,712) 
 Interest in loss of equity method investments(661) nm (2,434) (8,402) nm (2,434) 
 Net income (loss)$(457,084)   $186,613
 $(341,541)   $364,460
 
 Preferred share dividends(10,656) 7% (9,969) (36,154) 21% (29,906) 
 Net income (loss) available to common shareholders$(467,740) nm $176,644
 $(377,695) nm $334,554
 
              
 
Net realized investment gains (losses), net of tax(2)
$(11,975)   $(2,726) $16,703
   $42,667
 
 
Foreign exchange gains (losses), net of tax(3)
28,071
   (13,229) 85,851
   (67,771) 
 
Bargain purchase gain(4)

   
 (15,044)   
 
 Transaction related expenses, net of tax5,749
   
 5,749
   
 
 Non-GAAP operating income (loss)$(445,895) nm $160,689
 $(284,436) nm $309,450
 
              
  Three months ended September 30,Nine months ended September 30,
  20202019
%
Change
20202019
%
Change
Property$145,717 27 %$154,751 29 %(6%)$452,876 26 %$481,450 30 %(6%)
Marine76,544 13 %65,437 12 %17%220,248 13 %209,629 13 %5%
Terrorism11,728 2 %11,605 %1%34,675 2 %35,635 %(3%)
Aviation19,039 3 %10,993 %nm51,236 3 %38,603 %33%
Credit and political risk23,781 4 %19,432 %22%77,721 5 %66,412 %17%
Professional lines179,441 31 %172,280 32 %4%530,651 31 %490,928 30 %8%
Liability76,487 13 %68,002 13 %12%234,522 14 %192,352 12 %22%
Accident and health37,151 7 %32,368 %15%106,015 6 %108,402 %(2%)
Discontinued lines - Novae296  %1,583 — %nm1,324  %7,062 — %nm
Total$570,184 100 %$536,451 100 %6%$1,709,268 100 %$1,630,473 100 %5%
nm – not meaningful
(1)
Underwriting-related general and administrative expenses is a non-GAAP measure as defined in SEC Regulation G. The reconciliation to total general and administrative expenses, the most comparable GAAP measure, also included corporate expenses of ($27,933) and ($28,683) for the three months ended September 30, 2017 and 2016, respectively, and ($97,922) and ($86,922) for the nine months ended September 30, 2017 and 2016, respectively. Refer to 'Other (expenses) revenues, net' for additional information related to the corporate expenses. Also, refer to 'Non-GAAP Financial Measures' for additional information.
(2)Tax cost (benefit) of $2,657 and $2,479 for the three months ended September 30, 2017 and 2016, respectively, and $1,892 and $2,372 for the nine months ended September 30, 2017 and 2016, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.
(3)
Tax cost (benefit) of ($4,439) and $566 for the three months ended September 30, 2017 and 2016, respectively, and $(4,242) and $2,010 for the nine months ended September 30, 2017 and 2016, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions.
(4)Tax impact is nil.










55




Non-GAAP Financial Measures

We also present non-GAAP operating income per diluted common share and annualized non-GAAP operating return on average common equity (“annualized non-GAAP operating ROACE”), which are derived from the non-GAAP operating income measure and can be reconciled to the most comparable GAAP financial measures as follows:

   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Net income (loss) available to common shareholders$(467,740) $176,644
 $(377,695) $334,554
 
 Non-GAAP operating income (loss)(445,895) 160,689
 (284,436) 309,450
 
 
Weighted average common shares and common share equivalents - diluted(1)
83,305
 90,351
 84,479
 92,579
 
          
 Earnings (loss) per common share - diluted$(5.61) $1.96
 $(4.47) $3.61
 
 Non-GAAP operating income (loss) per common share - diluted$(5.35) $1.78
 $(3.37) $3.34
 
          
 Average common shareholders’ equity$4,898,698
 $5,369,921
 $4,912,998
 $5,319,849
 
          
 
Annualized return on average common equity(2)
nm
 13.2% (10.3%) 8.4% 
 
Annualized Non-GAAP operating return on average common equity(3)
nm
 12.0% (7.7%) 7.8% 
          
nm – not meaningful
(1)
Refer to Item 1, Note 8 to our Consolidated Financial Statements 'Earnings per Common Share' for further details on the dilution calculation.
(2)Return on average common equity ("ROACE") is calculated by dividing annualized net income available to common shareholders for the period by the average shareholders' equity determined by using the common shareholders' equity balances at the beginning and end of the period.
(3)Non-GAAP operating ROACE, a non-GAAP financial measure as defined in SEC Regulation G, is calculated by dividing annualized operating income for the period by the average common shareholders' equity.










56




Underwriting Results

Total underwriting lossNet premiums earned for the three months ended September 30, 2017 was $513 million, a decrease of $617 million compared to the underwriting income of $104 million for the three months ended September 30, 2016. The decrease in underwriting income was primarily driven by an increase in catastrophe and weather-related losses, a decrease in net favorable prior year reserve development, an increase in the current accident year loss ratio excluding catastrophe and weather-related losses, partially offset by a decrease in general and administrative expenses.

The reinsurance segment underwriting loss2020, increased by $310$34 million, for the three months ended September 30, 2017,or 6%, ($27 million, or 5% on a constant currency basis), compared to the three months ended September 30, 2016.2019. The increase was primarily driven by increases in gross premiums earned in professional lines, liability, and marine lines, together with a decrease in underwriting incomeceded premiums earned in aviation lines, partially offset by increases in ceded premiums earned in professional lines and liability lines, and a decrease in gross premiums earned in property lines.

Net premiums earned for the nine months ended September 30, 2020, increased by $79 million, or 5%, compared to the nine months ended September 30, 2019. The increase was primarily driven by an increaseincreases in gross premiums earned in liability, professional lines, marine, and credit and political risk lines, together with decreases in ceded premiums earned in property and aviation lines, partially offset by increases in ceded premiums earned in liability and professional lines, and a decrease in gross premiums earned in property lines.
























55

Table of Contents

Loss Ratio

The components of the loss ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
2020
% Point
Change
20192020
% Point
Change
2019
Current accident year77.8 %11.965.9 %73.5 %11.961.6 %
Prior year reserve development %2.7(2.7 %)(0.2 %)2.4(2.6 %)
Loss ratio77.8 %14.663.2 %73.3 %14.359.0 %

Current Accident Year Loss Ratio

The current accident year loss ratio increased to 77.8% and 73.5% for the three and nine months ended September 30, 2020, respectively, from 65.9% and 61.6% for the three and nine months ended September 30, 2019, respectively.

During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, an increasenet of reinstatement premiums, were $132 million, or 23.1 points, and $325 million, or 18.7 points, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. During the nine months ended September 30, 2020 catastrophe and weather-related losses included $137 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included event cancellation coverages. The remaining losses of $188 million were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $41 million, or 7.7 points, and $64 million, or 3.9 points, respectively.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 54.7% for the three months ended September 30, 2020, from 58.2% for the three months ended September 30, 2019. The decrease in the current accident year loss ratio excludingafter adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, marine, credit and apolitical risk, and aviation lines largely associated with the repositioning of the portfolio.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 54.8% for the nine months ended September 30, 2020, from 57.7% for the nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, credit and political risk, marine and aviation lines, partially offset by changes in business mix.

56

Table of Contents

Prior Year Reserve Development

The following table maps lines of business to reserve classes and the expected claim tails:
Insurance segment
Reserve class and tail
Property and otherMarineAviationCredit and political riskProfessional linesLiability
ShortShortShort/MediumMediumMediumLong
Reported lines of business
PropertyX
MarineX
TerrorismX
AviationX
Credit and political riskX
Professional linesX
LiabilityX
Accident and healthX
Discontinued lines - NovaeXXX

Prior year reserve development by reserve class were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Property and other$6,907 $11,427 $42,688 $(4,426)
Marine4,095 2,119 633 23,753 
Aviation(326)471 5,667 1,671 
Credit and political risk871 1,217 (223)10,278 
Professional lines(7,287)3,656 (19,086)13,899 
Liability(3,990)(4,281)(25,158)(2,326)
Total$270 $14,609 $4,521 $42,849 

For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were: 
$7 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2019 catastrophe events.
$4 million of net favorable prior year reserve development on marine business primarily due better than expected loss emergence mainly related to the 2018 accident year.
$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to 2017 and 2018 accident years.
For the three months ended September 30, 2019, we recognized $15 million of net favorable prior year reserve development, the principal components of which were: 
$11 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 and 2014 accident years.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the U.S. excess casualty book of business related to older accident years.

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For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were: 
$43 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years, better than expected loss emergence attributable to the 2017, 2018 and 2019 catastrophe events, and decreases in case reserves attributable to specific claims related to the 2014 and 2016 accident years.
$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years.
$25 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.
$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business mainly related to the 2018 and 2019 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
For the nine months ended September 30, 2019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were: 
$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence mainly related to the 2015 to 2017 accident years.
$14 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 to 2015 accident years.
$10 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence mainly related to the 2018 accident year.
$4 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening within the international book of business mainly related to the 2018 accident year, partially offset by a decrease acquisition costs.better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.


Acquisition Cost Ratio

The insurance segment underwriting loss increased by $307 millionacquisition cost ratio decreased to 20.1% for the three months ended September 30, 2017,2020, from 21.5% for the three months ended September 30, 2019, principally related to an increase in ceding commissions.

The acquisition cost ratio decreased to 20.1% for the nine months ended September 30, 2020, from 21.2% for the nine months ended September 30, 2019, associated with the acquisition of Novae and an increase in ceding commissions. At the acquisition date, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at that date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet as the value of policies in-force on that date are considered within value of business acquired ("VOBA"). Consequently, the absence of $1 million and $11 million of acquisition expense related to premiums earned in the nine months ended September 30, 2020 and 2019, respectively, benefited the acquisition cost by 0.1 points and 0.6 points, respectively. Adjusting the acquisition cost rate for these amounts, the acquisition cost ratio decreased by 1.6 points.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 16.5%for thethree months ended September 30, 2020, from 18.8% for the three months ended September 30, 2019, mainly driven by a decrease in personnel costs and travel and entertainment expenses, together with an increase in net premiums earned.

The underwriting-related general and administrative expense ratio decreased to 16.7% for the nine months ended September 30, 2020, from 19.0% for the nine months ended September 30, 2019, mainly driven by decreases in travel and entertainment expenses, and professional fees, together with an increase in net premiums earned.

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Reinsurance Segment

Results from the reinsurance segment were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Revenues:
Gross premiums written$395,361 (23%)$511,604 $2,564,419 (12%)$2,923,169 
Net premiums written271,125 (20%)339,031 1,821,692 (12%)2,065,263 
Net premiums earned521,128 (16%)620,856 1,574,673 (12%)1,784,653 
Other insurance related income (loss)752 (6%)800 (7,361)nm9,606 
Expenses:
Current year net losses and loss expenses(436,602)(524,065)(1,216,273)(1,248,131)
Prior year reserve development314 12,118 4,830 22,172 
Acquisition costs(115,995)(144,475)(354,137)(417,826)
Underwriting-related general and administrative expenses(23,456)(26,060)(76,714)(87,049)
Underwriting income (loss)$(53,859)$(60,826)$(74,982)$63,425 
Ratios:
% Point
Change
% Point
Change
Current accident year loss ratio excluding catastrophe and weather-related losses62.7 %(2.1)64.8 %61.1 %(1.2)62.3 %
Catastrophe and weather-related losses ratio21.1 %1.519.6 %16.1 %8.57.6 %
Current accident year loss ratio83.8 %(0.6)84.4 %77.2 %7.369.9 %
Prior year reserve development ratio(0.1 %)1.8(1.9 %)(0.3 %)0.9(1.2 %)
Net losses and loss expenses ratio83.7 %1.282.5 %76.9 %8.268.7 %
Acquisition cost ratio22.3 %(1.0)23.3 %22.5 %(0.9)23.4 %
Underwriting-related general and administrative expense ratio4.5 %0.44.1 %4.9 %4.9 %
Combined ratio110.5 %0.6109.9 %104.3 %7.397.0 %
nm – not meaningful

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Gross Premiums Written:

Gross premiums written by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  20202019
Change
20202019
Change
Catastrophe$74,656 18 %$94,833 18 %(21%)$526,646 21 %$698,169 24 %(25%)
Property58,907 15 %67,972 13 %(13%)246,859 10 %283,849 10 %(13%)
Professional lines31,752 8 %23,540 %35%267,047 10 %226,283 %18%
Credit and surety38,110 10 %50,989 10 %(25%)189,180 7 %241,358 %(22%)
Motor(2,235)(1 %)25,367 %nm319,867 12 %313,614 11 %2%
Liability136,791 35 %146,690 29 %(7%)505,322 20 %458,000 16 %10%
Agriculture7,455 2 %5,074 %47%69,599 3 %201,592 %(65%)
Engineering1,408  %8,841 %nm20,334 1 %39,207 %(48%)
Marine and other6,341 2 %9,727 %(35%)62,202 2 %68,104 %(9%)
Accident and health41,820 11 %78,474 15 %(47%)356,123 14 %393,789 13 %(10%)
Discontinued lines - Novae356  %97 — %nm1,240  %(796)— %nm
Total$395,361 100 %$511,604 100 %(23%)$2,564,419 100 %$2,923,169 100 %(12%)
nm – not meaningful

Gross premiums written for the three months ended September 30, 2020, decreased by $116 million, or 23%, ($109 million, or 21% on a constant currency basis), compared to the three months ended September 30, 2016. 2019. The decrease was primarily attributable to accident and health, motor, catastrophe, credit and surety, liability and property lines, partially offset by an increase in professional lines.

The decrease in underwriting incomeaccident and health lines was primarily driven by annon-renewals following the decision to exit the Middle East business. The decrease in motor lines was due to premium adjustments. The decrease in catastrophe lines was driven by a timing difference associated with a significant contract, non-renewals, and decreased line sizes on a number of treaties. The decrease in credit and surety lines was attributable to the current economic climate. The decrease in liability lines was due to a reduced line size on a significant contract, partially offset by new business due to favorable market conditions and timing differences. The decrease in property lines was due to non-renewals and a timing difference. The increase in catastrophe and weather-related losses, and a decrease in net favorable prior year reserve development.professional lines was due to premium adjustments.


Total underwriting loss inGross premiums written for the nine months ended September 30, 2017 was $439 million, a decrease to underwriting income of $652 million compared to $213 million in the nine months ended September 30, 2016. The decrease in underwriting income was primarily driven by an increase in catastrophe and weather-related losses, an increase in the current accident year loss ratio excluding catastrophe and weather-related losses, decrease in net favorable prior year reserve development, partially offset by a decrease in general and administrative expenses.
The reinsurance segment underwriting income2020, decreased by $352$359 million, in the nine months ended September 30, 2017,or 12%, compared to the nine months ended September 30, 2016. 2019. The decrease was primarily attributable to catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines, partially offset by increases in liability and professional lines.

The decreases in catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines were driven by non-renewals and decreased line sizes consistent with optimization of the segment's portfolio. The increases in liability and professional lines were driven by premium adjustments, and favorable market conditions associated with renewals and new business.

Ceded Premiums Written:

Ceded premiums written for the three months ended September 30, 2020 was $124 million, or 31% of gross premiums written, compared to $173 million, or 34% of gross premiums written for the three months ended September 30, 2019.

The decrease in underwriting incomeceded premiums written of $48 million, or 28%, was primarily driven by catastrophe, accident and health, credit and surety, and liability lines. The decrease in catastrophe lines was attributable to a non-renewal of a catastrophe bond and a decrease in premiums ceded to strategic capital partners. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to an existing quota share retrocessional treaty. The decrease in liability lines was attributable to the restructuring of an existing quota share retrocessional treaty, partially offset by an increase in catastrophe and weather-related losses, decrease in net favorable prior year reserve development, an increase in the current accident year loss ratio excluding catastrophe and weather-related losses, partially offset bypremiums ceded to a decrease in general and administrative expenses.new quota share retrocessional treaty.
The insurance segment underwriting loss increased by $300 million in

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Ceded premiums written for the nine months ended September 30, 2017,2020, was $743 million, or 29% of gross premiums written, compared to $858 million, or 29% of gross premiums written for the nine months ended September 30, 2019.

The decrease in ceded premiums written of $115 million, or 13%, was primarily driven by catastrophe, credit and surety, accident and health, and agriculture lines, partially offset by increases in professional lines, liability, motor, and property lines.

The decrease in catastrophe lines was attributable to decreases in premiums ceded to strategic partners and a non-renewal of a catastrophe bond. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to a quota share retrocessional treaty and the restructuring of existing quota share retrocessional treaties. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large quota share retrocessional treaty.

The increases in liability and professional lines were attributable to an increase in premiums ceded to a new quota share retrocessional treaty, partially offset by the restructuring of an existing quota share retrocessional treaty. The increase in motor lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The increase in property lines was attributable to an increase in premiums ceded to a new aggregate excess of loss treaty.

Net Premiums Earned:

Net premiums earned by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020  2019  % Change2020  2019  % Change
Catastrophe$64,163 13 %$68,910 11 %(7%)$194,987 12 %$205,468 11 %(5%)
Property62,704 12 %78,271 13 %(20%)196,229 12 %226,515 13 %(13%)
Professional lines54,424 10 %50,966 %7%154,482 10 %154,390 %—%
Credit and surety43,730 8 %55,625 %(21%)134,988 9 %154,638 %(13%)
Motor63,298 12 %107,930 17 %(41%)203,776 13 %301,622 17 %(32%)
Liability96,671 19 %95,632 15 %1%293,918 19 %279,639 16 %5%
Agriculture17,750 3 %47,519 %(63%)57,949 4 %131,746 %(56%)
Engineering14,548 3 %16,611 %(12%)43,742 3 %47,290 %(8%)
Marine and other14,742 3 %17,924 %(18%)37,275 2 %44,529 %(16%)
Accident and health89,087 17 %81,500 13 %9%256,303 16 %239,388 13 %7%
Discontinued lines - Novae11  %(32)— %nm1,024  %(572)— %nm
Total$521,128 100 %$620,856 100 %(16%)$1,574,673 100 %$1,784,653 100 %(12%)
nm – not meaningful

Net premiums earned for the three months ended September 30, 2020, decreased by $100 million, or 16% ($93 million, or 15% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in motor, agriculture, credit and surety, and property lines.

Net premiums earned for the nine months ended September 30, 2020, decreased by $210 million, or 12% ($186 million, or 10% on a constant currency basis), compared to the nine months ended September 30, 2016.2019. The increase in underwriting incomedecrease was primarily driven by decreases in gross premiums earned in agriculture, motor, catastrophe, property, and credit and surety lines, together with an increase in ceded premiums earned in liability lines, partially offset by decreases in ceded premiums earned in catastrophe, agriculture, and accident and health lines, and an increase in gross premiums earned in liability lines.


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Other Insurance Related Income (Loss):

Other insurance related income was $1 million for the three months ended September 30, 2020, compared to other insurance related income of $1 million for the three months ended September 30, 2019.

Other insurance related loss was $7 million for the nine months ended September 30, 2020, compared to other insurance related income of $10 million for the nine months ended September 30, 2019. The decrease of $17 million was primarily due to the recognition of a full limit loss of $10 million associated with the WHO pandemic risk-linked swap and a decrease in fees associated with arrangements with strategic capital partners.

Loss Ratio:

The components of the loss ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020
% Point
Change
20192020
% Point
Change
2019
Current accident year83.8 %(0.6)84.4 %77.2 %7.369.9 %
Prior year reserve development(0.1 %)1.8(1.9 %)(0.3 %)0.9(1.2 %)
Loss ratio83.7 %1.282.5 %76.9 %8.268.7 %

Current Accident Year Loss Ratio:

The current accident year loss ratio decreased to 83.8% for the three months ended September 30, 2020, from 84.4% for the three months ended September 30, 2019. The current accident year loss ratio increased to 77.2% for the nine months ended September 30, 2020, from 69.9% for the nine months ended September 30, 2019.

During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net of reinstatement premiums, were $108 million, or 21.1 points, and $251 million, or 16.1, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion, and other weather-related events. During the nine months ended September 30, 2020, catastrophe and weather-related losses included $98 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included accident and health coverages. The remaining losses of $153 million were attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $119 million, or 19.6 points, and $132 million, or 7.6, respectively.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 62.7% for the three months ended September 30, 2020 from 64.8% for the three months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, professional lines and liability lines.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 61.1% for the nine months ended September 30, 2020 from 62.3% for the nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, motor and liability lines.


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Prior Year Reserve Development

The following table maps lines of business to reserve classes and the expected claim tails:
Reinsurance segment
Reserve class and tail
Property and otherCredit and suretyProfessional linesMotorLiability
ShortMediumMediumLongLong
Reported lines of business
CatastropheX
PropertyX
Credit and suretyX
Professional linesX
MotorX
LiabilityX
EngineeringX
AgricultureX
Marine and otherX
Accident and healthX
Discontinued lines - NovaeXXX

Prior year reserve development by reserve class were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Property and other$3,126 $(12,283)$(4,961)$(71,227)
Credit and surety11,184 5,652 27,927 32,659 
Professional lines(13,776)(7,303)(13,493)641 
Motor1,214 22,902 18,732 33,964 
Liability(1,434)3,150 (23,375)26,135 
Total$314 $12,118 $4,830 $22,172 

For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
$11 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to 2017 and 2019 accident years.
$14 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
For the three months ended September 30, 2019, we recognized $12 million of net favorable prior year reserve development, the principal components of which were:
$23 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to recent accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.
$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening attributable to late reporting of claims bordereaux associated with the European proportional book of business related to the 2018 accident year.

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$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European book of business mainly related to the 2015 and 2016 accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to multiple accident years.
$19 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to the 2019 and older accident years.
$23 million of net adverse prior year development on liability business primarily due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 to 2019 accident years.
$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, and the marine and other line of business mainly related to the 2017 accident years, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence attributable to the 2019 catastrophe events.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
$34 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to several accident years.
$33 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to the 2015 and 2016 accident years.
$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2018 accident year.

Acquisition Cost Ratio:

The acquisition costs.cost ratio decreased to 22.3% and 22.5% for the three and nine months ended September 30, 2020, respectively, from 23.3% and 23.4% for the three and nine months ended September 30, 2019, respectively, principally related to changes in business mix.

Underwriting-Related General and Administrative Expense Ratio:

The underwriting-related general and administrative expense ratio of 4.5% and 4.9% for the three and nine months ended September 30, 2020, respectively, was comparable to 4.1% and 4.9% for the three and nine months ended September 30, 2019, respectively.


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NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)


Net Investment IncomeRESULTS BY SEGMENT



Insurance Segment

Results for the insurance segment were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Revenues:
Gross premiums written$935,817 5%$894,902 $2,914,100 7%$2,714,322 
Net premiums written544,857 5%517,050 1,729,268 6%1,638,197 
Net premiums earned570,184 6%536,451 1,709,268 5%1,630,473 
Other insurance related income688 6%733 2,091 18%1,779 
Expenses:
Current accident year net losses and loss expenses(443,659)(353,575)(1,257,090)(1,004,293)
Prior year reserve development270 14,609 4,521 42,849 
Acquisition costs(114,569)(115,551)(343,579)(344,981)
Underwriting-related general and administrative expenses(94,379)(100,559)(284,909)(311,491)
Underwriting income (loss)$(81,465)$(17,892)$(169,698)$14,336 
Ratios:
% Point
Change
% Point
Change
Current accident year loss ratio excluding catastrophe and weather-related losses54.7 %(3.5)58.2 %54.8 %(2.9)57.7 %
Catastrophe and weather-related losses ratio23.1 %15.47.7 %18.7 %14.83.9 %
Current accident year loss ratio77.8 %11.965.9 %73.5 %11.961.6 %
Prior year reserve development ratio %2.7(2.7 %)(0.2 %)2.4(2.6 %)
Net losses and loss expenses ratio77.8 %14.663.2 %73.3 %14.359.0 %
Acquisition cost ratio20.1 %(1.4)21.5 %20.1 %(1.1)21.2 %
Underwriting-related general and administrative expense ratio16.5 %(2.3)18.8 %16.7 %(2.3)19.0 %
Combined ratio114.4 %10.9103.5 %110.1 %10.999.2 %
nm – not meaningful

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Gross Premiums Written

Gross premiums written by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  20202019
%
Change
20202019
%
Change
Property$238,599 26 %$241,517 27 %(1%)$741,043 27 %$701,314 27 %6%
Marine82,810 9 %91,161 10 %(9%)355,503 12 %337,529 12 %5%
Terrorism14,767 2 %17,284 %(15%)42,296 1 %46,803 %(10%)
Aviation22,702 2 %17,623 %29%63,725 2 %53,832 %18%
Credit and political risk24,473 3 %32,528 %(25%)100,151 3 %114,511 %(13%)
Professional lines338,907 36 %272,362 30 %24%943,635 32 %820,953 30 %15%
Liability172,747 18 %186,253 21 %(7%)548,023 19 %518,925 19 %6%
Accident and health39,262 4 %34,054 %15%117,743 4 %113,228 %4%
Discontinued lines - Novae1,550  %2,120 — %(27%)1,981  %7,227 — %nm
Total$935,817 100 %$894,902 100 %5%$2,914,100 100 %$2,714,322 100 %7%
nm – not meaningful

Gross premiums written for the three months ended September 30, 2020, increased by $41 million, or 5%, ($31 million, or 3% on a constant currency basis(1)), compared to the three months ended September 30, 2019. The increase was primarily attributable to professional lines, accident and health, and aviation lines, partially offset by decreases in liability, marine, and credit and political risk lines.

The increase in professional lines was due to new business and favorable rate changes. The increase in accident and health lines was due to new business. The increase in aviation lines was due to a timing difference and favorable rate changes. The decreases in liability and credit and political risk lines were due to a higher level of non-renewals and reduced business opportunities related to the current economic climate. The decrease in marine lines was due to a timing difference and non-renewals.

Gross premiums written for the nine months ended September 30, 2020, increased by $200 million, or 7%, compared to the nine months ended September 30, 2019. The increase was primarily attributable to professional lines, property, liability, marine, and aviation lines, partially offset by a decrease in credit and political risk lines.

The increases in professional lines, property, liability, and marine lines were due to new business and favorable rate changes. The increase in aviation lines was due to timing differences. The decrease in credit and political risk lines was due to non-renewals and reduced business opportunities related to the current economic climate.

Ceded Premiums Written

Ceded premiums written for the three months ended September 30, 2020, was $391 million, or 42% of gross premiums written, compared to $378 million, or 42% of gross premiums written for the three months ended September 30, 2019. The increase in ceded premiums written of $13 million or 3% was primarily driven by increases in professional lines and property lines, partially offset by decreases in liability, marine, and credit and political risk lines.

Ceded premiums written for the nine months ended September 30, 2020, was $1,185 million, or 41% of gross premiums written, compared to $1,076 million, or 40% of gross premiums written for the nine months ended September 30, 2019. The increase in ceded premiums written of $109 million, or 10%, was primarily driven by increases in professional lines, property, liability, and marine lines, partially offset by a decrease in credit and political risk lines.




(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.

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Net investment incomePremiums Earned

Net premiums earned by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  20202019
%
Change
20202019
%
Change
Property$145,717 27 %$154,751 29 %(6%)$452,876 26 %$481,450 30 %(6%)
Marine76,544 13 %65,437 12 %17%220,248 13 %209,629 13 %5%
Terrorism11,728 2 %11,605 %1%34,675 2 %35,635 %(3%)
Aviation19,039 3 %10,993 %nm51,236 3 %38,603 %33%
Credit and political risk23,781 4 %19,432 %22%77,721 5 %66,412 %17%
Professional lines179,441 31 %172,280 32 %4%530,651 31 %490,928 30 %8%
Liability76,487 13 %68,002 13 %12%234,522 14 %192,352 12 %22%
Accident and health37,151 7 %32,368 %15%106,015 6 %108,402 %(2%)
Discontinued lines - Novae296  %1,583 — %nm1,324  %7,062 — %nm
Total$570,184 100 %$536,451 100 %6%$1,709,268 100 %$1,630,473 100 %5%
nm – not meaningful

Net premiums earned for the three months ended September 30, 2020, increased by $34 million, or 6%, ($27 million, or 5% on a constant currency basis), compared to the three months ended September 30, 2019. The increase was primarily driven by increases in gross premiums earned in professional lines, liability, and marine lines, together with a decrease in ceded premiums earned in aviation lines, partially offset by increases in ceded premiums earned in professional lines and liability lines, and a decrease in gross premiums earned in property lines.

Net premiums earned for the nine months ended September 30, 2020, increased by $79 million, or 5%, compared to the nine months ended September 30, 2019. The increase was primarily driven by increases in gross premiums earned in liability, professional lines, marine, and credit and political risk lines, together with decreases in ceded premiums earned in property and aviation lines, partially offset by increases in ceded premiums earned in liability and professional lines, and a decrease in gross premiums earned in property lines.
























55

Table of Contents

Loss Ratio

The components of the loss ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
2020
% Point
Change
20192020
% Point
Change
2019
Current accident year77.8 %11.965.9 %73.5 %11.961.6 %
Prior year reserve development %2.7(2.7 %)(0.2 %)2.4(2.6 %)
Loss ratio77.8 %14.663.2 %73.3 %14.359.0 %

Current Accident Year Loss Ratio

The current accident year loss ratio increased to 77.8% and 73.5% for the three and nine months ended September 30, 2017 was $95 million2020, respectively, from 65.9% and $300 million, respectively, a decrease of $22 million and an increase of $42 million, respectively, compared to the three and nine months ended September 30, 2016 primarily attributable to our alternative investments portfolio.

Net Realized Investment Gains (Losses)

Net realized investment gains were $15 million for the three months ended September 30, 2017 compared to net realized investment gains of $5 million for for the same period of 2016. The net realized investment gains for the three months ended September 30, 2017 were mainly attributable to gains on sales of ETFs, partially offset by an other than temporary impairment ("OTTI") charge of $5 million. The net realized investment gains for the three months ended September 30, 2016 were attributable to sales of fixed income and equities which benefited from improved pricing in 2016.

Net realized investment losses were $15 million in the nine months ended September 30, 2017, compared to net realized investment losses of $40 million for the same period of 2016. The net realized investment losses for the nine months ended September 30, 2017 and 2016 were primarily attributable to foreign currency losses (net of forward contracts) on the sale of non-U.S. government and corporate debt securities as a result of the strengthening of the U.S. dollar and OTTI.

Corporate Expenses

Corporate expenses were $28 million for the three months ended September 30, 2017, compared to $29 million for the three months ended September 30, 2016. The decrease was primarily attributable to a decrease in performance related compensation costs and an



57




increase in the allocation of corporate costs to the insurance and reinsurance segments, largely offset by an increase in personnel expenses.

Corporate expenses were $98 million for the nine months ended September 30, 2017 compared to $87 million in the same period in 2016. The increase was primarily attributable to an increase in personnel expenses.

Other Expenses (Revenues), Net

The foreign exchange losses of $33 million and $90 million61.6% for the three and nine months ended September 30, 2017, respectively, were primarily attributable to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated in pound sterling and euro. For the nine months ended September 30, 2017 compared to the same period in 2016, foreign exchange losses also included the reclass of the cumulative translation adjustment of $24 million related to the wind-down of AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses.2019, respectively.

The foreign exchange gains of $14 million and $70 million for the three and nine months ended September 30, 2016, respectively, were primarily driven by the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated against the pound sterling.

The financial results for the three and nine months ended September 30, 2017 resulted in a tax benefit of $26 million and $39 million, respectively. The tax benefit of $26 million recognized in the three months ended September 30, 2017 was primarily driven by an underwriting loss recognized in our U.S. operations. The tax benefit of $39 million recognized in the nine months ended September 30, 2017 was primarily driven by an underwriting loss recognized in our U.S. operations, share based compensation excess tax benefits which were recognized in the income statement, and a tax adjustment related to the bargain purchase gain recognized in connection with the acquisition of Aviabel.

The financial results for the three and nine months ended and 2016 resulted in a tax expense of $9 million and $8 million, respectively, was primarily driven by the generation of consolidated pre-tax net income in our European operations.

Bargain Purchase Gain

On April 1, 2017, the Company acquired general aviation insurer and reinsurer, Aviabel. The purchase price was allocated to the acquired assets and liabilities of Aviabel based on estimated fair values on the closing date and a bargain purchase gain of $15 million was recognized in the nine months ended September 30, 2017.

Transaction Related Expenses

The Company incurred transaction related expenses including due diligence, legal, accounting, and investment banking fees and expenses, as well as integration expenses of $6 million in the three months ended September 30, 2017 related to the acquisition of Novae. In addition, the Company was contractually obligated to pay investment banking fees on the closing date of the transaction. The Company expects substantially all of the integration costs related to the acquisition to be incurred in 2018. In addition, the Company expects to begin realizing cost savings in 2018.

Interest in Loss of Equity Method Investments

Interest in loss of equity method investments was $1 million and $8 million for the three and nine months ended September 30, 2017, respectively. The nine months ended September 30, 2017 included impairment losses of $9 million related to an investment in a U.S. based insurance company, partially offset by income of $1 million related to the Company’s aggregate share of profits in a company in which it has significant influence over the operating and financial policies.





58




Financial Measures

We believe the following financial indicators are important in evaluating our performance and measuring the overall growth in value generated for our common shareholders:
   Three months ended and at September 30, Nine months ended and at September 30, 
   2017 2016 2017 2016 
          
 
ROACE (annualized)(1)
nm
 13.2% (10.3%) 8.4% 
 
Non-GAAP operating ROACE (annualized)(2)
nm
 12.0% (7.7%) 7.8% 
 
Diluted book value per common share(3)
$55.33
 $59.77
 $55.33
 $59.77
 
 Cash dividends declared per common share0.38
 0.35
 1.14
 1.05
 
 Increase (decrease) in diluted book value per common share adjusted for dividends$(4.74) $2.50
 $(1.80) $6.74
 
          
nm – not meaningful
(1) Return on average common equity (“ROACE”) is calculated by dividing annualized net income available to common shareholders for the period by the average shareholders’ equity determined by using the common shareholders’ equity balances at the beginning and end of the period.
(2) Non-GAAP operating ROACE is calculated by dividing annualized operating income for the period by the average common shareholders’ equity determined by using the common shareholders’ equity balances at the beginning and end of the period. Annualized non-GAAP operating ROACE is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to ROACE, the most comparable GAAP measure, is presented in the 'Results of Operations'.
(3) Diluted book value per common share represents total common shareholders’ equity divided by the number of common shares and diluted common share equivalents outstanding, determined using the treasury stock method. Cash settled awards are excluded from the denominator.
Return on Equity
ROACE reflects the impact of net income attributable to common shareholders including net realized investment gains (losses), foreign exchange losses (gains), a bargain purchase gain related to the acquisition of Aviabel, and transaction related expenses associated with the acquisition of Novae.
The decrease in ROACE for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, was primarily driven by a decrease in underwriting income and net investment income together with foreign exchange losses, partially offset by a tax benefit compared to a tax expense in 2016 and an increase in net realized investment gains .
The decrease in ROACE in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was primarily driven by a decrease in underwriting income and foreign exchange losses, partially offset by a tax benefit compared to a tax expense in 2016, an increase in net investment income, a decrease in net realized investment losses, and the bargain purchase gain.
Non-GAAP operating ROACE excludes the impact of net realized investment gains (losses), foreign exchange losses (gains), the bargain purchase gain and transaction related expenses.
The decrease in non-GAAP operating ROACE for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, was primarily driven by a decrease in underwriting income and net investment income partially offset by a tax benefit compared to a tax expense in 2016.
The decrease in non-GAAP operating ROACE in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was primarily driven by a decrease in underwriting income, partially offset by a tax benefit compared to a tax expense in 2016 and an increase in net investment income.

Diluted Book Value per Common Share
Diluted book value per common share decreased by 7% to $55.33 at September 30, 2017, from $59.77 at September 30, 2016, which primarily reflected net losses attributable to common shareholders generated over the past twelve months of $247 million and common share dividends declared.




59




Cash Dividends Declared per Common Share
We believe in returning excess capital to our shareholders by way of dividends (as well as share repurchases) accordingly, our dividend policy is an integral part of the value we create for our shareholders. Our cumulatively strong earnings have permitted our Board of Directors to approve thirteen successive increases in quarterly common share dividends.
Diluted Book Value per Common Share Adjusted for Dividends
Diluted book value per common share adjusted for dividends decreased by $4.74 or 8% per common share for the three months ended September 30, 2017, by $1.80 or 3% per common share for the nine months ended September 30, 2017, and $2.92, or 5%, per common share over the past twelve months.
Taken together, we believe that growth in diluted book value per common share and common share dividends declared represent the total value created for our common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the diluted book value per common share adjusted for dividends metric to measure comparable performance across the industry.


During the three and nine months ended September 30, 2017, respectively, the decrease in diluted book value per common share adjusted for dividends was primarily attributable to net loss generated in both periods and common share dividends declared, partially offset by an increase in unrealized gains on investments reported in accumulated other comprehensive income.

During the three and nine months ended September 30, 2016, respectively, total value created consisted primarily of net income and an increase in unrealized gains on investments reported in accumulated other comprehensive income, partially offset by common share dividends declared.




60





UNDERWRITING RESULTS – GROUP


The following table provides our group underwriting results for the periods indicated. Underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses.
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Revenues:            
 Gross premiums written$1,185,574
 24% $959,962
 $4,459,772
 5% $4,239,558
 
 Net premiums written832,743
 40% 595,431
 3,297,718
 —% 3,288,587
 
 Net premiums earned1,017,131
 9% 934,415
 2,937,265
 6% 2,783,746
 
 Other insurance related income (losses)(3,197) nm 5,944
 (4,420) nm 4,850
 
              
 Expenses:            
 Current year net losses and loss expenses(1,283,135) 
 (608,347) (2,591,135) 
 (1,887,715) 
 Prior year reserve development47,768
 
 76,019
 143,495
 
 224,131
 
 Acquisition costs(194,724) 
 (189,810) (588,879) 
 (559,570) 
 Underwriting-related general and administrative            
 
expenses(1)
(96,696) 
 (114,223) (335,782) 
 (352,632) 
              
 
Underwriting income (loss)(2)
$(512,853) nm $103,998
 $(439,456) nm $212,810
 
              
              
 
General and administrative expenses(1)
$124,629
 
 $142,906
 $433,704
 
 $439,554
 
 
Income (loss) before income taxes and interest in income (loss) of equity method investments(2)
$(482,300) 
 $198,399
 $(371,686) 
 $374,606
 
              
nm – not meaningful
(1)
Underwriting-related general and administrative expenses is a non-GAAP measure as defined in SEC Regulation G. The reconciliation to general and administrative expenses, the most comparable GAAP measure, is presented in the 'Results of Operations', which is included in the 'Executive Summary' section of this MD&A.
(2)
Group (or consolidated) underwriting income (loss) is a non-GAAP financial measure as defined in SEC Regulation G. The reconciliation to net income (loss before tax and interest in income (loss) of equity investments), the most comparable GAAP measure, is presented in the "Results of Operations', which is included in the 'Executive Summary' section of this MD&A.




61




UNDERWRITING REVENUES

Gross and net premiums written, by segment, were as follows:
   Gross Premiums Written 
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Insurance$744,366
 10% $675,430
 $2,234,395
 6% $2,112,796
 
 Reinsurance441,208
 55% 284,532
 2,225,377
 5% 2,126,762
 
 Total$1,185,574
 24% $959,962
 $4,459,772
 5% $4,239,558
 
              
 
Constant currency(3)
$1,188,100
 24% $959,962
 $4,522,500
 7% $4,239,558
 
              
 % ceded            
 Insurance33% (3) pts 36% 31% (1) pts 32% 
 Reinsurance25% (18) pts 43% 21% 8 pts 13% 
 Total30% (8) pts 38% 26% 4 pts 22% 
              
  Net Premiums Written 
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Insurance$500,022
 15% $433,131
 $1,533,029
 7% $1,433,058
 
 Reinsurance332,721
 105% 162,300
 1,764,689
 (5%) 1,855,529
 
 Total$832,743
 40% $595,431
 $3,297,718
 —% $3,288,587
 
              
 
Constant currency(3)
$835,600
 40% $595,431
 $3,360,300
 2% $3,288,587
 
              
(3)Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.

Gross Premiums Written:

Gross premiums written for the three and nine months ended September 30, 2017 increased by $226 million or 24% ($228 million or 24% on a constant currency basis) and $220 million or 5% ($283 million or 7% on a constant currency basis), respectively, compared to the three and nine months ended September 30, 2016, respectively. The increase for the three and nine months ended September 30, 2017 compared to the same periods in 2016, was due to an increase in both the insurance and reinsurance segments.

The reinsurance segment's gross premiums written increased by $157 million or 55% ($160 million or 56% on a constant currency basis) and $99 million or 5% ($150 million or 7% on a constant currency basis) for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016.

The increase in the reinsurance segment gross premiums written for the three months ended September 30, 2017 compared to the same period of 2016, was primarily driven by our liability, catastrophe, property and motor lines. The increase in our liability lines was due to timing differences. The increase in our catastrophe lines was largely due to reinstatement premiums associated with the third quarter catastrophe losses. The increase in our property and motor lines was primarily driven by new business. Timing differences also contributed to the increase in premiums written in our motor lines.

The increase for the nine months ended September 30, 2017 compared to the same period in 2016, was primarily driven by our catastrophe, agriculture, property and motor lines, partially offset by a decrease in our credit and surety lines. The increase in our catastrophe and property lines was driven by new business. Favorable premium adjustments and reinstatement premiums contributed to the increase in premiums written in our catastrophe and agriculture lines. The increase in our motor lines was driven by new business and favorable premium adjustments, partially offset by a lower level of premiums written on a multi-year basis during 2017



62




compared to 2016, together with the impact of foreign exchange movements. The decrease in our credit and surety lines was primarily due to a lower level of premiums written on a multi-year basis.

The insurance segment's gross premiums written increased by $69 million or 10% and $122 million or 6% ($133 million on a constant currency basis) for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016.

The increase in the insurance segment gross premiums written for the three months ended September 30, 2017 was attributable to our liability lines, and our credit and political risk lines driven by new business opportunities, together with an increase in our aviation lines associated with our recent acquisition of Aviabel. These increases were partially offset by a reduction in premiums written in our property lines following our exit from some U.S. retail insurance operations last year.

The increase in the nine months ended September 30, 2017 was attributable to our liability, accident and health lines and our professional lines, primarily driven by new business opportunities, together with an increase in our aviation lines associated with our recent acquisition of Aviabel. These increases were partially offset by a decrease in premiums written in our property lines following our exit from some U.S. retail insurance operations last year.
Ceded Premiums Written:

Ceded premiums written for the three and nine months ended September 30, 2017 were $353 million or 30% and $1.2 billion or 26% of gross premiums written, respectively, compared to $365 million or 38% and $951 million or 22% of gross premiums written for the three and nine months ended September 30, 2016, respectively. The decrease in the ratio of ceded premiums written to gross premiums written for the three months ended September 30, 2017 and increase for the nine months ended September 30, 2017, compared to the same period in 2016, was primarily attributable to the reinsurance segment.

The decrease in the reinsurance segment ratio of ceded premiums written to gross premiums written for the three months ended September 30, 2017 compared to the same period in 2016, was primarily due to an increase in gross premiums written in the quarter together with a decrease in premiums ceded to our strategic capital partners. The decrease in premiums ceded was attributable to our professional and liability lines, partially offset by an increase in premiums ceded in our catastrophe lines.

The increase in the reinsurance segment ratio of ceded premiums written to gross premiums written for the nine months ended September 30, 2017 compared to the same period in 2016, primarily due to an increase in premiums ceded in our catastrophe, agriculture, credit and surety lines as well as our liability lines, partially offset by an increase in gross premiums written.

In June 2017, the Company obtained catastrophe protection for its insurance and reinsurance segments through a reinsurance agreement with Northshore Re II Limited ("Northshore"). In connection with the reinsurance agreement, Northshore issued notes to unrelated investors in an amount equal to the full $350 million of coverage provided under the reinsurance agreement covering a three year period. At the time of the agreement, the Company performed an evaluation of Northshore to determine if it meets the definition of a variable interest entity ("VIE"). The Company concluded that Northshore is a VIE but that the Company does not have a variable interest in the entity, as the variability in results is expected to be absorbed entirely by the investors in Northshore. Accordingly, Northshore is not consolidated in the Company's consolidated financial statements. The premium ceded to Northshore during the nine months ended September 30, 2017 was $27 million.



63





Net Premiums Earned:

Net premiums earned by segment were as follows:
   Three months ended September 30,   Nine months ended September 30,   
   2017   2016   
%
Change
 2017   2016   
%
Change
 
                      
 Insurance$496,004
 49% $444,691
 48% 12% $1,448,270
 49% $1,322,649
 48% 9% 
 Reinsurance521,127
 51% 489,724
 52% 6% 1,488,995
 51% 1,461,097
 52% 2% 
 Total$1,017,131
 100% $934,415
 100% 9% $2,937,265
 100% $2,783,746
 100% 6% 
                      
 
Constant currency(3)
$1,027,050
   $934,415
 

 10% $2,999,050
   $2,783,746
   8% 
                      
(3)Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.

Changes in net premiums earned reflect period to period changes in net premiums written and business mix, together with normal variability in premium earning patterns.

Net premiums earned for the three and nine months ended September 30, 2017 increased by $83 million or 9% ($93 million or 10% on a constant currency basis) and $154 million or 6% ($215 million or 8% on a constant currency basis), respectively, compared to the three and nine months ended September 30, 2016, respectively. The increases for both periods compared to the same periods in 2016, were driven by increases in both the insurance and reinsurance segments.

The increase in net premiums earned in the insurance segment for the three and nine months ended September 30, 2017 compared to the same periods in 2016, were driven by strong premium growth in our accident and health lines, as well as our aviation lines in recent periods, together with a decrease in ceded premiums earned in our property lines. Net premiums earned for the nine months ended September 30, 2017 was also impacted by strong premium growth in our property lines in recent periods.

The increase in net premiums earned in the reinsurance segment for the three months ended September 30, 2017 compared to the same periods in 2016, was primarily driven by strong premium growth in our motor lines, as well as favorable reinstatement premiums impacting our catastrophe lines, and favorable premium estimate adjustments impacting our agriculture lines, partially offset by an increase in ceded premiums earned in our catastrophe, agriculture and professional lines, as well as a decrease in gross premium earned in our professional lines.

The increase in net premiums earned in the reinsurance segment for the nine months ended September 30, 2017, compared to the same periods in 2016, driven by an increase in gross premium earned in our motor and agriculture lines, partially offset by an increase in ceded premiums earned in our agriculture and professional lines, together with a decrease in gross premiums earned in our professional lines.

Other Insurance Related Income (Losses):

Other insurance related losses was $3 million for the three months ended September 30, 2017, compared to other insurance related income of $6 million for the same period in 2016. The decrease in other insurance related income of $9 million was driven by the reinsurance segment and reflected a decrease in profit commissions associated withretrocessional agreements with strategic capital partner related to the third quarter catastrophe losses.

Other insurance related losses for the nine months ended September 30, 2017 was $4 million, compared to other insurance related income of $5 million for the same period in 2016. The decrease in other insurance related income of $9 million was driven by the reinsurance segment and reflected net realized losses on our weather and commodities derivative portfolio partially offset by fees from our strategic capital partners.






64




UNDERWRITING EXPENSES

The following table provides a breakdown of our combined ratio:
   Three months ended September 30, Nine months ended September 30, 
   2017 
% Point
Change
 2016 2017 
% Point
Change
 2016 
              
 Current accident year loss ratio126.2% 61.1 65.1% 88.2% 20.4 67.8% 
 Prior year reserve development(4.7%) 3.4 (8.1%) (4.9%) 3.1 (8.0%) 
 Acquisition cost ratio19.1% (1.2) 20.3% 20.0% (0.1) 20.1% 
 
General and administrative expense ratio(1)
12.3% (3.0) 15.3% 14.8% (1.0) 15.8% 
 Combined ratio152.9% 60.3 92.6% 118.1% 22.4 95.7% 
              
(1)
The general and administrative expense ratio includes corporate expenses not allocated to reportable segments of 2.7% and 3.1% for the three months ended September 30, 2017 and 2016, respectively, and 3.3% and 3.1% for the six months ended September 30, 2017 and 2016, respectively. These costs are further discussed in the ‘Other Expenses (Revenues), Net’ section.

Current Accident Year Loss Ratio:

The current accident year loss ratio increased to 126.2% and 88.2% for the three and nine months ended September 30, 2017, respectively, from 65.1% and 67.8% for the three and nine months ended September 30, 2016, respectively.

The increase in the current accident year loss ratio for the three and nine months ended September 30, 2017 compared to the same period in 2016, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2017 we incurred pre-tax2020, catastrophe and weather-related losses, net of reinstatement premiums, of $617were $132 million, or 61.423.1 points, and $702$325 million, or 24.118.7 points, respectively,respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricanes Harvey, IrmaLaura and Maria,Sally, the two earthquakes in MexicoBeirut port explosion, wildfires across the West Coast of the United States, and U.S.other weather-related events. During the nine months ended September 30, 2020 catastrophe and weather-related losses included $137 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included event cancellation coverages. The remaining losses of $188 million were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2016 we incurred pre-tax2019, catastrophe and weather-related losses net of reinstatement premiums of $22were $41 million, or 2.37.7 points, and $145$64 million, or 5.33.9 points, respectively.


After adjusting for the impact of the catastrophe and weather-related losses, ourthe current accident year loss ratio decreased to 54.7% for the three and nine months ended September 30, 2017 was 64.8% and 64.1%, respectively, compared to 62.8% and 62.5% in2020, from 58.2% for the three and nine months ended September 30, 2016, respectively.

2019. The increasedecrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, marine, credit and political risk, and aviation lines largely associated with the repositioning of the portfolio.

After adjusting for the threeimpact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 54.8% for the nine months ended September 30, 2017 compared to2020, from 57.7% for the same period in 2016, was mainly due to higher attritional losses in our insurance property lines, higher mid-size loss experience in our reinsurance credit and surety lines, the ongoing impact of the Ogden rate change on our reinsurance motor lines together with the adverse impact on rate and trend.

nine months ended September 30, 2019. The increasedecrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the nine months ended September 30, 2017 comparedwas principally due to the same period in 2016, was mainly due to higherimpact of favorable pricing over loss trends, improved loss experience in our insuranceproperty, credit and reinsurance propertypolitical risk, marine and aviation lines, the adverse impact on rate and trend and the ongoing impact of the Ogden rate change on our reinsurance motor lines.

For further discussion on current accident year loss ratios, refer to the insurance and reinsurance segment discussions below.

Estimates of Significant Catastrophe Events

Our September 30, 2017 net reserves for losses and loss expenses includes estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events,partially offset by changes in particular Hurricanes Harvey, Irma and Maria and the two earthquakes in Mexico as well as Hurricane Matthew, the Fort McMurray wildfires, Storm Sandy, the 2011 Japanese earthquake and tsunami, the 2010-11 New Zealand earthquakes and the Tianjin port explosion, inherently increases the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.

business mix.



56
65


Our estimated net losses in relation to the catastrophe events described above were derived from ground-up assessments of our in-force contracts and treaties providing coverage in the affected regions. These assessments take into account the latest information available from clients, brokers and loss adjusters. In addition, we consider industry insured loss estimates, market share analyses and catastrophe modeling analyses, when appropriate. Our estimates remain subject to change, as additional loss data becomes available.

We continue to monitor paid and incurred loss development for catastrophe events of prior years and update our estimates of ultimate losses accordingly.

Prior Year Reserve Development:Development


Our favorable prior year reserve development was the net result of several underlying reserve developments on prior accident years, identified during our quarterly reserve review process. The following table provides a breakdownmaps lines of priorbusiness to reserve classes and the expected claim tails:
Insurance segment
Reserve class and tail
Property and otherMarineAviationCredit and political riskProfessional linesLiability
ShortShortShort/MediumMediumMediumLong
Reported lines of business
PropertyX
MarineX
TerrorismX
AviationX
Credit and political riskX
Professional linesX
LiabilityX
Accident and healthX
Discontinued lines - NovaeXXX

Prior year reserve development by segment:

   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Insurance$2,603
 $20,688
 $30,740
 $43,181
 
 Reinsurance45,165
 55,331
 112,755
 180,950
 
 Total$47,768
 $76,019
 $143,495
 $224,131
 
          

Overview

Our short tail business includes the underlying exposures in our property and other, marine and aviation reserve classes within our insurance segment, and the property and other reserve class within our reinsurance segment. Development from these classes contributed $5 million and $41 million of net favorable prior year reserve development for the three and nine months ended September 30, 2017, respectively. These short-tail lines contributed $41 million and $116 million of net favorable prior year reserve development for the three and nine months ended September 30, 2016, respectively. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence.were as follows:

  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Property and other$6,907 $11,427 $42,688 $(4,426)
Marine4,095 2,119 633 23,753 
Aviation(326)471 5,667 1,671 
Credit and political risk871 1,217 (223)10,278 
Professional lines(7,287)3,656 (19,086)13,899 
Liability(3,990)(4,281)(25,158)(2,326)
Total$270 $14,609 $4,521 $42,849 
Our medium-tail business consists primarily of professional insurance and reinsurance reserve classes, credit and political risk insurance reserve class, and credit and surety reinsurance reserve class.
For the three months ended September 30, 2017, the professional reinsurance reserve class contributed2020, we recognized $0.3 million of net favorable prior year reserve development of $9 million. For the nine months ended September 30, 2017, the professional insurance and reinsurance reserve classes contributed net favorable prior year reserve development of $54 million. For the three and nine months ended September 30, 2017 the credit and surety reinsurance reserve class recorded net favorable prior year reserve development of $17 million and $18 million, respectively. This net favorable prior year reserve development reflected the recognition of generally better than expected loss emergence.

For the three and nine months ended September 30, 2016, the professional reserve classes contributed net favorable prior year reserve development of $12 million and $28 million, respectively. The net favorable prior year reserve development on these reserve classes reflected the generally favorable experience as we continued to transition to more experience based methods.

Our long-tail business consists primarily of liability and motor reserve classes. For the nine months ended September 30, 2017, the liability reinsurance reserve class contributed net favorable prior year reserve development of $40 million. For the three and nine months ended and September 30, 2016, the liability reinsurance reserve class contributed net favorable prior year development of $10 million and $32 million, respectively. The net favorable prior year reserve development for our liability reinsurance reserve class in both years primarily reflected the progressively increased weight given by management to experience based indications on older accident years, which has generally been favorable. For the nine months ended September 30, 2017, the liability insurance reserve class recorded net adverse prior year reserve development of $6 million, primarily attributable to reserve strengthening within our run-off Bermuda excess casualty book of business.

For the three and nine months ended September 30, 2017, the motor reinsurance reserve class recorded net favorable prior year reserve development of $16 million and net adverse prior year reserve development of $4 million, respectively. For the three months ended September 30, 2017, the net favorable prior year reserve development related to favorable loss emergence trends on several classes of



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business spanning multiple accident years. For the nine months ended, the net adverse prior year development was driven by the U.K. Ministry of Justice’s recent announcement of a decrease in the discount rate used to calculate lump sum awards in U.K. bodily injury cases, known as the Ogden rate. Effective March 20, 2017, the Ogden rate changed from plus 2.5% to minus 0.75%. For the three and nine months ended September 30, 2016, the motor reinsurance reserve class contributed $7 million and $40 million, respectively, of net favorable prior year reserve development related to favorable loss emergence trends on several classes of business spanning multiple accident years.

We caution that conditions and trends that impacted the development of our liabilities in the past may not necessarily occur in the future.

The following sections provide further details on prior year reserve development by segment, reserving class and accident year.

Insurance Segment:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Property and other$432
 $10,061
 $4,434
 $24,048
 
 Marine2,461
 4,682
 17,957
 8,382
 
 Aviation(831) 517
 (4,344) 437
 
 Credit and political risk(18) (25) (53) (232) 
 Professional lines(261) 3,378
 18,489
 8,956
 
 Liability820
 2,075
 (5,743) 1,590
 
 Total$2,603
 $20,688
 $30,740
 $43,181
 
          

For the three months endedSeptember 30, 2017 we recognized $3 million of net favorable prior year reserve development, the principal component of which was: 

$2 million of net favorable prior year reserve development on marine business, primarily related to accident year 2015 and primarily driven by better than expected development.

For the three months ended September 30, 2016 we recognized $21 million of net favorable prior year reserve development, the principal componentscomponents of which were: 

$107 million of net favorable prior year reserve development on property and other business driven byprimarily due to better than expected loss emergence primarily driven by reductions in mid-size loss estimates impacting accident year 2015 and favorable loss experience in our accident and health lines impacting accident year 2014.attributable to the 2019 catastrophe events.

$54 million of net favorable prior year reserve development on marine business driven byprimarily due better than expected loss emergence mainly related to the 2018 accident year.
$7 million of net adverse prior year reserve development on professional lines business primarily driven by reductions in mid-size loss estimates impactingdue to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year 2015.and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.

$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to 2017 and 2018 accident years.
For the ninethree months ended September 30, 20172019, we recognized $31$15 million of net favorable prior year reserve development, the principal components of which were: 

$11 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
$184 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to accident yearsthe 2013 and 2014 accident years.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the recognitionU.S. excess casualty book of better than expected development.business related to older accident years.


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For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were: 
$1843 million of net favorable prior year reserve development on marineproperty and other business primarily relateddue to accident years 2013, 2015 and 2016 driven by better than expected loss emergence.emergence mainly related to the 2018 and 2019 accident years, better than expected loss emergence attributable to the 2017, 2018 and 2019 catastrophe events, and decreases in case reserves attributable to specific claims related to the 2014 and 2016 accident years.

$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years.
$625 million of net adverse prior year reserve development on liability lines,business primarily attributabledue to reserve strengthening on two large claims within our run-off Bermudathe primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.
$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business impacting 2014mainly related to the 2018 and prior2019 accident years.




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year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
For the nine months ended September 30, 20162019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were: 

$24 million of net favorable prior year reserve development on property and other business, driven by better than expected loss emergence primarily related to accident year 2014.

$9 million of net favorable prior year reserve development on professional lines business, driven by better than expected
development related to various accident years, partially offset by reserve strengthening relating to updated information on one specific claim impacting accident year 2010.

$8 million of net favorable prior year reserve development on marine business driven by better than expected loss emergence, primarily driven by reductions in mid-size loss estimates impacting accident year 2015.

Reinsurance Segment:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Property and other$3,041
 $25,831
 $22,482
 $83,522
 
 Credit and surety16,838
 3,900
 18,361
 6,761
 
 Professional lines8,918
 8,761
 35,764
 18,918
 
 Motor15,653
 6,653
 (3,963) 39,794
 
 Liability715
 10,186
 40,111
 31,955
 
 Total$45,165
 $55,331
 $112,755
 $180,950
 
          

For the three months endedSeptember 30, 2017 we recognized $45 million of net favorable prior year reserve development, the principal components of which were:

$17 million of net favorable prior year reserve development on credit and surety, primarily related to accident years 2012 through 2015 driven by better than expected loss emergence.

$16 million of net favorable prior year reserve development on motor business, due to better than expected loss emergence emanating from allmainly related to the 2015 to 2017 accident years, partially offset by the adverse impact of the recent change in Ogden rate.years.

$914 million of net favorable prior year reserve development on professional lines business primarily relateddue to earlier accident year 2009 for reasons discussed in the overview.

For the three months ended September 30, 2016 we recognized $55 million of net favorable prior year reserve development, the principal components of which were:

$26 million of net favorable prior year reserve development on property and other business, related to 2011 through 2015 accident years driven by better than expected loss emergence including a reserve reduction of $7 millionmainly related to Storm Sandy.the 2013 to 2015 accident years.

$10 million of net favorable prior year reserve development on liabilitycredit and political risk business primarily relateddue to the 2007 through 2010 accident years, for reasons discussed in the overview.

$9 million of net favorable prior year reserve development on professional lines business, primarily related to the 2005 through 2010 accident years, for reasons discussed in the overview.

$7 million of net favorable prior year reserve development on motor business, related to non-proportional business spanning multiple accident years, driven by better than expected loss emergence.emergence mainly related to the 2018 accident year.




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For the nine months ended September 30, 2017 we recognized $113$4 million of net favorable prior year reserve development, the principal components of which were:

$40 million of net favorable prior year reserve development on liability business, primarily related to accident years 2008 through 2010, for reasons discussed in the overview.

$36 million of net favorable prior year reserve development on professional lines business, primarily related to accident years 2008 through 2012, for reasons discussed in the overview.

$22 million of net favorableadverse prior year reserve development on property and other business primarily due to reserve strengthening within the international book of business mainly related to 2013, 2014 and 2016the 2018 accident years drivenyear, partially offset by overall better than expected loss emergence.emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.


Acquisition Cost Ratio

The acquisition cost ratio decreased to 20.1% for the three months ended September 30, 2020, from 21.5% for the three months ended September 30, 2019, principally related to an increase in ceding commissions.

The acquisition cost ratio decreased to 20.1% for the nine months ended September 30, 2020, from 21.2% for the nine months ended September 30, 2019, associated with the acquisition of Novae and an increase in ceding commissions. At the acquisition date, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at that date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet as the value of policies in-force on that date are considered within value of business acquired ("VOBA"). Consequently, the absence of $1 million and $11 million of acquisition expense related to premiums earned in the nine months ended September 30, 2020 and 2019, respectively, benefited the acquisition cost by 0.1 points and 0.6 points, respectively. Adjusting the acquisition cost rate for these amounts, the acquisition cost ratio decreased by 1.6 points.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 16.5%for thethree months ended September 30, 2020, from 18.8% for the three months ended September 30, 2019, mainly driven by a decrease in personnel costs and travel and entertainment expenses, together with an increase in net premiums earned.

The underwriting-related general and administrative expense ratio decreased to 16.7% for the nine months ended September 30, 2020, from 19.0% for the nine months ended September 30, 2019, mainly driven by decreases in travel and entertainment expenses, and professional fees, together with an increase in net premiums earned.

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Reinsurance Segment

Results from the reinsurance segment were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Revenues:
Gross premiums written$395,361 (23%)$511,604 $2,564,419 (12%)$2,923,169 
Net premiums written271,125 (20%)339,031 1,821,692 (12%)2,065,263 
Net premiums earned521,128 (16%)620,856 1,574,673 (12%)1,784,653 
Other insurance related income (loss)752 (6%)800 (7,361)nm9,606 
Expenses:
Current year net losses and loss expenses(436,602)(524,065)(1,216,273)(1,248,131)
Prior year reserve development314 12,118 4,830 22,172 
Acquisition costs(115,995)(144,475)(354,137)(417,826)
Underwriting-related general and administrative expenses(23,456)(26,060)(76,714)(87,049)
Underwriting income (loss)$(53,859)$(60,826)$(74,982)$63,425 
Ratios:
% Point
Change
% Point
Change
Current accident year loss ratio excluding catastrophe and weather-related losses62.7 %(2.1)64.8 %61.1 %(1.2)62.3 %
Catastrophe and weather-related losses ratio21.1 %1.519.6 %16.1 %8.57.6 %
Current accident year loss ratio83.8 %(0.6)84.4 %77.2 %7.369.9 %
Prior year reserve development ratio(0.1 %)1.8(1.9 %)(0.3 %)0.9(1.2 %)
Net losses and loss expenses ratio83.7 %1.282.5 %76.9 %8.268.7 %
Acquisition cost ratio22.3 %(1.0)23.3 %22.5 %(0.9)23.4 %
Underwriting-related general and administrative expense ratio4.5 %0.44.1 %4.9 %4.9 %
Combined ratio110.5 %0.6109.9 %104.3 %7.397.0 %
nm – not meaningful

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Gross Premiums Written:

Gross premiums written by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  20202019
Change
20202019
Change
Catastrophe$74,656 18 %$94,833 18 %(21%)$526,646 21 %$698,169 24 %(25%)
Property58,907 15 %67,972 13 %(13%)246,859 10 %283,849 10 %(13%)
Professional lines31,752 8 %23,540 %35%267,047 10 %226,283 %18%
Credit and surety38,110 10 %50,989 10 %(25%)189,180 7 %241,358 %(22%)
Motor(2,235)(1 %)25,367 %nm319,867 12 %313,614 11 %2%
Liability136,791 35 %146,690 29 %(7%)505,322 20 %458,000 16 %10%
Agriculture7,455 2 %5,074 %47%69,599 3 %201,592 %(65%)
Engineering1,408  %8,841 %nm20,334 1 %39,207 %(48%)
Marine and other6,341 2 %9,727 %(35%)62,202 2 %68,104 %(9%)
Accident and health41,820 11 %78,474 15 %(47%)356,123 14 %393,789 13 %(10%)
Discontinued lines - Novae356  %97 — %nm1,240  %(796)— %nm
Total$395,361 100 %$511,604 100 %(23%)$2,564,419 100 %$2,923,169 100 %(12%)
nm – not meaningful

Gross premiums written for the three months ended September 30, 2020, decreased by $116 million, or 23%, ($109 million, or 21% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily attributable to accident and health, motor, catastrophe, credit and surety, liability and property lines, partially offset by an increase in professional lines.

The decrease in accident and health lines was driven by non-renewals following the decision to exit the Middle East business. The decrease in motor lines was due to premium adjustments. The decrease in catastrophe lines was driven by a timing difference associated with a significant contract, non-renewals, and decreased line sizes on a number of treaties. The decrease in credit and surety lines was attributable to the current economic climate. The decrease in liability lines was due to a reduced line size on a significant contract, partially offset by new business due to favorable market conditions and timing differences. The decrease in property lines was due to non-renewals and a timing difference. The increase in professional lines was due to premium adjustments.

Gross premiums written for the nine months ended September 30, 2020, decreased by $359 million, or 12%, compared to the nine months ended September 30, 2019. The decrease was primarily attributable to catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines, partially offset by increases in liability and professional lines.

The decreases in catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines were driven by non-renewals and decreased line sizes consistent with optimization of the segment's portfolio. The increases in liability and professional lines were driven by premium adjustments, and favorable market conditions associated with renewals and new business.

Ceded Premiums Written:

Ceded premiums written for the three months ended September 30, 2020 was $124 million, or 31% of gross premiums written, compared to $173 million, or 34% of gross premiums written for the three months ended September 30, 2019.

The decrease in ceded premiums written of $48 million, or 28%, was primarily driven by catastrophe, accident and health, credit and surety, and liability lines. The decrease in catastrophe lines was attributable to a non-renewal of a catastrophe bond and a decrease in premiums ceded to strategic capital partners. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to an existing quota share retrocessional treaty. The decrease in liability lines was attributable to the restructuring of an existing quota share retrocessional treaty, partially offset by an increase in premiums ceded to a new quota share retrocessional treaty.

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Ceded premiums written for the nine months ended September 30, 2020, was $743 million, or 29% of gross premiums written, compared to $858 million, or 29% of gross premiums written for the nine months ended September 30, 2019.

The decrease in ceded premiums written of $115 million, or 13%, was primarily driven by catastrophe, credit and surety, accident and health, and agriculture lines, partially offset by increases in professional lines, liability, motor, and property lines.

The decrease in catastrophe lines was attributable to decreases in premiums ceded to strategic partners and a non-renewal of a catastrophe bond. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to a quota share retrocessional treaty and the restructuring of existing quota share retrocessional treaties. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large quota share retrocessional treaty.

The increases in liability and professional lines were attributable to an increase in premiums ceded to a new quota share retrocessional treaty, partially offset by the restructuring of an existing quota share retrocessional treaty. The increase in motor lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The increase in property lines was attributable to an increase in premiums ceded to a new aggregate excess of loss treaty.

Net Premiums Earned:

Net premiums earned by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020  2019  % Change2020  2019  % Change
Catastrophe$64,163 13 %$68,910 11 %(7%)$194,987 12 %$205,468 11 %(5%)
Property62,704 12 %78,271 13 %(20%)196,229 12 %226,515 13 %(13%)
Professional lines54,424 10 %50,966 %7%154,482 10 %154,390 %—%
Credit and surety43,730 8 %55,625 %(21%)134,988 9 %154,638 %(13%)
Motor63,298 12 %107,930 17 %(41%)203,776 13 %301,622 17 %(32%)
Liability96,671 19 %95,632 15 %1%293,918 19 %279,639 16 %5%
Agriculture17,750 3 %47,519 %(63%)57,949 4 %131,746 %(56%)
Engineering14,548 3 %16,611 %(12%)43,742 3 %47,290 %(8%)
Marine and other14,742 3 %17,924 %(18%)37,275 2 %44,529 %(16%)
Accident and health89,087 17 %81,500 13 %9%256,303 16 %239,388 13 %7%
Discontinued lines - Novae11  %(32)— %nm1,024  %(572)— %nm
Total$521,128 100 %$620,856 100 %(16%)$1,574,673 100 %$1,784,653 100 %(12%)
nm – not meaningful

Net premiums earned for the three months ended September 30, 2020, decreased by $100 million, or 16% ($93 million, or 15% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in motor, agriculture, credit and surety, and property lines.

Net premiums earned for the nine months ended September 30, 2020, decreased by $210 million, or 12% ($186 million, or 10% on a constant currency basis), compared to the nine months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in agriculture, motor, catastrophe, property, and credit and surety lines, together with an increase in ceded premiums earned in liability lines, partially offset by decreases in ceded premiums earned in catastrophe, agriculture, and accident and health lines, and an increase in gross premiums earned in liability lines.


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Other Insurance Related Income (Loss):

Other insurance related income was $1 million for the three months ended September 30, 2020, compared to other insurance related income of $1 million for the three months ended September 30, 2019.

Other insurance related loss was $7 million for the nine months ended September 30, 2020, compared to other insurance related income of $10 million for the nine months ended September 30, 2019. The decrease of $17 million was primarily due to the recognition of a full limit loss of $10 million associated with the WHO pandemic risk-linked swap and a decrease in fees associated with arrangements with strategic capital partners.

Loss Ratio:

The components of the loss ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020
% Point
Change
20192020
% Point
Change
2019
Current accident year83.8 %(0.6)84.4 %77.2 %7.369.9 %
Prior year reserve development(0.1 %)1.8(1.9 %)(0.3 %)0.9(1.2 %)
Loss ratio83.7 %1.282.5 %76.9 %8.268.7 %

Current Accident Year Loss Ratio:

The current accident year loss ratio decreased to 83.8% for the three months ended September 30, 2020, from 84.4% for the three months ended September 30, 2019. The current accident year loss ratio increased to 77.2% for the nine months ended September 30, 2020, from 69.9% for the nine months ended September 30, 2019.

During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net of reinstatement premiums, were $108 million, or 21.1 points, and $251 million, or 16.1, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion, and other weather-related events. During the nine months ended September 30, 2020, catastrophe and weather-related losses included $98 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included accident and health coverages. The remaining losses of $153 million were attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $119 million, or 19.6 points, and $132 million, or 7.6, respectively.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 62.7% for the three months ended September 30, 2020 from 64.8% for the three months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, professional lines and liability lines.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 61.1% for the nine months ended September 30, 2020 from 62.3% for the nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, motor and liability lines.


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Prior Year Reserve Development

The following table maps lines of business to reserve classes and the expected claim tails:
Reinsurance segment
Reserve class and tail
Property and otherCredit and suretyProfessional linesMotorLiability
ShortMediumMediumLongLong
Reported lines of business
CatastropheX
PropertyX
Credit and suretyX
Professional linesX
MotorX
LiabilityX
EngineeringX
AgricultureX
Marine and otherX
Accident and healthX
Discontinued lines - NovaeXXX

Prior year reserve development by reserve class were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Property and other$3,126 $(12,283)$(4,961)$(71,227)
Credit and surety11,184 5,652 27,927 32,659 
Professional lines(13,776)(7,303)(13,493)641 
Motor1,214 22,902 18,732 33,964 
Liability(1,434)3,150 (23,375)26,135 
Total$314 $12,118 $4,830 $22,172 

For the three months ended September 30, 2020, we recognized $180.3 million of net favorable prior year reserve development, the principal components of which were:
$11 million of net favorable prior year reserve development on credit and surety business primarily relateddue to accident year 2012 driven by better than expected loss emergence.emergence mainly related to 2017 and 2019 accident years.

$414 million of net adverse prior year reserve development on motorprofessional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the impact2016 accident year and reserve strengthening within the European book of business mainly related to the recent change in Ogden rate, largely offset by continued better than expected loss emergence spanning multiple2016 to 2018 accident years.

For the ninethree months ended September 30, 20162019, we recognized $181$12 million of net favorable prior year reserve development, the principal components of which were:

$8423 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to recent accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.
$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening attributable to late reporting of claims bordereaux associated with the European proportional book of business related to the 2010 through2018 accident year.

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$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European book of business mainly related to the 2015 and 2016 accident years driven byyears.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence.emergence related to multiple accident years.

$4019 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to non-proportionalthe 2019 and older accident years.
$23 million of net adverse prior year development on liability business spanning multipleprimarily due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 to 2019 accident years.
$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, drivenand the marine and other line of business mainly related to the 2017 accident years, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence.emergence attributable to the 2019 catastrophe events.

For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
$3234 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to several accident years.
$33 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to the 2015 and 2016 accident years.
$26 million of net favorable prior year reserve development on liability business primarily relateddue to the 2006 through 2011increased weight given by management to experience based indications on older accident years, for reasons discussed in the overview.years.

$1971 million of net favorableadverse prior year reserve development on professional linesproperty and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2005 through 20102018 accident years, for reasons discussed in the overview.year.


Acquisition Cost Ratio:Ratio:


The acquisition cost ratio decreased to 19.1%22.3% and 20.0%22.5% for the three and nine months ended September 30, 2017,2020, respectively, from 20.3%23.3% and 20.1% in the three and nine months ended September 30, 2016, respectively, driven by our reinsurance segment and primarily attributable to changes in business mix.

General and Administrative Expense Ratio:

The general and administrative expense ratio decreased to 12.3% and 14.8%23.4% for the three and nine months ended September 30, 2017, from 15.3%2019, respectively, principally related to changes in business mix.

Underwriting-Related General and 15.8% inAdministrative Expense Ratio:

The underwriting-related general and administrative expense ratio of 4.5% and 4.9% for the three and nine months ended September 30, 20162020, respectively, primarily reflecting a decrease in performance related compensation costswas comparable to 4.1% and an increase in fees from strategic capital partners.4.9% for the three and nine months ended September 30, 2019, respectively.








64
69








NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)


RESULTS BY SEGMENT



INSURANCE SEGMENT

Insurance Segment

Results from ourfor the insurance segment were as follows:
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Revenues:            
 Gross premiums written$744,366
 10% $675,430
 $2,234,395
 6% $2,112,796
 
 Net premiums written500,022
 15% 433,131
 1,533,029
 7% 1,433,058
 
 Net premiums earned496,004
 12% 444,691
 1,448,270
 9% 1,322,649
 
 Other insurance related income (losses)526
 nm 39
 1,077
 nm (57) 
              
 Expenses:            
 Current year net losses and loss expenses(631,468)   (293,914) (1,272,235)   (896,952) 
 Prior year reserve development2,603
   20,688
 30,740
   43,181
 
 Acquisition costs(74,231)   (61,755) (223,665)   (184,982) 
 General and administrative expenses(75,038)   (84,588) (253,308)   (252,652) 
              
 Underwriting income (loss)$(281,604) nm $25,161
 $(269,121) nm $31,187
 
              
 Ratios:  
% Point
Change
     
% Point
Change
   
 Current accident year loss ratio127.3% 61.2 66.1% 87.8% 20.0 67.8% 
 Prior year reserve development(0.5%) 4.2 (4.7%) (2.1%) 1.1 (3.2%) 
 Acquisition cost ratio15.0% 1.1 13.9% 15.4% 1.4 14.0% 
 General and administrative expense ratio15.1% (4.0) 19.1% 17.6% (1.4) 19.0% 
 Combined ratio156.9% 62.5 94.4% 118.7% 21.1 97.6% 
              
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Revenues:
Gross premiums written$935,817 5%$894,902 $2,914,100 7%$2,714,322 
Net premiums written544,857 5%517,050 1,729,268 6%1,638,197 
Net premiums earned570,184 6%536,451 1,709,268 5%1,630,473 
Other insurance related income688 6%733 2,091 18%1,779 
Expenses:
Current accident year net losses and loss expenses(443,659)(353,575)(1,257,090)(1,004,293)
Prior year reserve development270 14,609 4,521 42,849 
Acquisition costs(114,569)(115,551)(343,579)(344,981)
Underwriting-related general and administrative expenses(94,379)(100,559)(284,909)(311,491)
Underwriting income (loss)$(81,465)$(17,892)$(169,698)$14,336 
Ratios:
% Point
Change
% Point
Change
Current accident year loss ratio excluding catastrophe and weather-related losses54.7 %(3.5)58.2 %54.8 %(2.9)57.7 %
Catastrophe and weather-related losses ratio23.1 %15.47.7 %18.7 %14.83.9 %
Current accident year loss ratio77.8 %11.965.9 %73.5 %11.961.6 %
Prior year reserve development ratio %2.7(2.7 %)(0.2 %)2.4(2.6 %)
Net losses and loss expenses ratio77.8 %14.663.2 %73.3 %14.359.0 %
Acquisition cost ratio20.1 %(1.4)21.5 %20.1 %(1.1)21.2 %
Underwriting-related general and administrative expense ratio16.5 %(2.3)18.8 %16.7 %(2.3)19.0 %
Combined ratio114.4 %10.9103.5 %110.1 %10.999.2 %
nm – not meaningful



53


70


Gross Premiums Written:Written


The following table provides grossGross premiums written by line of business:business were as follows:
   Three months ended September 30,   Nine months ended September 30,   
   2017   2016   % Change 2017   2016   % Change 
                      
 Property$154,882
 19% $164,605
 25% (6%) $498,127
 22% $522,380
 24% (5%) 
 Marine42,483
 6% 33,677
 5% 26% 182,005
 8% 191,298
 9% (5%) 
 Terrorism12,147
 2% 9,394
 1% 29% 34,470
 2% 28,090
 1% 23% 
 Aviation23,814
 3% 9,684
 1% nm 59,434
 3% 37,111
 2% 60% 
 Credit and Political Risk19,793
 3% 5,423
 1% nm 51,105
 2% 34,299
 2% 49% 
 Professional Lines213,009
 29% 204,926
 30% 4% 612,597
 27% 590,417
 28% 4% 
 Liability131,975
 18% 108,447
 16% 22% 359,304
 16% 310,797
 15% 16% 
 Accident and Health146,263
 20% 139,274
 21% 5% 437,353
 20% 398,404
 19% 10% 
 Total$744,366
 100% $675,430
 100% 10% $2,234,395
 100% $2,112,796
 100% 6% 
                      
 
Constant currency(1)
$743,500
   $675,430
   10% $2,245,400
   $2,112,796
   6% 
                      
  Three months ended September 30,Nine months ended September 30,
  20202019
%
Change
20202019
%
Change
Property$238,599 26 %$241,517 27 %(1%)$741,043 27 %$701,314 27 %6%
Marine82,810 9 %91,161 10 %(9%)355,503 12 %337,529 12 %5%
Terrorism14,767 2 %17,284 %(15%)42,296 1 %46,803 %(10%)
Aviation22,702 2 %17,623 %29%63,725 2 %53,832 %18%
Credit and political risk24,473 3 %32,528 %(25%)100,151 3 %114,511 %(13%)
Professional lines338,907 36 %272,362 30 %24%943,635 32 %820,953 30 %15%
Liability172,747 18 %186,253 21 %(7%)548,023 19 %518,925 19 %6%
Accident and health39,262 4 %34,054 %15%117,743 4 %113,228 %4%
Discontinued lines - Novae1,550  %2,120 — %(27%)1,981  %7,227 — %nm
Total$935,817 100 %$894,902 100 %5%$2,914,100 100 %$2,714,322 100 %7%
nm – not meaningful
(1)Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.


Gross premiums written for the three months ended September 30, 20172020, increased by $69$41 million, or 10%5%, ($31 million, or 3% on a constant currency basis(1)), compared to the three months ended September 30, 2016. 2019. The increase was primarily attributable to professional lines, accident and health, and aviation lines, partially offset by decreases in liability, marine, and credit and political risk lines.

The increase in gross premiums writtenprofessional lines was attributabledue to ournew business and favorable rate changes. The increase in accident and health lines was due to new business. The increase in aviation lines was due to a timing difference and favorable rate changes. The decreases in liability lines, and our credit and political risk lines driven by newwere due to a higher level of non-renewals and reduced business opportunities together with an increaserelated to the current economic climate. The decrease in our aviationmarine lines associated with our recent acquisition of Aviabel. These increases were partially offset bywas due to a reduction in premiums written in our property lines following our exit from some retail insurance operations in the U.S. last year.timing difference and non-renewals.


Gross premiums written for the nine months ended September 30, 20172020, increased by $122$200 million, or 6%7%, compared to the nine months ended September 30, 2016.2019. The increase in gross premiums written was primarily attributable to our liability, our accident and health lines, and our professional lines, primarily driven by new business opportunities, together with an increase in ourproperty, liability, marine, and aviation lines, associated with our recent acquisition of Aviabel. These increases were partially offset by a reductiondecrease in premiums writtencredit and political risk lines.

The increases in ourprofessional lines, property, liability, and marine lines following our exit from some U.S. retail insurance operations last year.were due to new business and favorable rate changes. The increase in aviation lines was due to timing differences. The decrease in credit and political risk lines was due to non-renewals and reduced business opportunities related to the current economic climate.


Ceded Premiums Written:Written


Ceded premiums written for the three months ended September 30, 2020, was $391 million, or 42% of gross premiums written, compared to $378 million, or 42% of gross premiums written for the three months ended September 30, 2019. The increase in ceded premiums written of $13 million or 3% was primarily driven by increases in professional lines and property lines, partially offset by decreases in liability, marine, and credit and political risk lines.

Ceded premiums written for the nine months ended September 30, 2017 were $2442020, was $1,185 million, or 33%41% of gross premiums written, and $701compared to $1,076 million, or 31% of gross premiums written, respectively, compared to $242 million or 36% of gross premiums written and $680 million or 32%40% of gross premiums written for the three and nine months ended September 30, 2016, respectively.

2019. The decreaseincrease in the ratio of ceded premiums written to gross premiums written for the three and nine months ended September 30, 2017 compared to the same periods in 2016,of $109 million, or 10%, was primarily due to an increasedriven by increases in gross premiums written together with a decrease in premiums ceded in our propertyprofessional lines, property, liability, and marine lines, partially offset by an increasea decrease in premiums cededcredit and political risk lines.




(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in our liability lines.



Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.



54
71


Net Premiums Earned:Earned


The following table provides netNet premiums earned by line of business:business were as follows:
   Three months ended September 30,   Nine months ended September 30,   
   2017   2016   % Change 2017   2016   % Change 
                      
 Property$116,771
 22% $106,578
 25% 10% $355,392
 24% $312,804
 23% 14% 
 Marine34,217
 7% 36,218
 8% (6%) 108,822
 8% 113,693
 9% (4%) 
 Terrorism8,790
 2% 8,276
 2% 6% 25,577
 2% 26,011
 2% (2%) 
 Aviation22,500
 5% 9,015
 2% nm 53,265
 4% 33,528
 3% 59% 
 Credit and Political Risk9,073
 2% 12,274
 3% (26%) 29,957
 2% 42,661
 3% (30%) 
 Professional Lines126,946
 26% 126,574
 28% —% 379,426
 26% 386,241
 29% (2%) 
 Liability48,135
 10% 42,205
 9% 14% 134,467
 9% 126,429
 10% 6% 
 Accident and Health129,572
 26% 103,551
 23% 25% 361,364
 25% 281,282
 21% 28% 
 Total$496,004
 100% $444,691
 100% 12% $1,448,270
 100% $1,322,649
 100% 9% 
                      
 
Constant currency(1)
$497,350
   $444,691
   12% $1,458,850
   $1,322,649
   10% 
                      
  Three months ended September 30,Nine months ended September 30,
  20202019
%
Change
20202019
%
Change
Property$145,717 27 %$154,751 29 %(6%)$452,876 26 %$481,450 30 %(6%)
Marine76,544 13 %65,437 12 %17%220,248 13 %209,629 13 %5%
Terrorism11,728 2 %11,605 %1%34,675 2 %35,635 %(3%)
Aviation19,039 3 %10,993 %nm51,236 3 %38,603 %33%
Credit and political risk23,781 4 %19,432 %22%77,721 5 %66,412 %17%
Professional lines179,441 31 %172,280 32 %4%530,651 31 %490,928 30 %8%
Liability76,487 13 %68,002 13 %12%234,522 14 %192,352 12 %22%
Accident and health37,151 7 %32,368 %15%106,015 6 %108,402 %(2%)
Discontinued lines - Novae296  %1,583 — %nm1,324  %7,062 — %nm
Total$570,184 100 %$536,451 100 %6%$1,709,268 100 %$1,630,473 100 %5%
nm - not meaningful
(1)Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.


Net premiums earned for the three and nine months ended September 30, 20172020, increased by $51$34 million, or 12%6%, and $126 ($27 million, or 9% ($136 million or 10%5% on a constant currency basis), compared to the three and nine months ended September 30, 2016, respectively.

2019. The increase for the three and nine months ended September 30, 2017 compared to the same periods in 2016, was primarily driven by strong premium growthincreases in our accidentgross premiums earned in professional lines, liability, and healthmarine lines, as well as our aviation lines in recent periods, together with a decrease in ceded premiums earned in ouraviation lines, partially offset by increases in ceded premiums earned in professional lines and liability lines, and a decrease in gross premiums earned in property lines.

Net premiums earned for the nine months ended September 30, 2017,2020, increased by $79 million, or 5%, compared to the nine months ended September 30, 2019. The increase was also impactedprimarily driven by strong premium growthincreases in ourgross premiums earned in liability, professional lines, marine, and credit and political risk lines, together with decreases in ceded premiums earned in property and aviation lines, partially offset by increases in recent periods.ceded premiums earned in liability and professional lines, and a decrease in gross premiums earned in property lines.


Loss Ratio:


The table below shows the components of our loss ratio:




















   Three months ended September 30, Nine months ended September 30, 
  2017 
% Point
Change
 2016 2017 
% Point
Change
 2016 
              
 Current accident year127.3% 61.2 66.1% 87.8% 20.0 67.8% 
 Prior year reserve development(0.5%) 4.2 (4.7%) (2.1%) 1.1 (3.2%) 
 Loss ratio126.8% 65.4 61.4% 85.7% 21.1 64.6% 
              
55



72


Loss Ratio


CurrentThe components of the loss ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
2020
% Point
Change
20192020
% Point
Change
2019
Current accident year77.8 %11.965.9 %73.5 %11.961.6 %
Prior year reserve development %2.7(2.7 %)(0.2 %)2.4(2.6 %)
Loss ratio77.8 %14.663.2 %73.3 %14.359.0 %

Current Accident Year Loss Ratio:Ratio


The current accident year loss ratiosratio increased to 127.3%77.8% and 87.8%73.5% for the three and nine months ended September 30, 2017,2020, respectively, from 66.1%65.9% and 67.8%61.6% for the three and nine months ended September 30, 2016,2019, respectively.


The increase in the current accident year loss ratios for the three and nine months ended September 30, 2017 compared to the same period in 2016, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2017 we incurred $317 million, or 64.0 points, and $379 million, or 26.1 points, respectively, in pre-tax2020, catastrophe and weather-related losses, net of reinstatement premiums, were $132 million, or 23.1 points, and $325 million, or 18.7 points, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricanes Harvey, IrmaLaura and MariaSally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. During the two earthquakes in Mexiconine months ended September 30, 2020 catastrophe and U.S.weather-related losses included $137 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included event cancellation coverages. The remaining losses of $188 million were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2016, we incurred $152019, catastrophe and weather-related losses were $41 million, or 3.37.7 points, and $73$64 million, or 5.53.9 points, respectively.


After adjusting for the impact of the catastrophe and weather-related losses, our current accident year loss ratio for the three and nine months ended September 30, 2017 was 63.3% and 61.7%, respectively, compared to 62.8% and 62.3% for the three and nine months ended September 30, 2016, respectively.

The increase in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related lossesdecreased to 54.7% for the three months ended September 30, 2017 compared to2020, from 58.2% for the same period in 2016, was principally due to an increase in attritional loss experience in our property lines, together with the adverse impact of rate and trend, partially offset by changes in business mix.

three months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the nine months ended September 30, 2017 compared to the same period in 2016, was principally due to the recognitionimpact of better than expected attritionalfavorable pricing over loss trends, improved loss experience in our professionalproperty, marine, credit and political risk, and aviation lines partially offset by the adverse impact of rate and trend.

Refer to the ‘Prior Year Reserve Development’ section for further details.

Acquisition Cost Ratio:

The acquisition cost ratio increased to 15.0% and 15.4% for the three and nine months ended September 30, 2017, respectively, from 13.9% and 14.0% for the three and nine months ended September 30, 2016, respectively, attributable to changes in business mix in our accident and health lines. In addition, for the three months ended September 30, 2017 the increase in the acquisition cost ratio was related to an increase in variable acquisition costs associated with on certain lines of business, partially offset by an increase in ceding commissions following increased cessions in our liability lines.

General and Administrative Expense Ratio:

The general and administrative expense ratio decreased to 15.1% and 17.6% for the three and nine months ended September 30, 2017, respectively, from 19.1% and 19.0% for the three and nine months ended September 30, 2016, respectively, reflecting a decrease in performance-related compensation costs and an increase in net premiums earned, partially offset by increases in the allocation of certain corporate expenses and information technology fees.




73


REINSURANCE SEGMENT

Results from our reinsurance segment were as follows:
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Revenues:            
 Gross premiums written$441,208
 55% $284,532
 $2,225,377
 5% $2,126,762
 
 Net premiums written332,721
 105% 162,300
 1,764,689
 (5%) 1,855,529
 
 Net premiums earned521,127
 6% 489,724
 1,488,995
 2% 1,461,097
 
 Other insurance related income (losses)(3,723) nm 5,905
 (5,497) nm 4,907
 
              
 Expenses:            
 Current year net losses and loss expenses(651,667)   (314,433) (1,318,900)   (990,763) 
 Prior year reserve development45,165
   55,331
 112,755
   180,950
 
 Acquisition costs(120,493)   (128,055) (365,214)   (374,588) 
 General and administrative expenses(21,658)   (29,635) (82,474)   (99,980) 
              
 Underwriting income (loss)$(231,249) nm $78,837
 $(170,335) nm $181,623
 
 Ratios:  
% Point
Change
     
% Point
Change
   
 Current accident year loss ratio125.0% 60.8 64.2% 88.6% 20.8 67.8% 
 Prior year reserve development(8.6%) 2.7 (11.3%) (7.6%) 4.8 (12.4%) 
 Acquisition cost ratio23.1% (3.0) 26.1% 24.5% (1.1) 25.6% 
 General and administrative expense ratio4.2% (1.9) 6.1% 5.6% (1.3) 6.9% 
 Combined ratio143.7% 58.6 85.1% 111.1% 23.2 87.9% 
              
nm – not meaningful




74


Gross Premiums Written:

The following table provides gross premiums written by line of business for the periods indicated:
   Three months ended September 30,   Nine months ended September 30,   
   2017   2016   
Change
 2017   2016   
Change
 
                      
 Catastrophe$89,510
 19% $46,338
 16% 93% $411,004
 18% $316,692
 15% 30% 
 Property90,001
 20% 61,957
 22% 45% 341,265
 15% 283,555
 13% 20% 
 Professional Lines20,175
 5% 19,479
 7% 4% 217,772
 10% 235,094
 11% (7%) 
 Credit and Surety38,216
 9% 36,174
 13% 6% 183,284
 8% 315,102
 15% (42%) 
 Motor40,385
 9% 13,344
 5% nm 373,901
 17% 338,403
 16% 10% 
 Liability139,083
 32% 91,387
 32% 52% 368,999
 17% 365,380
 17% 1% 
 Agriculture11,152
 3% 1,286
 % nm 218,437
 10% 151,315
 7% 44% 
 Engineering10,120
 2% 13,588
 5% (26%) 58,000
 3% 56,719
 3% 2% 
 Marine and Other2,566
 1% 979
 % nm 52,715
 2% 64,502
 3% (18%) 
 Total$441,208
 100% $284,532
 100% 55% $2,225,377
 100% $2,126,762
 100% 5% 
                      
 
Constant currency(1)
$444,600
   $284,532
   56% $2,277,100
   $2,126,762
   7% 
                      
nm – not meaningful
(1)Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.

Gross premiums written increased by $157 million, or 55% (56% on a constant currency basis), for the three months ended September 30, 2017 compared to the same period in 2016. The increase was attributable to our liability, catastrophe, property and motor lines. The increase in our liability lines was primarily due to timing differences related to the restructuring of large quota share treaties which affected the timing of premium recognition. The increase in our catastrophe lines was largely due to reinstatement premiums associated with the third quarter catastrophe losses. The increase in our property and motor lines was primarily driven by new business opportunities. Timing differences also contributed to the increase in premiums written in our motor lines.

Gross premiums written increased by $99 million, or 5% (7% on a constant currency basis), for the nine months ended September 30, 2017 compared to the same period in 2016. The increase in gross premiums written was attributable to our catastrophe, agriculture, property and motor lines, partially offset by a decrease in our credit and surety lines. The increase in our catastrophe and property lines was driven by new business spread across several cedants. The increase in our agriculture lines was due to increased participation on a renewing treaty, which more than offset the cancellation of a large treaty. Reinstatement premiums and favorable premium estimate adjustments also contributed to the increase in premiums written in our catastrophe and agriculture lines. The increase in our motor lines was driven by new business and favorable premium adjustments, partially offset by a lower level of premiums written on a multi-year basis during 2017 compared to 2016, together with the impact of foreign exchange movements as the strengtheningrepositioning of the U.S. dollar drove comparative premium decreases in treaties denominated in foreign currencies. The decrease in our credit and surety lines was primarily due to a lower level of premiums written on a multi-year basis.portfolio.

Ceded Premiums Written:

Ceded premiums written for the three and nine months ended September 30, 2017 were $108 million or 25% of gross premiums written and $461 million or 21% of gross premiums written, respectively, compared to $122 million or 43% of gross premiums written and $271 million or 13% of gross premiums written for the three and nine months ended September 30, 2016, respectively.

The decrease in the ratio of ceded premiums written to gross premiums written for the three months ended September 30, 2017 compared to the same period in 2016, was primarily due to an increase in gross premiums written in the quarter together with a decrease in premiums ceded to our strategic capital partners. The decrease in premiums ceded was attributable to our professional and liability lines, due to the timing of premiums ceded to the retrocessional cover entered into with Harrington Re Ltd., in the same period in 2016, partially offset by an increase in premiums ceded in our catastrophe lines.




75


The increase in the ratio of ceded premiums written to gross premiums written for the nine months ended September 30, 2017 compared to the same period in 2016, was primarily due to an increase in premiums ceded in our catastrophe, agriculture and our credit and surety lines, together with the impact of the retrocessional cover entered into with Harrington Re Ltd., which increased premiums ceded in our liability lines, partially offset by an increase in gross premiums written.

Net Premiums Earned:

The following table provides net premiums earned by line of business:
   Three months ended September 30,   Nine months ended September 30,   
   2017    2016    % Change 2017    2016    % Change 
                      
 Catastrophe$63,032
 11% $48,799
 10% 29% $150,134
 12% $151,416
 12% (1%) 
 Property81,522
 16% 71,649
 15% 14% 228,043
 15% 208,179
 14% 10% 
 Professional Lines52,390
 10% 73,109
 15% (28%) 170,438
 11% 225,813
 15% (25%) 
 Credit and Surety62,215
 12% 67,430
 14% (8%) 176,754
 12% 192,135
 13% (8%) 
 Motor92,147
 18% 77,786
 16% 18% 273,568
 18% 232,383
 16% 18% 
 Liability89,927
 17% 80,137
 16% 12% 258,500
 17% 247,103
 17% 5% 
 Agriculture45,688
 9% 36,704
 7% 24% 138,554
 9% 106,251
 7% 30% 
 Engineering18,529
 4% 18,573
 4% —% 49,577
 3% 51,024
 3% (3%) 
 Marine and Other15,677
 3% 15,537
 3% 1% 43,427
 3% 46,793
 3% (7%) 
 Total$521,127
 100% $489,724
 100% 6% $1,488,995
 100% $1,461,097
 100% 2% 
                      
 
Constant currency(1)
$529,700
   $489,724
   8% $1,540,200
   $1,461,097
   5% 
                      
nm – not meaningful
(1)Amounts presented on a constant currency basis are non-GAAP financial measures as defined in SEC Regulation G. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.

Net premiums earned increased by $31 million, or 6% ($40 million or 8% on a constant currency basis), and $28 million, or 2% ($79 million or 5% on a constant currency basis), for the three and nine months ended September 30, 2017, compared to the same periods in 2016, respectively.

The increase in net premiums earned for the three months ended September 30, 2017 compared to the same period in 2016, was primarily driven by strong premium growth in our motor lines, as well as favorable reinstatement premiums impacting our catastrophe lines, and favorable premium estimate adjustments impacting our agriculture lines. These increases were partially offset by an increase in ceded premiums earned in our catastrophe and agriculture lines, together with the impact of the retrocession to Harrington Re, which increased ceded premiums earned in our professional lines, as well as a decrease in gross premium earned in our professional lines.

The increase in net premiums earned for the nine months ended September 30, 2017 compared to the same period in 2016, was primarily driven by an increase in gross premiums earned in our motor and agriculture lines, partially offset by an increase in ceded premiums earned in our agriculture and professional lines, together with a decrease in gross premiums earned in our professional lines.

Other Insurance Related Income (Losses):

Other insurance related losses was $4 million for the three months ended September 30, 2017, compared to other insurance related income of $6 million for the same period in 2016. The decrease of $10 million for the three months ended September 30, 2017 compared to the same period in 2016, reflected a decrease in profit commissions associated withretrocessional agreements with strategic capital partners related to the third quarter catastrophe losses.

Other insurance related losses was $5 million for the nine months ended September 30, 2017, compared to other insurance related income of $5 million for the same period in 2016. The decrease of $10 million for the nine months ended September 30, 2017 compared to the same period in 2016, reflected net realized losses on our weather and commodities derivative portfolio, partially offset by fees from our strategic capital partners.



76



Loss Ratio:

The table below shows the components of our loss ratio:
   Three months ended September 30, Nine months ended September 30, 
   2017 
% Point
Change
 2016 2017 
% Point
Change
 2016 
              
 Current accident year125.0% 60.8 64.2% 88.6% 20.8 67.8% 
 Prior year reserve development(8.6%) 2.7 (11.3%) (7.6%) 4.8 (12.4%) 
 Loss ratio116.4% 63.5 52.9% 81.0% 25.6 55.4% 
              

Current Accident Year Loss Ratio:

The current accident year loss ratio increased to 125.0% and 88.6% for the three and nine months ended September 30, 2017, respectively, from 64.2% and 67.8% for the three and nine months ended September 30, 2016, respectively.

The increase in the current accident year loss ratios for the three and nine months ended September 30, 2017 compared to the same period in 2016, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2017, we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums, of $299 million, or 58.7 points, and $323 million, or 22.2 points, respectively, attributable to Hurricanes Harvey, Irma and Maria, the two earthquakes in Mexico and U.S. weather-related events. Comparatively, during the three and nine months ended September 30, 2016 we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums of $7 million, or 1.5 points, and $72 million, or 5.0 points, respectively.


After adjusting for the impact of the catastrophe and weather-related losses, ourthe current accident year loss ratio decreased to 54.8% for the three and nine months ended September 30, 2017 was 66.3% and 66.4%, respectively, compared to 62.7% and 62.8%2020, from 57.7% for the three and nine months ended September 30, 2016, respectively.2019. The increasedecrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, credit and political risk, marine and aviation lines, partially offset by changes in business mix.

56

Prior Year Reserve Development

The following table maps lines of business to reserve classes and the expected claim tails:
Insurance segment
Reserve class and tail
Property and otherMarineAviationCredit and political riskProfessional linesLiability
ShortShortShort/MediumMediumMediumLong
Reported lines of business
PropertyX
MarineX
TerrorismX
AviationX
Credit and political riskX
Professional linesX
LiabilityX
Accident and healthX
Discontinued lines - NovaeXXX

Prior year reserve development by reserve class were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Property and other$6,907 $11,427 $42,688 $(4,426)
Marine4,095 2,119 633 23,753 
Aviation(326)471 5,667 1,671 
Credit and political risk871 1,217 (223)10,278 
Professional lines(7,287)3,656 (19,086)13,899 
Liability(3,990)(4,281)(25,158)(2,326)
Total$270 $14,609 $4,521 $42,849 

For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were: 
$7 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2019 catastrophe events.
$4 million of net favorable prior year reserve development on marine business primarily due better than expected loss emergence mainly related to the 2018 accident year.
$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to 2017 and 2018 accident years.
For the three months ended September 30, 2019, we recognized $15 million of net favorable prior year reserve development, the principal components of which were: 
$11 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 and 2014 accident years.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the U.S. excess casualty book of business related to older accident years.

57

For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were: 
$43 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years, better than expected loss emergence attributable to the 2017, 2018 and 2019 catastrophe events, and decreases in case reserves attributable to specific claims related to the 2014 and 2016 accident years.
$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years.
$25 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.
$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business mainly related to the 2018 and 2019 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
For the nine months ended September 30, 2019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were: 
$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence mainly related to the 2015 to 2017 accident years.
$14 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 to 2015 accident years.
$10 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence mainly related to the 2018 accident year.
$4 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening within the international book of business mainly related to the 2018 accident year, partially offset by better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.

Acquisition Cost Ratio

The acquisition cost ratio decreased to 20.1% for the three months ended September 30, 2017 compared to2020, from 21.5% for the same period in 2016, wasthree months ended September 30, 2019, principally duerelated to an increase in mid-size loss experienceceding commissions.

The acquisition cost ratio decreased to 20.1% for the nine months ended September 30, 2020, from 21.2% for the nine months ended September 30, 2019, associated with the acquisition of Novae and an increase in ourceding commissions. At the acquisition date, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at that date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet as the value of policies in-force on that date are considered within value of business acquired ("VOBA"). Consequently, the absence of $1 million and $11 million of acquisition expense related to premiums earned in the nine months ended September 30, 2020 and 2019, respectively, benefited the acquisition cost by 0.1 points and 0.6 points, respectively. Adjusting the acquisition cost rate for these amounts, the acquisition cost ratio decreased by 1.6 points.

Underwriting-Related General and Administrative Expense Ratio

The underwriting-related general and administrative expense ratio decreased to 16.5%for thethree months ended September 30, 2020, from 18.8% for the three months ended September 30, 2019, mainly driven by a decrease in personnel costs and travel and entertainment expenses, together with an increase in net premiums earned.

The underwriting-related general and administrative expense ratio decreased to 16.7% for the nine months ended September 30, 2020, from 19.0% for the nine months ended September 30, 2019, mainly driven by decreases in travel and entertainment expenses, and professional fees, together with an increase in net premiums earned.

58

Reinsurance Segment

Results from the reinsurance segment were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Revenues:
Gross premiums written$395,361 (23%)$511,604 $2,564,419 (12%)$2,923,169 
Net premiums written271,125 (20%)339,031 1,821,692 (12%)2,065,263 
Net premiums earned521,128 (16%)620,856 1,574,673 (12%)1,784,653 
Other insurance related income (loss)752 (6%)800 (7,361)nm9,606 
Expenses:
Current year net losses and loss expenses(436,602)(524,065)(1,216,273)(1,248,131)
Prior year reserve development314 12,118 4,830 22,172 
Acquisition costs(115,995)(144,475)(354,137)(417,826)
Underwriting-related general and administrative expenses(23,456)(26,060)(76,714)(87,049)
Underwriting income (loss)$(53,859)$(60,826)$(74,982)$63,425 
Ratios:
% Point
Change
% Point
Change
Current accident year loss ratio excluding catastrophe and weather-related losses62.7 %(2.1)64.8 %61.1 %(1.2)62.3 %
Catastrophe and weather-related losses ratio21.1 %1.519.6 %16.1 %8.57.6 %
Current accident year loss ratio83.8 %(0.6)84.4 %77.2 %7.369.9 %
Prior year reserve development ratio(0.1 %)1.8(1.9 %)(0.3 %)0.9(1.2 %)
Net losses and loss expenses ratio83.7 %1.282.5 %76.9 %8.268.7 %
Acquisition cost ratio22.3 %(1.0)23.3 %22.5 %(0.9)23.4 %
Underwriting-related general and administrative expense ratio4.5 %0.44.1 %4.9 %4.9 %
Combined ratio110.5 %0.6109.9 %104.3 %7.397.0 %
nm – not meaningful

59

Gross Premiums Written:

Gross premiums written by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  20202019
Change
20202019
Change
Catastrophe$74,656 18 %$94,833 18 %(21%)$526,646 21 %$698,169 24 %(25%)
Property58,907 15 %67,972 13 %(13%)246,859 10 %283,849 10 %(13%)
Professional lines31,752 8 %23,540 %35%267,047 10 %226,283 %18%
Credit and surety38,110 10 %50,989 10 %(25%)189,180 7 %241,358 %(22%)
Motor(2,235)(1 %)25,367 %nm319,867 12 %313,614 11 %2%
Liability136,791 35 %146,690 29 %(7%)505,322 20 %458,000 16 %10%
Agriculture7,455 2 %5,074 %47%69,599 3 %201,592 %(65%)
Engineering1,408  %8,841 %nm20,334 1 %39,207 %(48%)
Marine and other6,341 2 %9,727 %(35%)62,202 2 %68,104 %(9%)
Accident and health41,820 11 %78,474 15 %(47%)356,123 14 %393,789 13 %(10%)
Discontinued lines - Novae356  %97 — %nm1,240  %(796)— %nm
Total$395,361 100 %$511,604 100 %(23%)$2,564,419 100 %$2,923,169 100 %(12%)
nm – not meaningful

Gross premiums written for the three months ended September 30, 2020, decreased by $116 million, or 23%, ($109 million, or 21% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily attributable to accident and health, motor, catastrophe, credit and surety, liability and property lines, partially offset by an increase in professional lines.

The decrease in accident and health lines was driven by non-renewals following the decision to exit the Middle East business. The decrease in motor lines was due to premium adjustments. The decrease in catastrophe lines was driven by a timing difference associated with a significant contract, non-renewals, and decreased line sizes on a number of treaties. The decrease in credit and surety lines was attributable to the ongoingcurrent economic climate. The decrease in liability lines was due to a reduced line size on a significant contract, partially offset by new business due to favorable market conditions and timing differences. The decrease in property lines was due to non-renewals and a timing difference. The increase in professional lines was due to premium adjustments.

Gross premiums written for the nine months ended September 30, 2020, decreased by $359 million, or 12%, compared to the nine months ended September 30, 2019. The decrease was primarily attributable to catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines, partially offset by increases in liability and professional lines.

The decreases in catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines were driven by non-renewals and decreased line sizes consistent with optimization of the segment's portfolio. The increases in liability and professional lines were driven by premium adjustments, and favorable market conditions associated with renewals and new business.

Ceded Premiums Written:

Ceded premiums written for the three months ended September 30, 2020 was $124 million, or 31% of gross premiums written, compared to $173 million, or 34% of gross premiums written for the three months ended September 30, 2019.

The decrease in ceded premiums written of $48 million, or 28%, was primarily driven by catastrophe, accident and health, credit and surety, and liability lines. The decrease in catastrophe lines was attributable to a non-renewal of a catastrophe bond and a decrease in premiums ceded to strategic capital partners. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to an existing quota share retrocessional treaty. The decrease in liability lines was attributable to the restructuring of an existing quota share retrocessional treaty, partially offset by an increase in premiums ceded to a new quota share retrocessional treaty.

60

Ceded premiums written for the nine months ended September 30, 2020, was $743 million, or 29% of gross premiums written, compared to $858 million, or 29% of gross premiums written for the nine months ended September 30, 2019.

The decrease in ceded premiums written of $115 million, or 13%, was primarily driven by catastrophe, credit and surety, accident and health, and agriculture lines, partially offset by increases in professional lines, liability, motor, and property lines.

The decrease in catastrophe lines was attributable to decreases in premiums ceded to strategic partners and a non-renewal of a catastrophe bond. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to a quota share retrocessional treaty and the restructuring of existing quota share retrocessional treaties. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large quota share retrocessional treaty.

The increases in liability and professional lines were attributable to an increase in premiums ceded to a new quota share retrocessional treaty, partially offset by the restructuring of an existing quota share retrocessional treaty. The increase in motor lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The increase in property lines was attributable to an increase in premiums ceded to a new aggregate excess of loss treaty.

Net Premiums Earned:

Net premiums earned by line of business were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020  2019  % Change2020  2019  % Change
Catastrophe$64,163 13 %$68,910 11 %(7%)$194,987 12 %$205,468 11 %(5%)
Property62,704 12 %78,271 13 %(20%)196,229 12 %226,515 13 %(13%)
Professional lines54,424 10 %50,966 %7%154,482 10 %154,390 %—%
Credit and surety43,730 8 %55,625 %(21%)134,988 9 %154,638 %(13%)
Motor63,298 12 %107,930 17 %(41%)203,776 13 %301,622 17 %(32%)
Liability96,671 19 %95,632 15 %1%293,918 19 %279,639 16 %5%
Agriculture17,750 3 %47,519 %(63%)57,949 4 %131,746 %(56%)
Engineering14,548 3 %16,611 %(12%)43,742 3 %47,290 %(8%)
Marine and other14,742 3 %17,924 %(18%)37,275 2 %44,529 %(16%)
Accident and health89,087 17 %81,500 13 %9%256,303 16 %239,388 13 %7%
Discontinued lines - Novae11  %(32)— %nm1,024  %(572)— %nm
Total$521,128 100 %$620,856 100 %(16%)$1,574,673 100 %$1,784,653 100 %(12%)
nm – not meaningful

Net premiums earned for the three months ended September 30, 2020, decreased by $100 million, or 16% ($93 million, or 15% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in motor, agriculture, credit and surety, and property lines.

Net premiums earned for the nine months ended September 30, 2020, decreased by $210 million, or 12% ($186 million, or 10% on a constant currency basis), compared to the nine months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in agriculture, motor, catastrophe, property, and credit and surety lines, together with an increase in ceded premiums earned in liability lines, partially offset by decreases in ceded premiums earned in catastrophe, agriculture, and accident and health lines, and an increase in gross premiums earned in liability lines.


61

Other Insurance Related Income (Loss):

Other insurance related income was $1 million for the three months ended September 30, 2020, compared to other insurance related income of $1 million for the three months ended September 30, 2019.

Other insurance related loss was $7 million for the nine months ended September 30, 2020, compared to other insurance related income of $10 million for the nine months ended September 30, 2019. The decrease of $17 million was primarily due to the recognition of a full limit loss of $10 million associated with the WHO pandemic risk-linked swap and a decrease in fees associated with arrangements with strategic capital partners.

Loss Ratio:

The components of the loss ratio were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020
% Point
Change
20192020
% Point
Change
2019
Current accident year83.8 %(0.6)84.4 %77.2 %7.369.9 %
Prior year reserve development(0.1 %)1.8(1.9 %)(0.3 %)0.9(1.2 %)
Loss ratio83.7 %1.282.5 %76.9 %8.268.7 %

Current Accident Year Loss Ratio:

The current accident year loss ratio decreased to 83.8% for the three months ended September 30, 2020, from 84.4% for the three months ended September 30, 2019. The current accident year loss ratio increased to 77.2% for the nine months ended September 30, 2020, from 69.9% for the nine months ended September 30, 2019.

During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net of reinstatement premiums, were $108 million, or 21.1 points, and $251 million, or 16.1, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion, and other weather-related events. During the nine months ended September 30, 2020, catastrophe and weather-related losses included $98 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included accident and health coverages. The remaining losses of $153 million were attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $119 million, or 19.6 points, and $132 million, or 7.6, respectively.

After adjusting for the impact of the Ogden rate change on our motor lines,catastrophe and weather-related losses, the adverse impact of rate and trend.

current accident year loss ratio decreased to 62.7% for the three months ended September 30, 2020 from 64.8% for the three months ended September 30, 2019. The increasedecrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, professional lines and liability lines.

After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 61.1% for the nine months ended September 30, 2017 compared to2020 from 62.3% for the same periodnine months ended September 30, 2019. The decrease in 2016the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to a large risk losschanges in our property lines, the ongoing impactbusiness mix and improved performance in aviation, motor and liability lines.


62

Refer ‘Prior Year Reserve Development’ for further details. 


The following table maps lines of business to reserve classes and the expected claim tails:
Reinsurance segment
Reserve class and tail
Property and otherCredit and suretyProfessional linesMotorLiability
ShortMediumMediumLongLong
Reported lines of business
CatastropheX
PropertyX
Credit and suretyX
Professional linesX
MotorX
LiabilityX
EngineeringX
AgricultureX
Marine and otherX
Accident and healthX
Discontinued lines - NovaeXXX

Prior year reserve development by reserve class were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Property and other$3,126 $(12,283)$(4,961)$(71,227)
Credit and surety11,184 5,652 27,927 32,659 
Professional lines(13,776)(7,303)(13,493)641 
Motor1,214 22,902 18,732 33,964 
Liability(1,434)3,150 (23,375)26,135 
Total$314 $12,118 $4,830 $22,172 

For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
$11 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to 2017 and 2019 accident years.
$14 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
For the three months ended September 30, 2019, we recognized $12 million of net favorable prior year reserve development, the principal components of which were:
$23 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to recent accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.
$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening attributable to late reporting of claims bordereaux associated with the European proportional book of business related to the 2018 accident year.

63

$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European book of business mainly related to the 2015 and 2016 accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to multiple accident years.
$19 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to the 2019 and older accident years.
$23 million of net adverse prior year development on liability business primarily due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 to 2019 accident years.
$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, and the marine and other line of business mainly related to the 2017 accident years, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence attributable to the 2019 catastrophe events.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
$34 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to several accident years.
$33 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to the 2015 and 2016 accident years.
$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2018 accident year.

Acquisition Cost Ratio:Ratio:


The acquisition cost ratio decreased to 23.1% for the three months ended September 30, 2017 compared to 26.1% for the three months ended September 30, 2016 attributable to changes in business mix22.3% and the impact of favorable reinstatement premiums.

The acquisition cost ratio decreased to 24.5% for the nine months ended September 30, 2017 compared to 25.6% for the nine months ended September 30, 2016, attributable to changes in business mix, partially offset by the impact of retrocessional contracts.

General and Administrative Expense Ratio:

The general and administrative expense ratio decreased to 4.2% and 5.6%22.5% for the three and nine months ended September 30, 2017,2020, respectively, from 6.1%23.3% and 6.9%23.4% for the three and nine months ended September 30, 2016,2019, respectively, reflecting a decrease performance-related compensation costs, together with an increaseprincipally related to changes in fees from strategic capital partners.business mix.



Underwriting-Related General and Administrative Expense Ratio:



77



OTHER EXPENSES (REVENUES), NET



The following table provides a breakdownunderwriting-related general and administrative expense ratio of our other expenses (revenues), net:
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Corporate expenses$27,933
 (3%) $28,683
 $97,922
 13% $86,922
 
 Foreign exchange losses (gains)32,510
 nm (13,795) 90,093
 nm (69,781) 
 Interest expense and financing costs12,835
 —% 12,839
 38,377
 (1%) 38,586
 
 Income tax expense (benefit)(25,877) nm 9,352
 (38,547) nm 7,712
 
 Total$47,401
 nm $37,079
 $187,845
 nm $63,439
 
              
nm – not meaningful

Corporate Expenses:

Our corporate expenses include holding company costs necessary to support our worldwide insurance4.5% and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses were 2.7% and 3.3%4.9% for the three and nine months ended September 30, 2017,2020, respectively, comparedwas comparable to 3.1%4.1% and 3.1% for the same periods in 2016, respectively.

The decrease in corporate expenses for the three months ended September 30, 2017 was primarily driven by a decrease in performance related compensation costs, an increase in the allocation of corporate costs to the insurance and reinsurance segments, and a decrease in professional fees, partially offset by higher personnel expenses.

The increase in corporate expenses for the nine months ended September 30, 2017 was primarily driven by an increase in personnel expenses and information technology costs, partially offset by an increase in the allocation of corporate expenses to the insurance and reinsurance segments and a decrease in performance related compensation costs.

Foreign Exchange Losses (Gains):

Some of our business is written in currencies other than the U.S. dollar. Foreign exchange losses of $33 million for the three months ended September 30, 2017 were primarily attributable to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated in pound sterling and euro.

Foreign exchange losses of $90 million for the nine months ended September 30, 2017 were primarily attributable to the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities mainly denominated in pound sterling and euro and the reclass of a cumulative translation adjustment balance of $24 million related to the wind-down of AXIS Specialty Australia from accumulated other comprehensive income to foreign exchange losses.

Foreign exchange gains $14 million and $70 million4.9% for the three and nine months ended September 30, 2016, respectively, were primarily attributable to the impact the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling.2019, respectively.






64
78



Income Tax Expense (Benefit):

Income tax primarily results from income generated by our foreign operations in the U.S. and Europe. Our effective tax rate is calculated as income tax expense divided by net income before tax including interest in loss of equity method investments. This effective rate can vary between periods depending on the distribution of net income amongst tax jurisdictions, as well as other factors.

The tax benefit of $26 million recognized in the three months ended September 30, 2017 was primarily driven by an underwriting loss associated with catastrophe losses recognized in our U.S. operations.

The tax benefit of $39 million recognized in the nine months ended September 30, 2017 was primarily driven by an underwriting loss associated with catastrophe losses recognized in our U.S. operations, share based compensation excess tax benefits which were recognized in the income statement, and a tax adjustment related to the bargain purchase gain recognized in connection with the acquisition of Aviabel.

Income tax expenses recognized in the three and nine months ended September 30, 2016 were primarily driven by the generation of consolidated pre-tax net income in our European operations.




79






NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS (LOSSES)




Net Investment Income


The following table provides a breakdown ofNet investment income earned from our cash and investment portfolio by major asset class:class was as follows:
   Three months ended September 30, Nine months ended September 30, 
   2017 % Change 2016 2017 % Change 2016 
              
 Fixed maturities$74,978
 (1%) $75,827
 $230,603
 1% $229,423
 
 Other investments17,373
 (55%) 38,248
 59,973
 nm 25,770
 
 Equity securities3,223
 (30%) 4,633
 11,048
 (14%) 12,843
 
 Mortgage loans2,895
 32% 2,191
 7,970
 40% 5,683
 
 Cash and cash equivalents3,111
 (17%) 3,768
 9,640
 36% 7,071
 
 Short-term investments698
 nm 337
 1,797
 nm 708
 
 Gross investment income102,278
 (18%) 125,004
 321,031
 14% 281,498
 
 Investment expense(7,109) (12%) (8,081) (21,132) (11%) (23,680) 
 Net investment income$95,169
 (19%) $116,923
 $299,899
 16% $257,818
 
              
 
Pre-tax yield:(1)
            
 Fixed maturities2.7%   2.7% 2.7%   2.6% 
              
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Fixed maturities$73,992(23%)$96,311$244,394(14%)$285,062
Other investments25,125nm11,143(14,574)nm49,271
Equity securities1,871(16%)2,2326,258(19%)7,757
Mortgage loans3,609(9%)3,98411,3225%10,735
Cash and cash equivalents2,491(65%)7,0349,814(53%)20,974
Short-term investments440(55%)9732,303(61%)5,975
Gross investment income107,528(12%)121,677259,517(32%)379,774
Investment expense(5,572)(6%)(5,914)(19,419)4%(18,760)
Net investment income$101,956(12%)$115,763$240,098(33%)$361,014
Pre-tax yield:(1)
Fixed maturities2.5 %3.1 %2.7 %3.2 %
nm - not meaningful
(1)Pre-tax yield is annualized and calculated as net investment income divided by the average month-end amortized cost balances for the periods indicated.

(1) Pre-tax yield is calculated by dividing annualized net investment income by the average month-end amortized cost balances.

Fixed Maturities


Net investment income attributable to fixed maturities for the three and nine months ended September 30, 20172020 was comparable$74 million and $244 million, respectively, compared to same periods in 2016.

Other Investments

The following table provides a breakdown of total net investment income from other investments:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Hedge, direct lending, private equity and real estate funds$14,786
 $29,459
 $52,526
 $6,127
 
 Other privately held investments1,185
 370
 3,517
 177
 
 CLO - Equities1,402
 8,419
 3,930
 19,466
 
 Total net investment income from other investments$17,373
 $38,248
 $59,973
 $25,770
 
          
 
Pre-tax return on other investments(1)
2.1% 4.5% 7.5% 3.1% 
          
(1)The pre-tax return on other investments is non-annualized and calculated by dividing total net investment income from other investments by the average month-end fair value balances held for the periods indicated.

Net investment income attributable to other investments was $17of $96 million and $60$285 million for the three and nine months ended September 30, 2017,2019, respectively. The decrease for the three and nine months ended September 30, 2020, compared to the same period in 2019, was due to the decrease in yields.

Other Investments

Net investment income from other investments was as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Hedge, direct lending, private equity and real estate funds$24,982$10,411$(11,552)$32,665
Other privately held investments5652,04057016,666
CLO-Equities(422)(1,308)(3,592)(60)
Net investment income (loss) from other investments (1)
$25,125$11,143$(14,574)$49,271
Pre-tax return on other investments(2)
3.5 %1.6 %(2.0 %)7.0 %
(1)Excluding overseas deposits.
(2)The pre-tax return on other investments is calculated by dividing total net investment income from other investments (non-annualized) by the average month-end fair value balances held for the periods indicated, excluding overseas deposits.

65

Net investment income (loss) attributable to other investments for the three and nine months ended September 30, 2020 was $25 million and $(15) million, respectively, compared to net investment income of $38$11 million and $26$49 million for the three and nine months ended September 30, 2016, respectively, as2019, respectively. The increase for the improvementthree months ended September 30, 2020, compared to the same period in 2019, was due to higher returns from direct lending funds. The decrease for the nine months ended September 30, 2020, compared to the same period in 2019, was attributable to negative returns from direct lending and real estate funds and a realized gain of $13 million associated with the sale of a privately held investment in the performance of the global equity and credit markets translated into higher valuations of our hedge and direct lending funds.nine months ended September 30, 2019.




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Net Realized Investment Gains (Losses)


The following table provides a breakdownNet investment gains were as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
On sale of investments:
Fixed maturities and short-term investments$29,532 $17,918 $42,658 $17,069 
Equity securities519 1,745 18,675 3,221 
 30,051 19,663 61,333 20,290 
Allowance for expected credit losses3,759 — (2,498)— 
Impairment losses(184)— (1,486)— 
OTTI losses (1,458) (6,328)
Change in fair value of investment derivatives(1,346)2,592 1,970 287 
Net unrealized gains (losses) on equity securities23,329 (6,270)(13,542)34,273 
Net investment gains$55,609 $14,527 $45,777 $48,522 

Net investment gains for the three months ended September 30, 2020 were $56 million compared to net investment gains of $15 million for the three months ended September 30, 2019, an increase of $41 million. For the three months ended September 30, 2020, the net investment gains were primarily due to net realized gains on the sale of corporate debt and U.S. government securities and net unrealized gains on equity securities. For the three months ended September 30, 2019, the net investment gains (losses):
were primarily due to net realized gains on the sale of U.S. government and agency RMBS securities partially offset by net unrealized losses on equity securities.
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 On sale of investments:        
 Fixed maturities and short-term investments$3,404
 $4,303
 $(25,659) $(22,869) 
 Equity securities17,935
 4,994
 33,536
 2,881
 
  21,339
 9,297
 7,877
 (19,988) 
 OTTI charges recognized in earnings(5,412) (4,247) (13,493) (20,346) 
 Change in fair value of investment derivatives(1,295) 155
 (9,195) 39
 
 Net realized investment gains (losses)$14,632
 $5,205
 $(14,811) $(40,295) 
          


Net investment gains for the nine months ended September 30, 2020 were $46 million, compared to net investment gains of $49 million for the nine months ended September 30, 2019, a decrease of $3 million. For the nine months ended September 30, 2020, the net investment gains were primarily due to net realized gains on the sale of U.S. government, agency RMBS and equity securities partially offset by net unrealized losses on equity securities. For the nine months ended September 30, 2019, the net investment gains were primarily due to net unrealized gains on equity securities and net realized gains on the sale of U.S. government and agency RMBS securities.

On saleSale of investmentsInvestments


Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell securities to re-balance our investment portfolio in order to change exposure to particular asset classes or sectors.


Net realized investment gainsImpairment and OTTI Losses

The impairment losses for the three months ended September 30, 2017 were $15 million compared to net realized investment gains of $5 million for the three months ended September 30, 2016, an increase of $9 million. For the three months ended September 30, 2017, net realized investment gains were primarily due to improved pricing on equity securities. For the three months ended September 30, 2016, net realized investment gains were driven by improved pricing on fixed maturities and equity securities.

Net realized investment losses for the nine months ended September 30, 20172020 were $15$nil and $1 million, respectively, compared to net realized investmentOTTI losses of $40$1 million and $6 million for the three and nine months ended September 30, 2016, a decrease of $25 million.2019. For the three and nine months ended September 30, 2017 and 2016, net realized investment2020, these losses were primarilyprincipally due to foreign exchange losses on non-U.S. denominated securities.

OTTI charges

The OTTI charges forimpairments of non-investment grade corporate debt securities that we intend to sell or more likely than not will be required to sell. For the three months ended September 30, 2017 were $5 million, compared to $4 million for the three months ended September 30, 2016, a decrease of $1 million. The OTTI charges for theand nine months ended September 30, 20172019, these losses were $13 million, compared to $20 million for the nine months ended September 30, 2016, a decrease of $7 million. For all periods presented the OTTI charges were primarilyprincipally due to impairments onof non-U.S. denominated securities as a resultdue to the impact of the decline in foreign exchange rates againststrengthening of the U.S. dollar.




66

Change in fair valueFair Value of investment derivativesInvestment Derivatives


From time to time, we may economically hedge the foreign exchange exposure of non-U.S. denominated securities by entering into foreign exchange forwardand interest rate risk with derivative contracts.


During 2017, we also introduced the use of interest rate swaps to reduce duration risk of our fixed income portfolio.

For the three months ended September 30, 2017, we recorded losses of $2 million relating to foreign exchange contracts and gains of $1 million relating to interest rates swaps. For the three months ended September 30, 2016 the fair value of foreign exchange contracts was unchanged.

For the nine months ended September 30, 2017, we2020, we recorded losses of $6$1 million and gains of $2 million, respectively, related to foreign exchange contracts. For the three and nine months ended September 30, 2019, we recorded gains of $3 million and $4 million, respectively relating to foreign exchange contracts and losses of $3$nil and $4 million, relatingrespectively, related to interest rates swaps. For the nine months ended September 30, 2016 the fair value of foreign exchange contracts was unchanged.




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Total Return


Total return on cash and investments was as follows:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Net investment income$101,956$115,763$240,098$361,014
Net investments gains55,60914,52745,77748,522
Change in net unrealized gains (losses) on fixed maturities (1)
73,05029,493204,828388,939
Interest in income (loss) of equity method investments2,896792(13,579)5,645
Total$233,511$160,575$477,124$804,120
Average cash and investments(2)
$15,512,967$15,492,106$15,523,879$15,199,356
Total return on average cash and investments, pre-tax:
Including investment related foreign exchange movements1.5 %1.0 %3.1 %5.3 %
Excluding investment related foreign exchange movements(3)
1.2 %1.2 %3.1 %5.5 %
(1)Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end.
(2)The following table provides a breakdownaverage cash and investments balance is calculated by taking the average of the period end fair value balances.
(3)Pre-tax total return on cash and investments for the period indicated:
   Three months ended September 30, Nine months ended September 30, 
   2017 2016 2017 2016 
          
 Net investment income$95,169
 $116,923
 $299,899
 $257,818
 
 Net realized investments gains (losses)14,632
 5,205
 (14,811) (40,295) 
 
Change in net unrealized gains (losses)(1)
48,506
 35,075
 223,630
 303,573
 
 Interest in loss of equity method investments(661) (2,434) (8,402) (2,434) 
 Total$157,646
 $154,769
 $500,316
 $518,662
 
          
 
Average cash and investments(2)
$14,533,027
 $14,470,231
 $14,519,902
 $14,457,978
 
          
 Total return on average cash and investments, pre-tax:        
 Inclusive of investment related foreign exchange movements1.1% 1.1% 3.4% 3.6% 
 
Exclusive of investment related foreign exchange movements(3)
0.9% 1.1% 3.0% 3.9% 
          
(1)Change in net unrealized gains (losses) is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end.
(2)The average cash and investments balance is calculated by taking the average of the month-end fair value balances held for the periods indicated.
(3)Pre-tax return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in SEC Regulation G.excluding foreign exchange movements is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure included foreign exchange gains (losses) of $22 million and $(8) million for the three months ended September 30, 2017 and 2016, respectively, and foreign exchange gains (losses) of $62 million and $(39) million for the nine months ended September 30, 2017 and 2016, respectively.



CASH AND INVESTMENTS


The table below provides a breakdown of our cash and investments:
   September 30, 2017 December 31, 2016 
    Fair Value  Fair Value 
        
 Fixed maturities $11,086,386
  $11,397,114
 
 Equity securities 659,751
  638,744
 
 Mortgage loans 360,381
  349,969
 
 Other investments 830,253
  830,219
 
 Equity method investments 108,597
  116,000
 
 Short-term investments 15,282
  127,461
 
 Total investments $13,060,650
  $13,459,507
 
        
 
Cash and cash equivalents(1)
 $1,631,127
  $1,241,507
 
        
(1)
Includes restricted cash and cash equivalents of $281 million and $202 million at September 30, 2017 and at December 31, 2016, respectively.




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Overview

The fair value$42 million and $(31) million for the three months ended September 30, 2020, and 2019, respectively, and foreign exchange (losses) gains of total investments decreased by $399$(6) million and $(28) million for the nine months ended September 30, 2020 and 2019, respectively.



OTHER EXPENSES (REVENUES), NET


The following table provides a summary of other expenses (revenues), net:
  Three months ended September 30,Nine months ended September 30,
  2020% Change20192020% Change2019
Corporate expenses$20,988 (27%)$28,903 $74,915 (23%)$97,468 
Foreign exchange losses (gains)60,734 nm(59,543)8,760 nm(64,868)
Interest expense and financing costs15,574 (14%)18,042 59,641 20%49,545 
Income tax expense (benefit)(12,056)nm8,147 (6,030)nm23,850 
Total$85,240 $(4,451)$137,286 $105,995 
nm – not meaningful



67

Corporate Expenses

Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses decreased to 1.9% and 2.3% for the three and nine months ended September 30, 2020, respectively, from 2.5% and 2.9% for the three and nine months ended September 30, 2019, respectively.

The decrease in corporate expenses for the three months ended September 30, 2020, was primarily related to decreases in personnel costs and professional fees. The decrease in corporate expenses for the nine months ended September 30, 2020, was primarily related to decreases in personnel costs, professional fees, travel and entertainment costs, and information technology costs.

Foreign Exchange Losses (Gains)

Some of our business is written in currencies other than the U.S. dollar. Foreign exchange losses of $61 million for the three months ended September 30, 2020, were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in euro and in pound sterling.

Foreign exchange losses of $9 million for the nine months ended September 30, 2020, were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling.

Foreign exchange gains of $60 million and $65 million for the three and nine months ended September 30, 2019, respectively, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.

Interest Expense and Financing Costs

Interest expense and financing costs are related to interest due on the 5.875% senior unsecured notes ("5.875% Senior Notes") issued in 2010 and repaid in June 2020, the 5.150% senior unsecured notes ("5.150% Senior Notes") issued in 2014, the 4.000% senior unsecured notes ("4.000% Senior Notes") issued in 2017, the 3.900% senior unsecured notes ("3.900% Senior Notes"), and the 4.900% fixed-rate reset junior subordinated notes ("Junior Subordinated Notes") issued in 2019.

Interest expense and financing costs decreased by $2 million for the three months ended September 30, 2020, compared to the same period in 2019, due to the fundingrepayment of the 5.875% Senior Notes on June 1, 2020. Interest expense and financing costs increased by $10 million for the nine months ended September 30, 2020, compared to the same period in 2019, due to the issuance of the 3.900% Senior Notes on June 19, 2019 and operating activities,the issuance of the Junior Subordinated Notes on December 10, 2019, partially offset by the improvementrepayment of the 2.650% Senior Notes on April 1, 2019 and the repayment of the 5.875% Senior Notes on June 1, 2020.

Income Tax Expense (Benefit)

Income tax expense (benefit) primarily results from income (loss) generated by our foreign operations in valuationsthe U.S. and Europe. Our effective tax rate is calculated as income tax expense (benefit) divided by income (loss) before tax including interest in income (loss) of equity method investments. This effective rate can vary between periods depending on the distribution of net income (loss) among tax jurisdictions, as well as other factors.

The tax benefit of $12 million a for the three months ended September 30, 2020, was principally due to the generation of pre-tax losses in our U.S. operations.

The tax benefit of $6 million for the nine months ended September 30, 2020, was principally due to the generation of pre-tax losses in our U.S. and U.K. operations.

The tax expense of $8 million and $24 million for the three and nine months ended September 30, 2019, respectively, was attributable to the generation of pre-tax income in our U.S. and European operations, partially offset by pre-tax losses in our U.K. operations.


68



FINANCIAL MEASURES


We believe the following financial indicators are important in evaluating performance and measuring the overall growth in value generated for common shareholders:
  Three months ended September 30,Nine months ended September 30,
  2020201920202019
Annualized return on average common equity(1)
(6.2 %)2.3 %(4.1 %)8.6 %
Annualized operating return on average common equity(2)
(5.5 %)(2.7 %)(4.4 %)6.1 %
Book value per diluted common share(3)
$54.75$56.26$54.75$56.26
Cash dividends declared per common share$0.41$0.40$1.23$1.20
Increase (decrease) in book value per diluted common share adjusted for dividends$0.07$0.67$0.13$5.16

(1)Annualized return on average common equity ("ROACE") is calculated by dividing annualized net income (loss) available (attributable) to common shareholders for the period by the average common shareholders' equity determined using the common shareholders' equity balances at the beginning and end of the period.
(2)Annualized operating return on average common equity ("operating ROACE") is a non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measure, annualized ROACE, and a discussion of the rationale for the presentation of this item is provided in 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures Reconciliation'.
(3)Book value per diluted common share represents total common shareholders’ equity divided by diluted common shares outstanding, determined using the treasury stock method. Cash-settled restricted stock units are excluded.

Return on Average Common Equity
Our objective is to generate superior returns on capital that appropriately reward common shareholders for the risks we assume and to grow revenue only when we expect the returns will meet or exceed our requirements. We recognize that the nature of underwriting cycles and the frequency or severity of large loss events in any one year may challenge the ability to achieve a profitability target in any specific period.

ROACE reflects the impact of net income (loss) available (attributable) to common shareholders including net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments.

The decrease in ROACE for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was primarily driven by the foreign exchange losses and an increase in the underwriting loss, together with a decrease in net investment income, partially offset by an increase in net investment gains, the income tax benefit, and decreases in reorganization expenses and corporate expenses.

The decrease in ROACE for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was primarily driven by the underwriting loss, a decrease in net investment income, and the foreign exchange losses, together with the interest in loss of equity method investments, partially offset by the income tax benefit, and decreases in reorganization expenses, corporate expenses, and the amortization of value of business acquired ("VOBA") associated with the acquisition of Novae. In addition, ROACE was impacted by an increase in average common shareholders' equity.

Operating ROACE excludes the impact of net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments.

The decrease in operating ROACE for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was primarily driven by an increase in the underwriting loss, together with a decrease in net investment income, partially offset by the income tax benefit and a decrease in corporate expenses.


69

The decrease in operating ROACE for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was primarily driven by the underwriting loss and a decrease in investment income, partially offset by the income tax benefit, and a decrease in corporate expenses and a decrease in the amortization of VOBA associated with the acquisition of Novae.

Book Value per Diluted Common Share

We consider book value per diluted common share to be an appropriate measure of returns to common shareholders, as we believe growth in book value on a diluted basis will ultimately translate into appreciation of stock price.

During the three months ended September 30, 2020, book value per diluted common share decreased to $54.75 from $55.09, a decrease of 0.6%, due to the net loss generated and common dividends declared, partially offset by net unrealized gains reported in accumulated other comprehensive income.

During the nine months ended September 30, 2020, book value per diluted common share decreased to $54.75 from $55.79, a decrease of 1.9%, due to the net loss generated and common dividends declared, partially offset by net unrealized gains reported in accumulated other comprehensive income.

Cash Dividends Declared per Common Share

We believe in returning excess capital to shareholders by way of dividends and share repurchases. Accordingly, dividend policy is an integral part of the value we create for shareholders. Our cumulative strong earnings have permitted our Board of Directors to approve sixteen successive annual increases in quarterly common share dividends.

Book Value per Diluted Common Share Adjusted for Dividends

Book value per diluted common share adjusted for dividends increased by $0.07 for the three months ended September 30, 2020, and increased by $0.19 for the nine months ended September 30, 2020.

Taken together, we believe that growth in book value per diluted common share and common share dividends declared represent the total value created for common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the book value per diluted common share adjusted for dividends metric to measure comparable performance across the industry.

During the three months ended September 30, 2020, the increase in total value was driven by unrealized investment gains reported in accumulated other comprehensive income, partially offset by the net loss generated in the period.

During the nine months ended September 30, 2020, the increase in total value was driven by net unrealized investment gains recognized in accumulated other comprehensive income, partially offset by the net loss generated in the period.

Book value per diluted common share adjusted for dividends increased by $0.67, or 1% for the three months ended September 30, 2019 and increased by $7.53, or 15.0% for the nine months ended September 30, 2019.

During the three and nine months ended September 30, 2019, total value created was driven by the net income generated in the quarter and unrealized investment gains reported in accumulated other comprehensive income.

70




NON-GAAP FINANCIAL MEASURES RECONCILIATION


Three months ended September 30,Nine months ended September 30,
2020201920202019
Net income (loss) available (attributable) to common shareholders$(72,945)$27,745$(145,855)$292,258
Net investment (gains) losses(1)
(55,609)(14,527)(45,777)(48,522)
Foreign exchange losses (gains)(2)
60,734(59,543)8,760(64,868)
Reorganization expenses(3)
1,41311,21582229,310
Interest in (income) loss of equity method investments(4)
(2,896)(792)13,579(5,645)
Income tax expense4,2353,36110,4946,524
Operating income (loss)$(65,068)$(32,541)$(157,977)$209,057
Earnings (loss) per diluted common share$(0.87)$0.33$(1.73)$3.46
Net investment (gains) losses(0.66)(0.17)(0.54)(0.57)
Foreign exchange losses (gains)0.72(0.71)0.10(0.77)
Reorganization expenses0.020.130.010.35
Interest in (income) loss of equity method investments(0.03)(0.01)0.16(0.07)
Income tax expense0.050.040.120.08
Operating income (loss) per diluted common share(5)
$(0.77)$(0.39)$(1.88)$2.48
Weighted average diluted common shares outstanding(6)
84,30883,94784,23584,420
Average common shareholders' equity$4,731,858$4,801,174$4,742,452$4,532,971
Annualized return on average common equity(6.2 %)2.3 %(4.1 %)8.6 %
Annualized operating return on average common equity(7)
(5.5 %)(2.7 %)(4.4 %)6.1 %

(1)Tax cost (benefit) of $6,667 and $897 for the three months ended September 30, 2020 and 2019, respectively, and $9,104 and $6,667 for the nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.
(2)Tax cost (benefit) of ($2,245) and $4,784 for the three months ended September 30, 2020 and 2019, respectively, and $1,366 and $5,372 for the nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions.
(3)Tax cost (benefit) of ($187) and ($2,320) for the three months ended September 30, 2020 and 2019, respectively, and $24 and ($5,515) for the nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions.
(4)Tax cost (benefit) of $nil for the three and nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions.
(5)Loss per diluted common share and operating loss per diluted common share for the three and nine months ended September 30, 2020 were calculated using weighted average common shares outstanding due to the net loss attributable to common shareholders and the operating loss recognized in these periods.
(6)Refer to Item 1, Note 7 to our Consolidated Financial Statements 'Earnings per Common Share' for further details.
(7)Annualized operating ROACE is calculated by dividing annualized operating income (loss) for the period by the average common shareholders' equity balances determined using the common shareholders' equity balances at the beginning and end of the period. The reconciliation to ROACE, the most comparable GAAP financial measure is provided in the table above, and a discussion of the rationale for its presentation is provided below.
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Rationale for the Use of Non-GAAP Financial Measures

We present our results of operations in the way we believe will be most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are considered non-GAAP financial measures under SEC rules and regulations. In this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we present underwriting-related general and administrative expenses, consolidated underwriting income (loss), operating income (loss) (in total and on a per share basis), annualized operating return on average common equity ("operating ROACE"), amounts presented on a constant currency basis and pre-tax total return on cash and investments excluding foreign exchange movements which are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. We believe that these non-GAAP financial measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

Underwriting-Related General and Administrative Expenses

Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our underwriting operations. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.

Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our underwriting operations, these costs are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss). General and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, also includes corporate expenses.

The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.

Consolidated Underwriting Income (Loss)

Consolidated underwriting income (loss) is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (loss) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative expenses as expenses. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.

We evaluate our underwriting results separately from the performance of our investment portfolio. As a result, we believe it is appropriate to exclude net investment income and net investment gains (losses) from our underwriting profitability measure.

Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance, therefore, foreign exchange losses (gains) are excluded from consolidated underwriting income (loss).

Interest expense and financing costs primarily relate to interest payable on our debt. As these expenses are not incremental and/or directly attributable to our underwriting operations, these expenses are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss).

Reorganization expenses are related to the transformation program which was launched in 2017. This program encompasses the integration of Novae, which commenced in the fourth quarter of 2017, the realignment of our accident and health business, together with other initiatives designed to increase efficiency and enhance profitability, while delivering a customer-centric operating model. Reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from consolidated underwriting income (loss).

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We believe that the presentation of underwriting-related general and administrative expenses and consolidated underwriting income (loss) provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities. The reconciliation of consolidated underwriting income (loss) to net income (loss), the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.

Operating Income (Loss)

Operating income (loss) represents after-tax operational results exclusive of net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments.

Although the investment of premiums to generate income and investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.

Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on net insurance-related liabilities. In addition, we recognize unrealized foreign exchange losses (gains) on our equity securities and foreign exchange losses (gains) realized on the sale of our available for sale investments and equity securities in net investment gains (losses). We also recognize unrealized foreign exchange losses (gains) on our available for sale investments in other comprehensive income (loss). These unrealized foreign exchange losses (gains) generally offset a large portion of the foreign exchange losses (gains) reported in net income (loss), thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As a result, foreign exchange losses (gains) in our consolidated statements of operations in isolation are not a fair representation of the performance of our business.

Reorganization expenses are related to the transformation program which was launched in 2017. This program encompasses the integration of Novae, which commenced in the fourth quarter of 2017, the realignment of our accident and health business, together with other initiatives designed to increase efficiency and enhance profitability, while delivering a customer-centric operating model. Reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from operating income (loss).

Interest in income (loss) of equity method investments is primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, this income (loss) is excluded from operating income (loss).

Certain users of our financial statements evaluate performance exclusive of after-tax net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments to understand the profitability of recurring sources of income.

We believe that showing net income (loss) available (attributable) to common shareholders exclusive of after-tax net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. The reconciliation of operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presented above.

We also present operating income (loss) per diluted common share and annualized operating ROACE, which are derived from the operating income (loss) measure and are reconciled above to the most comparable GAAP financial measures, earnings (loss) per diluted common share and annualized return on average common equity ("ROACE"), respectively.
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Constant Currency Basis

We present gross premiums written, net premiums written and net premiums earned on a constant currency basis in this MD&A. The amounts presented on a constant currency basis are calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze growth in gross premiums written, net premiums written and net premiums earned on a constant basis. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment'.

Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movement

Pre-tax total return on cash and investments excluding foreign exchange movements measures net investment income (loss), net investments gains (losses), interest in income (loss) of equity method investments, and change in unrealized gains (losses) generated by average cash and investment balances. The reconciliation of pre-tax total return on cash and investments excluding foreign exchange movements to pre-tax total return on cash and investments, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Investment Income and Net Investment Gains (Losses)'. We believe this presentation enables investors and other users of our financial information to analyze the performance of our investment portfolio.

Acquisition of Novae

On October 2, 2017, we acquired Novae. At the acquisition date, we identified value of business acquired ("VOBA") which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction. In addition, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet at the acquisition date as the value of policies in-force on that date are considered within VOBA. Consequently, underwriting income (loss) for the three and nine months ended September 30, 2019, included the recognition of premiums attributable to Novae's balance sheet at the acquisition date without the recognition of the associated acquisition costs.




CASH AND INVESTMENTS


Details of cash and investments are as follows:
  September 30, 2020December 31, 2019
  Fair ValueFair Value
Fixed maturities$12,609,241 $12,468,205 
Equity securities417,886 474,207 
Mortgage loans544,095 432,748 
Other investments760,206 770,923 
Equity method investments104,242 117,821 
Short-term investments69,996 38,471 
Total investments$14,505,666 $14,302,375 
Cash and cash equivalents(1)
$1,440,816 $1,576,457 
(1)Includes restricted cash and cash equivalents of $440 million and $335 million at September 30, 2020 and at December 31, 2019, respectively.


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Overview

The fair value of total investments increased by $203 million in the nine months ended September 30, 2020, driven by cash inflows from operations and the increase in market value of fixed incomematurities due to the decline in yields, partially offset by the repayment of $500 million 5.875% Senior Notes and equity securities.the redemption of $225 million of 5.50% Series D preferred shares.


The following provides a furtherAn analysis onof our investment portfolio by asset classes:class is detailed below:


Fixed Maturities


The following provides a breakdownDetails of our investment in fixed maturities:maturities portfolio are as follows:
  September 30, 2020December 31, 2019
  Fair Value% of TotalFair Value% of Total
Fixed maturities:
U.S. government and agency$1,991,466 16 %$2,112,881 17 %
Non-U.S. government673,801 5 %576,592 %
Corporate debt4,796,731 39 %4,930,254 38 %
Agency RMBS1,677,106 13 %1,592,584 13 %
CMBS1,380,738 11 %1,365,052 11 %
Non-agency RMBS133,530 1 %84,922 %
ABS1,672,175 13 %1,598,693 13 %
Municipals(1)
283,694 2 %207,227 %
Total$12,609,241 100 %$12,468,205 100 %
Credit ratings:
U.S. government and agency$1,991,466 16 %$2,112,881 17 %
AAA(2)
5,012,547 40 %4,896,833 38 %
AA934,983 7 %865,601 %
A1,973,829 16 %1,848,331 15 %
BBB1,690,837 13 %1,684,589 14 %
Below BBB(3)
1,005,579 8 %1,059,970 %
Total$12,609,241 100 %$12,468,205 100 %
   September 30, 2017 December 31, 2016 
   Fair Value % of Total Fair Value % of Total 
          
 Fixed maturities:        
 U.S. government and agency$1,547,318
 14% $1,656,069
 15% 
 Non-U.S. government573,640
 5% 565,834
 5% 
 Corporate debt4,503,967
 41% 4,600,743
 40% 
 Agency RMBS2,306,822
 21% 2,465,135
 22% 
 CMBS669,736
 6% 666,237
 6% 
 Non-Agency RMBS43,817
 % 56,921
 % 
 ABS1,288,870
 12% 1,222,214
 11% 
 
Municipals(1)
152,216
 1% 163,961
 1% 
 Total$11,086,386
 100% $11,397,114
 100% 
          
 Credit ratings:        
 U.S. government and agency$1,547,318
 14% $1,656,069
 15% 
 
AAA(2)
4,381,049
 40% 4,165,226
 36% 
 AA875,668
 8% 1,124,167
 10% 
 A1,659,488
 15% 1,747,857
 15% 
 BBB1,602,395
 14% 1,563,352
 14% 
 
Below BBB(3)
1,020,468
 9% 1,140,443
 10% 
 Total$11,086,386
 100% $11,397,114
 100% 
          
(1)Includes bonds issued by states, municipalities, and political subdivisions.
(1)Includes bonds issued by states, municipalities, and political subdivisions.
(2)Includes U.S. government-sponsored agency RMBS and CMBS.
(3)Non-investment grade and non-rated securities.

(2)Includes U.S. government-sponsored agencies, residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities ("CMBS").
(3)Non-investment grade and non-rated securities.

At September 30, 2017,2020, fixed maturities had a weighted average credit rating of AA- (2016:(2019: AA-), a book yield of 2.3% (2019: 2.8%) and an average duration of 3.4 years (2019: 3.2 years). At September 30, 2020, fixed maturities together with short-term investments, and cash and cash equivalents (i.e. total investments of $14.1 billion), had an average credit rating of AA- (2019: AA-) and an average duration of 3.33.2 years (2016: 3.5(2019: 2.9 years), and duration inclusive of interest rate swaps of 3.2 years. .

At September 30, 2017, inclusive of the short-term investments and cash and cash equivalents, the average credit rating was AA- (2016: AA-) and duration (including interest rate swaps) was 2.8 years (2016: 3.2 years).

Net2020, net unrealized investment gains on fixed maturities were $43$407 million, at September 30, 2017 compared to net unrealized investment lossesgains of $126$205 million at December 31, 2016, primarily2019, an increase of $202 million due to the strengthening of the pound sterling and the euro against U.S. dollar which positively impacted valuations of non-U.S. denominated fixed maturity securities, together with the impact of the tightening of credit spreads on investment grade and high yield corporate debt.decline in yields.


Equity Securities


NetAt September 30, 2020, net unrealized investment gains on equity securities were $41$62 million, compared to unrealized gains of $75 million at December 31, 2016 compared to $972019, a decrease of $13 million at September 30, 2017, an increase of $56 million due to an improvement in valuations reflective of performance ofdriven by realized gains taken during the global equity markets.


year.



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Mortgage Loans


During the nine months ended September 30, 2017,2020, our investment in commercial mortgage loans was comparable to December 31, 2016.increased by $111 million. The commercial mortgage loans are high quality and collateralized by a variety of commercial properties and are diversified both geographically throughout the U. S.U.S. and by property type to reduce the risk of concentration. At September 30, 2017,2020, there were no credit losses or past due amounts associated with our commercial mortgage loans portfolio.


Other Investments


The compositionDetails of our other investments portfolio is summarizedare as follows:
September 30, 2020December 31, 2019
  Fair Value% of TotalFair Value% of Total
Hedge funds
Long/short equity funds$24,815 3 %$31,248 %
Multi-strategy funds111,980 15 %136,542 18 %
Total hedge funds136,795 18 %167,790 22 %
Direct lending funds269,783 35 %277,395 36 %
Private equity funds106,701 14 %80,412 10 %
Real estate funds153,163 20 %130,112 17 %
Total hedge, direct lending, private equity and real estate funds666,442 87 %655,709 85 %
CLO-Equities9,189 2 %14,328 %
Other privately held investments39,493 5 %36,934 %
Overseas deposits45,082 6 %63,952 %
Total other investments$760,206 100 %$770,923 100 %
          
   September 30, 2017 December 31, 2016 
          
 Hedge funds        
 Long/short equity funds$64,067
 8% $118,619
 14% 
 Multi-strategy funds286,452
 35% 285,992
 34% 
 Event-driven funds48,578
 6% 93,539
 11% 
 Total hedge funds399,097
 49% 498,150
 59% 
          
 Direct lending funds232,389
 28% 134,650
 16% 
 Private equity funds71,896
 9% 81,223
 10% 
 Real estate funds46,691
 6% 13,354
 2% 
 Total hedge, direct lending, private equity and real estate funds750,073
 92% 727,377
 87% 
          
 Other privately held investments43,398
 5% 42,142
 5% 
 CLO - Equities36,782
 3% 60,700
 8% 
 Total other investments$830,253
 100% $830,219
 100% 
          


The fair value of total hedge funds decreased by $99 million during the nine month period ended September 30, 2017 driven by $127 million of net redemptions offset by $28 million of price appreciation. Certain of these funds may be subjectRefer to restrictions on redemptions which may limit our ability to liquidate these investments in the short term. See Note 4(c)3(c) to the Consolidated Financial Statements 'Investments' for further details on these restrictions and details on unfunded commitments relating to our other investment portfolio..


Equity Method Investments


During 2016, we paid $108 million including direct transactions 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 Blackstone.The Blackstone Group L.P. ("Blackstone"). Harrington is not a variable interest entity. Givenentity that we exercise significant influence over this investee weis required to be included in our consolidated financial statements. We account for our ownership interest in Harrington under the equity method of accounting.


During the nine months ended September 30, 2017, we recorded an impairment charge of $9 million, related to a U.S. based insurance company, which reduced its carrying value to $nil. This chargeIn our consolidated results, our ownership interest in Harrington is includedreported in interest in income (loss) of equity method investments.
Interest in income (loss) of equity method investments was $3 million and $(14) million for the three and nine months ended September 30, 2020, respectively, compared to interest in income of equity method investments of $1 million and $6 million for the Consolidated Statement of Operations.three and nine months ended September 30, 2019, respectively. The income for the three months ended September 30, 2020, was attributable to positive investment returns realized by Harrington. The loss for the nine months ended September 30, 2020 was attributable to negative investment returns realized by Harrington.






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84








LIQUIDITY AND CAPITAL RESOURCES




Refer to the ‘Liquidity and Capital Resources’ section included underin Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20162019 for a general discussion of our liquidity and capital resources. During the nine months ended September 30, 2017, we:

redeemed the remaining $351 million of 6.875% Series C preferred shares on April 17, 2017; and

suspended our open market share repurchase program following the announcement of the offer to acquire Novae on July 5, 2017.


The following table summarizes our consolidated capital at:capital:
September 30, 2020December 31, 2019
Debt$1,309,384 $1,808,157 
Preferred shares550,000 775,000 
Common equity4,715,895 4,769,008 
Shareholders’ equity5,265,895 5,544,008 
Total capital$6,575,279 $7,352,165 
Ratio of debt to total capital19.9 %24.6 %
Ratio of debt and preferred equity to total capital28.3 %35.1 %
  September 30, 2017 December 31, 2016 
      
 Senior notes$993,797
 $992,950
 
      
 Preferred shares775,000
 1,126,074
 
 Common equity4,679,699
 5,146,296
 
 Shareholders’ equity5,454,699
 6,272,370
 
 Total capital$6,448,496
 $7,265,320
 
      
 Ratio of debt to total capital15.4% 13.7% 
      
 Ratio of debt and preferred equity to total capital27.4% 29.2% 
      


We finance our operations with a combination of debt and equity capital. Our debtDebt to total capital and debt and preferred equity to total capital ratios provide an indication of our capital structure, along with some insight into our financial strength. A company with higher ratios in comparison to industry average may show weak financial strength because

While the cost of its debts may adversely affect results of operations and/or increase its default risk.

Our consolidated balance sheet at September 30, 2017 reflected a decrease in preferred equity due to redemptionimpact of the remaining $351 million of 6.875% Series C preferred shares on April 17, 2017.

WeCOVID-19 pandemic and catastrophe and weather-related losses have reduced common shareholders' equity, we believe that our financial flexibility remains strong.strong, and we will make adjustments as necessary, if the outlook and impact changes. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Recent Developments related to COVID-19' for further information on the impact of the COVID-19 pandemic.

Debt

On June 1, 2020, AXIS Specialty Finance LLC, a 100% owned finance subsidiary, repaid $500 million aggregate principal amount of 5.875% Senior Notes at their stated maturity.

Secured Letter of Credit FacilitiesFacility


On March 27, 2017, the $250 million credit facility entered into by AXIS Capital and certain of its subsidiaries and a syndication of lenders expired.

On March 27, 2017,28, 2020, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") amended their existing $250 million secured letter of credit facility with Citibank Europe plc (the "$250 million Facility") to extend the expiration date to March 31, 2021.

The terms and conditions of the $500 million secured letter of credit facility (the “LOC Facility”"$500 million Facility") with Citibank Europe plc (“Citibank”) to include an additionalremain unchanged.
$250 million of secured letter
Letters of credit capacity (the “$250 Million Facility”) pursuant to a Committed Facility Letter and an amendment to the Master Reimbursement Agreement (the “LOC Facility Documents”). Under the terms ofissued under the $250 Millionmillion Facility letters of credit to a maximum aggregate amount of $250and the $500 million Facility are available for issuance on behalf of the Participating Subsidiaries. These letters of credit will principally be used to support the reinsurance obligations of the Participating Subsidiaries. The $250 Million Facility isParticipating Subsidiaries are subject to certain covenants, including the requirement to maintain sufficient collateral as defined in the LOC Facility Documents, to cover all of the obligations outstanding under the LOC Facility.



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facilities. Such obligations include contingent reimbursement obligations for outstanding letters of credit and fees payable to Citibank.Citibank Europe plc. In the event of default, Citibank Europe plc may exercise certain remedies, including the exercise of control over pledged collateral and the termination of the availability of the LOC Facilityfacility to any or all of the Participating Subsidiaries. The $250 million Facility expires March 31, 2018. The terms and conditions

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Common Equity


During the nine months endedSeptember 30, 2017, our common equity decreased by $467 million. The following table reconciles our opening and closing common equity positions:
 Nine months ended September 30,2017 
    
 Common equity - opening$5,146,296
 
 Net loss(341,541) 
 Shares repurchased for treasury(285,659) 
 Change in unrealized appreciation on available for sale investments, net of tax216,630
 
 Common share dividends(98,273) 
 Preferred share dividends(36,154) 
 Share-based compensation expense recognized in equity30,692
 
 Foreign currency translation adjustment46,824
 
 Cost of treasury shares reissued884
 
 Common equity - closing$4,679,699
 
    

During the nine months ended September 30, 2017,2020, common equity decreased by $53 million. The following table reconciles opening and closing common equity positions:
Nine months ended September 30,2020
Common equity - opening$4,769,008
Treasury shares reissued1,888 
Share-based compensation expense27,332 
Change in unrealized gains (losses) on available for sale investments, net of tax179,982 
Foreign currency translation adjustment(1,581)
Net income (loss)(123,167)
Preferred share dividends(22,688)
Common share dividends(106,194)
Treasury shares repurchased(8,685)
Common equity - closing$4,715,895

During the nine months ended September 30, 2020, we repurchased 4.3 millionrepurchased 155,256 common shares repurchased from employees to satisfy withholding tax liabilities related to the vesting of share-settled restricted stock units granted under our 2007 and 2017 Long-Term Equity Compensation Plans for a total cost of $286 million (including $261 million pursuant to our Board-authorized share repurchase program and $25 million relating to shares purchased in connection with the vesting of restricted stock awards granted under our 2007 Long-Term Equity Compensation Plan).$8.7 million.
At November 8, 2017, the remaining authorization under the
A common share repurchase program approved by our Board of Directors was $739 million (refer to Part II, Item 2 'Unregistered Sales of Equity Securities and Use of Proceeds'plan has not been authorized for additional information).2020.
However, following the Company's announcement of the offer to acquire Novae on July 5, 2017, the Company suspended its open market share repurchase program.

We continue to expect that cash flows generated from our operations, combined with the liquidity provided by our investment portfolio, will be sufficient to cover our required cash outflows and other contractual commitments throughthat become due within one year after the foreseeable future.


date that the financial statements are issued. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Recent Developments related to COVID-19' for further information on the impact of COVID-19 pandemic.



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86


Financial Strength Ratings

Our principal insurance and reinsurance operating subsidiaries are assigned financial strength ratings from internationally recognized rating agencies, including Standard & Poor’s, A.M. Best and Moody’s Investors Service. These ratings are publicly announced and are available directly from the agencies, as well as on our website.

On May 5, 2020, A.M. Best revised its rating and outlook from A+ and negative to A and stable, respectively. The revised rating was based on unfavorable trends in operating performance over the past five years, particularly emanating from the insurance segment. The revised outlook continues to reflect our strong balance sheet, favorable business profile and appropriate risk management practices.

On May 11, 2020, Standard & Poor's revised its outlook from stable to negative due to unfavorable trends in operating performance.

Our rating and outlook from Moody’s Investors Service remain unchanged.

The following are the most recent financial strength ratings from internationally recognized agencies in relation to our principal insurance and insurance operating subsidiaries:
Rating agencyAgency’s description of ratingRating and outlookAgency’s rating
definition
Ranking of rating
Standard & Poor’sAn "opinion about the financial security characteristics of an insurance organization, with respect to its ability to pay under its insurance policies and contracts, in accordance with their terms".
A+
(Negative)
"Strong capacity to meet its financial commitments"The ‘A’ category is the third highest out of ten major rating categories. The second through eighth major rating categories may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
A.M. BestAn "opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations".A
(Stable)
"Excellent ability to meet ongoing insurance obligations"The ‘A’ category is the third highest rating out of fourteen. Ratings outlooks (‘Positive’, ‘Negative’ and ‘Stable’) are assigned to indicate a rating’s potential direction over an intermediate term, generally defined as 36 months.
Moody’s Investors Service"Opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations."
A2
(Negative) (1)
"Offers good financial security"The ‘A’ category is the third highest out of nine rating categories. Each of the second through seventh categories are subdivided into three subcategories, as indicated by an appended numerical modifier of ‘1’, ‘2’ and ‘3’. The ‘1’ modifier indicates that the obligation ranks in the higher end of the rating category, the ‘2’ modifier indicates a mid-category ranking and the ‘3’ modifier indicates a ranking in the lower end of the rating category.
(1)In April 2019, Moody's Investor Service revised its outlook from stable to negative reflecting higher operational and financial leverage and lower capitalization relative to peers.


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CRITICAL ACCOUNTING ESTIMATES



Our
The Company's Consolidated Financial Statements include certain amounts that are inherently uncertain and judgmental in nature. As a result, we arethe Company is required to make assumptions and best estimates in order to determine the reported values. We considerThe Company considers an accounting estimate to be critical if: (1) it requires that significant assumptions be made in order to deal with uncertainties and (2) changes in the estimate could have a material impact on ourthe Company's results of operations, financial condition or liquidity.


As disclosed in our 2016 Annual Report on Form 10-K, we believe thatThe Company believes the material items requiring such subjective and complex estimates are our:are:


reserves for losses and loss expenses;


reinsurance recoverable balances;on unpaid losses and loss expenses, including the provision for uncollectible amounts;


premiums;gross premiums written;


fair value measurements for ourof financial assets and liabilities; and


assessmentsother-than-temporary impairments ("OTTI") in the carrying value of other-than-temporary impairments.available for sale securities and the allowance for credit losses associated with available for sale securities.


We believeOther that the Company's consideration of the impact of the targeted changes to the impairment model for available for sale securities introduced in ASU 2016-13 detailed in Note 1 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements, the Company believes that the critical accounting estimates discussion in Item 7 of ourits Annual Report on Form 10-K for the year ended December 31, 2016,2019, continues to describe the significant estimates and judgments included in the preparation of ourthe Consolidated Financial Statements.





RECENT ACCOUNTING PRONOUNCEMENTS




Refer to Item 1, Note 1 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements and Item 8, Note 2 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2016,2019, for a discussion of recently issued accounting pronouncements that we have not yet adopted.pronouncements.
 



OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS



At September 30, 2017, we have2020, the Company had not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.






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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Refer to Item 7A included in our 2016Annual Report on Form 10-K. With10-K for the year ended December 31, 2019. There have been no material changes to this item since December 31, 2019, with the exception of the changes in exposure to foreign currency risk presented below, there have been no material changes to this item since December 31, 2016.below.


Foreign Currency Risk
The table below provides a sensitivity analysis of our total net foreign currency exposures.
AUDNZDCADEURGBPJPYOtherTotal
At September 30, 2020
Net managed assets (liabilities), excluding derivatives$5,438 $(2,735)$190,349 $(436,213)$(265,099)$(88,100)$86,352 $(510,008)
Foreign currency derivatives, net(4,446)4,304 (181,617)437,229 225,952 103,506 3,457 588,385 
Net managed foreign currency exposure992 1,569 8,732 1,016 (39,147)15,406 89,809 78,377 
Other net foreign currency exposure  113 3,121 (1,456) 34,553 36,331 
Total net foreign currency exposure$992 $1,569 $8,845 $4,137 $(40,603)$15,406 $124,362 $114,708 
Net foreign currency exposure as a percentage of total shareholders’ equity % %0.2 %0.1 %(0.8 %)0.3 %2.4 %2.2 %
Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1)
$99 $157 $885 $414 $(4,060)$1,541 $12,436 $11,471 
                  
  AUD NZD CAD EUR GBP JPY Other Total 
                  
 At September 30, 2017                
 Net managed assets (liabilities), excluding derivatives$(29,134) $(9,733) $85,047
 $(177,485) $167,796
 $38,025
 $156,473
 $230,989
 
 Foreign currency derivatives, net12,702
 7,221
 (101,930) 249,587
 89,740
 (8,879) 9,880
 258,321
 
 Net managed foreign currency exposure(16,432) (2,512) (16,883) 72,102
 257,536
 29,146
 166,353
 489,310
 
 Other net foreign currency exposure1
 
 (49) 1,558
 1,049
 
 83,283
 85,842
 
 Total net foreign currency exposure$(16,431) $(2,512) $(16,932) $73,660
 $258,585
 $29,146
 $249,636
 $575,152
 
 Net foreign currency exposure as a percentage of total shareholders’ equity(0.3%) % (0.3%) 1.4% 4.7% 0.5% 4.6% 10.5% 
 
Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1)
$(1,643) $(251) $(1,693) $7,366
 $25,859
 $2,915
 $24,964
 $57,517
 
                  
(1)Assumes 10% change in underlying currencies relative to the U.S. dollar.
(1)Assumes 10% change in underlying currencies relative to the U.S. dollar.


Total Net Foreign Currency Exposure


At September 30, 2017, our2020, total net foreign currency exposure was $575assets were $115 million net long, driven by increases in our exposures to the euro, pound sterling, Japanese yenYen and other non-core currencies primarily due to new business written during the nine months ended September 30, 2017.2020. In addition, our pound sterling exposure was increased$35 million included in other net foreign currency exposures related to fundassets managed by specific investment managers who have the acquisitiondiscretion to hold foreign currency exposures as part of Novae. Managed exposure in Othertheir total return strategy. An emerging market debt portfolio is primarily Indian rupee, UAE Dirham (peggedthe primary contributor to USD) and Israeli shekel. Other net exposurethis group of $83 million is driven by our emerging markets debt fixed income portfolio.assets.





















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ITEM 4.     CONTROLS AND PROCEDURES




Disclosure Controls and Procedures

The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of ourthe Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”"Exchange Act")) as of at September 30, 2017.2020. Based upon that evaluation, ourthe Company's Chief Executive Officer and Chief Financial Officer concluded that, as of at September 30, 2017, our2020, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by usthe Company in reports that we fileit files or submitsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.


Changes in Internal Control Over Financial Reporting

The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2017. 2020.

Based upon that evaluation, there were no changes in ourthe Company's internal control over financial reporting that occurred during the three months ended September 30, 20172020, that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.

The Company has not experienced any material impact to its internal control over financial reporting resulting from the introduction of a remote work model due to the COVID-19 pandemic.



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PART II     OTHER INFORMATION







ITEM 1.     LEGAL PROCEEDINGS




From time to time, we arethe Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against usthe Company in the ordinary course of insurance or reinsurance operations; estimatedoperations. Estimated amounts payable under such proceedings are included in the reserve for losses and loss expenses in the Consolidated Balance Sheets.consolidated balance sheets.


We areThe Company is not a party to any material legal proceedings arising outside the ordinary course of business.





ITEM 1A.     RISK FACTORS


Other than the additional risk factor disclosed in
For information regarding factors that could affect our Quarterly Report on Form 10-Q for the period ended June 30, 2017, there have been no material changesresults of operations, financial condition or liquidity, refer to the risk factors previously disclosed discussed in Part I, Item 1A. 'Risk Factors' in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.



In light of developments relating to the novel coronavirus ("COVID-19") pandemic occurring subsequent to the filing of our Annual Report on Form 10-K, we are supplementing the risk factors discussed in our Annual Report with the following risk factor, which should be read in conjunction with the risk factors contained in our Annual Report.


The scale and scope of the ongoing, novel COVID-19 pandemic is unknown and is expected to continue to adversely impact our business. The overall impact on our business, results of operations, financial condition or liquidity could be material.



During the first quarter of 2020, there was a global outbreak of the novel coronavirus, COVID-19, which has spread to over 200 countries and territories, including our key business locations of Bermuda, the European Union, the U.K. and the U.S. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries in which we operate, including Bermuda, the U.K., Switzerland and the U.S., have declared national emergencies. The global impact of the outbreak has continued to evolve through the third quarter of 2020, and many countries reacted by instituting social distancing measures and quarantines, placing restrictions on travel, restricting trading, limiting operations of non-essential businesses and issuing shelter in place orders. Whilst some initial restrictions have been relaxed, resurgence of the pandemic in many countries has seen continued restrictions to social and economic activity. Such actions have created disruption in global supply chains, and adversely impacted operations in many sectors of the economy. The outbreak will likely have a continued adverse impact on economic and market conditions, triggering a global economic slowdown.

The scale and scope of the COVID-19 pandemic may heighten the potential adverse effects on our business, results of operation, financial condition or liquidity described in the risk factors contained in our Annual Report on Form 10-K, including without limitation:

We have substantial exposure to losses resulting from catastrophe events, including pandemics. The extent of our losses from the COVID-19 pandemic will ultimately depend on its severity and duration and such losses could have a material adverse effect on our results of operations, financial condition or liquidity. We have identified exposures arising from our



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underwriting of insurance and reinsurance policies that cover accident and health (including travel), event cancellation, property/business interruption, and potential exposures arising from our underwriting of insurance and reinsurance policies that cover credit and surety (including mortgage) and professional lines (medical malpractice and directors’ and officers’ liability) among others. These exposures and potential exposures include direct claims relating to COVID-19 (e.g., business interruption following a shelter in place order) and indirect exposures arising from an ensuing economic downturn. We note that other lines may be affected as the pandemic and associated economic downturn develop, and new information is discovered.

Our exposures are controlled and limited by our insurance and reinsurance contracts, which include specific terms and conditions defining if and how our policies respond to losses arising from the COVID-19 pandemic. However, legislative, regulatory or judicial actions (e.g. the UK Financial Conduct Authority test case on business interruption insurance and subsequent legal actions, including appeals) and social influences could alter the interpretation of our contracts or extend or change coverage (beyond the obligations set forth within those contracts or beyond what was intended by the parties). We set our reserves based on our best interpretation of the current legal position in applicable jurisdictions, but these legislative, regulatory or judicial actions make it more difficult to predict the total amount of losses we could incur.

Actual claims may exceed loss reserves. While we believe that net reserves for losses and loss expenses at September 30, 2020 are adequate, changes in the duration, severity and scope of the impact of the COVID-19 pandemic from current expectations may result in ultimate losses being materially greater or less than the net reserves for losses and loss expenses currently provided. Among the factors that would cause net reserves for losses and loss expenses to increase or decrease are changes in claim frequency or severity driven by the COVID-19 pandemic or its related impact on the economy.

Uncertainty and market turmoil caused by the COVID-19 pandemic could affect, among other aspects of our business, the demand for our products, and the ability of customers, counterparties and others to establish or maintain their relationships with us. In addition, the market for insurance and reinsurance could be smaller and certain industries for which we write business have been and will likely continue to be particularly impacted by the pandemic (such as, energy, aviation, retail, hospitality and construction lines, among others), resulting in downward pressure on our premium levels.

Our investment and derivative instrument portfolios are exposed to significant economic and capital markets risks related to changes in interest rates, bankruptcies, credit spreads and equity prices, as well as other risks, which may adversely affect our results of operations or financial condition. The performance of our cash and investments portfolio has a significant impact on our financial results. The impact of the COVID-19 pandemic has heightened the risks to which our portfolios are subject, including risks relating to general economic conditions, interest rate fluctuations, equity price risk, foreign currency movements, pre-payment or reinvestment risk, liquidity risk and credit risk. Our investments in equities, corporate debt and hedge funds have experienced an increase in price volatility. Government imposed restrictions on movements and/or social distancing practices have led to sharp declines in the revenue of many companies and industries, and we have some debt and/or equity exposure to some of these highly impacted sectors. We anticipate that negative impacts of the COVID-19 pandemic may continue for some time.

The COVID-19 pandemic may impact cashflows and could require access to liquidity in excess of prior forecasts. There is a risk that accessing additional required liquidity may be difficult or have costs associated as a result of the COVID-19 pandemic.

The impact on the COVID-19 pandemic on financial markets may impact our ability to acquire additional capital, should we desire to do so, or to be able to effectively deploy existing capital resources.

Certain of our policyholders and intermediaries may not pay premiums owed to us due to insolvency or other reasons. Insolvency, liquidity problems, distressed financial condition due to the impact of the COVID-19 pandemic or the general effects of economic recession may increase the risk that policyholders or intermediaries, such as insurance brokers, may not pay a part of or the full amount of premiums owed to us, despite an obligation to do so. The terms of our contracts, or actions by our regulators, may not permit us to cancel our insurance even though we have not received payment. We may further decide (or be obliged by regulation) to refund premiums already paid where it is judged that the COVID-19 pandemic has reduced the customer need for insurance. If refunds or non-payments become widespread, whether as a result of insolvency, lack of liquidity, adverse economic conditions, operational failure or otherwise, it could have a material adverse impact on our revenues and results of operations.


84

The COVID-19 pandemic could impact our ability to obtain reinsurance and retrocessional arrangements on favorable terms which could limit the amount of business we are willing to write or reduce our reinsurance protection for large loss events.

Our reinsurance and retrocession counterparties may experience financial distress and therefore, may be unable to pay the amounts owed to us under the applicable contracts.

Our reinsurers and retrocession counterparties may be unwilling to pay claims due to disagreements or differing interpretation of contracts, which could also result in increased litigation and related expenses.

There is a risk of reputational damage resulting from potential claims disputes and underwriting renewal actions.

In addition, the COVID-19 pandemic may have a material adverse impact on our business and financial condition due to significant disruption in other areas, including:

We may experience decreased worker productivity, including as a result of prolonged remote working arrangements, increased medical, emergency or other leave.

The extended period of remote working by our employees could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.

Similarly, third parties on whom we rely to provide key business services on an outsourced basis (including, but not limited to delegated underwriting, claims processing, finance operations, IT support) also may experience operational or system disruption, or cybersecurity issues, impacting their provision of service to us, and in turn, our operational performance.

The COVID-19 pandemic could impact our ability to attract and retain key personnel which could adversely impact our business.

Limitations on travel, social distancing requirements implemented in response to COVID-19, alongside economic conditions, may challenge our ability to write new insurance or reinsurance business and market our products and services as anticipated prior to COVID-19.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and, the extent and effectiveness of government actions to support the economy. The duration and severity of the economic downturn is uncertain, as well as the impact of these and other factors on our employees, customers and partners. Such impact on our business, results of operations, financial condition or liquidity could be material.

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ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




Issuer Purchases of Equity Securities
Common Shares
The following table presentsshows information regarding the number of common shares werepurchased:
Period
Total number
of shares
purchased(a) (b)
Average
price paid
per share
Total number of shares purchased as part of
publicly announced
plans or programs
Maximum number (or approximate
dollar value) of shares that may yet be
purchased under the plans
or programs(b)
July 1-31, 2020— $39.80 — — 
August 1-31, 2020— $40.12 — — 
September 1-30, 2020$48.69 — — 
Total  
1    
(a)        In thousands.
(b)        Shares are repurchased duringfrom employees to satisfy withholding tax liabilities related to the three months ended September 30, 2017:vesting of share-settled restricted stock units.


ISSUER PURCHASES OF EQUITY SECURITIES


Common Shares
Period
Total Number
of Shares
Repurchased
Average
Price Paid
Per Share
Total Number of Shares
Repurchased as Part of
Publicly Announced
Plans or Programs(1)
Maximum Number (or Approximate
Dollar Value) of Shares That May Yet Be
Repurchased Under the Announced Plans
or Programs(2)
 
      
July 1-31, 201751

$65.74
49
$739.0 million 
August 1-31, 2017


$—

$739.0 million 
September 1-30, 2017


$—

$739.0 million 
Total  
51
 49
$739.0 million 
      
(1)From time to time, we purchase shares in connection with the vesting of restricted stock awards granted to our employees under our 2007 Long-Term Equity Compensation Plan. The purchase of these shares is separately authorized and is not part of our Board-authorized share repurchase program, described below.
(2)On December 9, 2016, our Board of Directors authorized a share repurchase plan to repurchase up to $1 billion of our common shares through to December 31, 2017. The share repurchase authorization which became effective on January 1, 2017, replaced the previous plan which had $253 million available through the end of 2016. Share repurchases may be effected from time to time in the open market or privately negotiated transactions, depending on market conditions.




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ITEM 5.     OTHER INFORMATION




Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934


Section 13(r) of the Securities Exchange Act of 1934, as amended, requires issuers to disclose in their annual and quarterly reports whether they or any of their affiliates knowingly engaged in certain activities with Iran or with individuals or entities that are subject to certain sanctions under U.S. law. Issuers are required to provide this disclosure even where the activities, transactions or dealings are conducted outside of the U.S. in compliance with applicable law.


As and when allowed by the applicable law and regulations, certain of our non-U.S. subsidiaries provide treaty reinsurance coverage to non-U.S. insurers on a worldwide basis, including insurers of liability, marine, aviation and energy risks, and as a result, these underlying reinsurance portfolios may have some exposure to Iran. In addition, we underwrite insurance and facultative reinsurance on a global basis to non-U.S. insureds and insurers, including for liability, marine, aviation and energy risks. Coverage provided to non-Iranian business may indirectly cover an exposure in Iran. For example, certain of our operations underwrite global marine hull and cargo policies that provide coverage for vessels navigating into and out of ports worldwide, including Iran. For the quarter ended September 30, 2017,2020, there has been no material amount of premium allocated or apportioned to activities relating to Iran. As we believe these activities are permitted under applicable laws and regulations, weWe intend for our non-U.S. subsidiaries to continue to provide such coverage only to the extent permitted by applicable law.






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ITEM 6.     EXHIBITS



Rule 2.7 Announcement, dated July 5, 2017 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 6, 2017).
Rule 2.7 Announcement, dated August 24, 2017 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 25, 2017).
Certificate of Incorporation and Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1(Amendment No. 1) (No. 333-103620) filed on April 16, 2003).
Amended and Restated Bye-Laws (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed on May 15, 2009).
Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-103620) filed on June 10, 2003).
Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series D Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 20, 2013).
Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series E Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 7, 2016).
*10.1
2018 Directors Annual Compensation Program.Amendment No. 1 to Employment Agreement dated December 11, 2017 by and between Peter Vogt and AXIS Specialty U.S. Services, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 7, 2020).
Amendment No. 1 to Employment Agreement dated July 5, 2017 by and between Steve K. Arora and AXIS Specialty U.S. Services, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 7, 2020).
Amendment No. 1 to Letter Agreement dated July 5, 2017 by and between Steve K. Arora and AXIS Specialty U.S. Services, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on October 7, 2020).
31.1
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†101The following financial information from AXIS Capital Holdings Limited’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20172020 formatted in Inline XBRL: (i) Consolidated Balance Sheets at September 30, 20172020 and December 31, 2016;2019; (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 20172020 and 2016;2019; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20172020 and 2016;2019; (iv) Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 20172020 and 2016;2019; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 and 2016;2019; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
†104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Exhibit 10.1 represents a management contract, compensatory plan or arrangement in which directors and/or executive officers are eligible to participate.
Filed herewith.


* Exhibits 10.1 through 10.3 represent a management contract, compensatory plan or arrangement in which directors and/or executive officers are eligible to participate.
† Filed herewith.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.




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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 8, 2017October 28, 2020
 
AXIS CAPITAL HOLDINGS LIMITED
By:/S/ ALBERT BENCHIMOL
Albert Benchimol
President and Chief Executive Officer
(Principal Executive Officer)
AXIS CAPITAL HOLDINGS LIMITED/S/ PETER VOGT
By:
/S/ ALBERT BENCHIMOL
Peter Vogt
Albert Benchimol
President and Chief Executive Officer
/S/ JOSEPH HENRY
Joseph Henry
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)






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