Investments | 3. Investments Net Investment Income The components of net investment income for the three and nine months ended September 30, 2015 and 2014 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Fixed income investments $ 36,204 $ 28,944 $ 96,145 $ 88,616 Equity investments 1,748 1,015 5,200 3,289 Other investments (17,716 ) (1,785 ) (1,758 ) 22,542 Cash and cash equivalents 515 581 2,108 1,878 20,751 28,755 $ 101,695 $ 116,325 Investment expenses (4,218 ) (3,398 ) (11,049 ) (10,676 ) Net investment income $ 16,533 $ 25,357 $ 90,646 $ 105,649 Contractual maturities of the Company's fixed maturity and short-term investments are shown below as of September 30, 2015 and December 31, 2014 . 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. September 30, 2015 December 31, 2014 Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ 580,667 $ 581,281 $ 126,921 $ 127,821 Due after one year through five years 2,017,786 2,022,909 1,627,154 1,632,259 Due after five years through ten years 631,503 634,265 474,959 479,138 Due after ten years 61,583 63,470 43,314 46,720 Residential mortgage-backed securities 1,200,645 1,222,805 1,149,536 1,175,006 Commercial mortgage-backed securities 831,254 837,772 960,598 979,419 Collateralized loan and debt obligations 423,239 418,875 247,510 248,011 Asset-backed securities 610,299 611,736 411,529 413,221 Total $ 6,356,976 $ 6,393,113 $ 5,041,521 $ 5,101,595 3. Investments, cont'd. The following table summarizes the fair value of the fixed maturity investments, short-term investments and equity securities classified as trading at September 30, 2015 . The Company had no securities classified as trading as of December 31, 2014 . September 30, 2015 Fixed maturity investments U.S. government and agencies securities $ 208,610 U.S. state and municipal securities 4,625 Foreign government securities 48,562 Government guaranteed corporate securities 40,133 Corporate securities 559,228 Residential mortgage-backed securities 121,302 Commercial mortgage-backed securities 92,906 Collateralized loan and debt obligations (1) 102,976 Asset-backed securities 193,688 Total fixed maturity investments 1,372,030 Short-term investments 348,582 Total fixed income investments $ 1,720,612 Equity securities Equity investments $ 70 Preferred equity investments 2,080 Total equity securities $ 2,150 (1) Balances include amounts related to collateralized debt obligations held with total fair values of $44.1 million at September 30, 2015 . In addition to the Company's fixed maturity, short-term and equity investments, the Company invests in alternative funds and specialty funds. The Company's alternative funds and specialty funds are recorded on the Company's balance sheet as "other investments." At September 30, 2015 and December 31, 2014 , the Company had invested, net of capital returned, a total of $652.4 million and $387.2 million , respectively, in other investments. At September 30, 2015 and December 31, 2014 , the carrying value of other investments was $842.4 million and $541.5 million , respectively. The following table summarizes the composition and redemption restrictions of other investments as of September 30, 2015 and December 31, 2014 : September 30, 2015 Market Value Unfunded Commitments Ineligible for Redemption over next 12 months Alternative funds Hedge funds $ 641,089 $ — $ 89,387 Private investment funds 82,532 59,763 82,532 Other investment funds 23,577 — 25,011 Total alternative funds 747,198 59,763 196,930 Specialty funds High yield loan funds 95,248 — — Total specialty funds 95,248 — — Total other investments $ 842,446 $ 59,763 $ 196,930 3. Investments, cont'd. December 31, 2014 Market Value Unfunded Ineligible for Alternative funds Hedge funds $ 411,280 $ — $ 10,580 Private investment funds 74,664 70,542 74,664 Total alternative funds 485,944 70,542 85,244 Specialty funds High yield loan funds 55,510 — — Total specialty funds 55,510 — — Total other investments $ 541,454 $ 70,542 $ 85,244 Hedge funds – The redemption frequency of the hedge funds range from monthly to biennially with notice periods from 30 to 90 days. Over one year, it is estimated that the Company can liquidate approximately 86.1% of the hedge fund portfolio, with the remainder over the following two years. Private investment funds – The Company generally has no right to redeem its interest in any private investment funds in advance of dissolution of the applicable partnership. Instead, the nature of these investments is that distributions are received by the Company in connection with the liquidation of or distribution of earnings from the underlying assets of the applicable limited partnership. It is estimated that the majority of the underlying assets of the limited partnerships would liquidate over 5 to 10 years from inception of the limited partnership. A secondary market, with unpredictable liquidity, exists for limited partner interests in private equity funds. Other investment funds – Other investment funds includes funds on deposit with Lloyd's, which are restricted, and the Company's investment in BCGR Listed Fund, which represents the net liability of the Company's investment in BCGR Listed Fund that has not been deployed into the BCGR cell. High yield loan funds – There are generally no restrictions on the Company's right to redeem its interest in high yield loan funds with the exception of certain redemption frequency and notice requirements. The redemption frequency of these funds ranges from monthly to quarterly with notice periods from 30 to 90 days. Net Realized and Unrealized Gains Realized and unrealized gains and losses are recognized in earnings using the first in, first out method. The analysis of net realized and unrealized gains and the change in the fair value of investment-related derivative financial instruments for the three and nine months ended September 30, 2015 and 2014 is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Gross realized gains on investment sales $ 20,107 $ 10,683 $ 57,420 $ 28,317 Gross realized losses on investment sales (8,236 ) (1,475 ) (18,190 ) (12,778 ) Net unrealized losses on trading securities (5,037 ) — (5,037 ) — Change in fair value of derivative financial instruments (1) (1,805 ) 580 (1,295 ) 2,532 Net realized and unrealized gains $ 5,029 $ 9,788 $ 32,898 $ 18,071 (1) For additional information on the Company's derivative financial instruments, see Note 7, Derivatives. 3. Investments, cont'd. Unrealized Gains and Losses The Company classifies some of its investments in fixed maturity investments, short-term investments and equities as available for sale. The amortized cost, fair value and related gross unrealized gains and losses on the Company’s securities classified as available for sale at September 30, 2015 and December 31, 2014 are as follows: September 30, 2015 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Fixed maturity investments U.S. government and agencies securities $ 590,216 $ 8,675 $ (1,358 ) $ 597,533 U.S. state and municipal securities 24,157 262 (108 ) 24,311 Foreign government securities 108,099 1,073 (522 ) 108,650 Government guaranteed corporate securities 25,416 392 (11 ) 25,797 Corporate securities 1,316,038 10,344 (6,844 ) 1,319,538 Residential mortgage-backed securities 1,080,411 23,611 (2,519 ) 1,101,503 Commercial mortgage-backed securities 737,543 10,676 (3,353 ) 744,866 Collateralized loan and debt obligations (1) 316,161 1,214 (1,476 ) 315,899 Asset-backed securities 417,255 1,792 (999 ) 418,048 Total fixed maturity investments 4,615,296 58,039 (17,190 ) 4,656,145 Short-term investments 16,356 — — 16,356 Total fixed income investments $ 4,631,652 $ 58,039 $ (17,190 ) $ 4,672,501 Equity securities Equity investments $ 407,206 $ 2,709 $ (40,460 ) $ 369,455 Emerging market debt funds 61,874 — (3,021 ) 58,853 Convertible funds 46,331 — (477 ) 45,854 Preferred equity investments 15,427 1,847 (326 ) 16,948 Short-term fixed income fund 4,926 — (1 ) 4,925 Total equity securities $ 535,764 $ 4,556 $ (44,285 ) $ 496,035 (1) Balances include amounts related to collateralized debt obligations held with total fair values of $13.2 million . 3. Investments, cont'd. December 31, 2014 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Fixed maturity investments U.S. government and agencies securities $ 582,970 $ 6,471 $ (2,030 ) $ 587,411 U.S. state and municipal securities 39,340 191 (118 ) 39,413 Foreign government securities 239,217 2,983 (1,664 ) 240,536 Government guaranteed corporate securities 47,436 675 (9 ) 48,102 Corporate securities 1,354,370 12,742 (5,650 ) 1,361,462 Residential mortgage-backed securities 1,149,536 27,542 (2,072 ) 1,175,006 Commercial mortgage-backed securities 960,598 21,374 (2,553 ) 979,419 Collateralized loan and debt obligations (1) 247,510 1,449 (948 ) 248,011 Asset-backed securities 411,529 2,265 (573 ) 413,221 Total fixed maturity investments 5,032,506 75,692 (15,617 ) 5,092,581 Short-term investments 9,015 — (1 ) 9,014 Total fixed income investments $ 5,041,521 $ 75,692 $ (15,618 ) $ 5,101,595 Equity securities Equity investments $ 176,167 $ 29,660 $ (3,292 ) $ 202,535 Emerging market debt funds 60,826 — (676 ) 60,150 Convertible funds 46,331 — (220 ) 46,111 Preferred equity investments 13,858 2,022 (44 ) 15,836 Short-term fixed income funds 6,740 — (4 ) 6,736 Total equity securities $ 303,922 $ 31,682 $ (4,236 ) $ 331,368 (1) Balances include amounts related to collateralized debt obligations held with total fair values of $15.2 million . 3. Investments, cont'd. The following tables summarize, for all available for sale securities in an unrealized loss position at September 30, 2015 and December 31, 2014 , the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position. Less than 12 months 12 months or greater Total September 30, 2015 Unrealized Losses (1) Fair Value Unrealized Losses (1) Fair Value Unrealized Losses (1) Fair Value Fixed maturity investments U.S. government and agencies securities $ (438 ) $ 71,512 $ (920 ) $ 21,859 $ (1,358 ) $ 93,371 U.S. state and municipal securities (44 ) 2,311 (64 ) 708 (108 ) 3,019 Foreign government securities (442 ) 24,977 (80 ) 4,558 (522 ) 29,535 Government guaranteed corporate securities (11 ) 1,737 — — (11 ) 1,737 Corporate securities (5,687 ) 493,115 (1,157 ) 44,942 (6,844 ) 538,057 Residential mortgage-backed securities (1,300 ) 174,347 (1,219 ) 75,619 (2,519 ) 249,966 Commercial mortgage-backed securities (1,853 ) 214,560 (1,500 ) 45,802 (3,353 ) 260,362 Collateralized loan and debt obligations (1,075 ) 193,044 (401 ) 44,551 (1,476 ) 237,595 Asset-backed securities (807 ) 162,488 (192 ) 17,011 (999 ) 179,499 Total fixed income investments $ (11,657 ) $ 1,338,091 $ (5,533 ) $ 255,050 $ (17,190 ) $ 1,593,141 Equity securities Equity investments $ (40,460 ) $ 321,413 $ — $ — $ (40,460 ) $ 321,413 Emerging market debt funds (3,021 ) 58,853 — — (3,021 ) 58,853 Convertible funds (477 ) 45,854 — — (477 ) 45,854 Preferred equity investments (326 ) 9,027 — — (326 ) 9,027 Short-term fixed income fund (1 ) 4,924 — — (1 ) 4,924 Total equity securities $ (44,285 ) $ 440,071 $ — $ — $ (44,285 ) $ 440,071 (1) Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive (loss) income at September 30, 2015 . As of September 30, 2015 , 920 available for sale securities were in an unrealized loss position aggregating $61.5 million . Of those, 140 securities with aggregated unrealized losses of $5.5 million had been in a continuous unrealized loss position for twelve months or greater. 3. Investments, cont'd. Less than 12 months 12 months or greater Total December 31, 2014 Unrealized Losses (1) Fair Value Unrealized Losses (1) Fair Value Unrealized Losses (1) Fair Value Fixed maturity investments U.S. government and agencies securities $ (481 ) $ 155,350 $ (1,549 ) $ 45,993 $ (2,030 ) $ 201,343 U.S. state and municipal securities (47 ) 3,295 (71 ) 6,841 (118 ) 10,136 Foreign government securities (1,378 ) 37,904 (286 ) 4,306 (1,664 ) 42,210 Government guaranteed corporate securities (9 ) 4,598 — — (9 ) 4,598 Corporate securities (4,023 ) 533,139 (1,627 ) 84,278 (5,650 ) 617,417 Residential mortgage-backed securities (260 ) 62,832 (1,812 ) 108,899 (2,072 ) 171,731 Commercial mortgage-backed securities (1,068 ) 180,222 (1,485 ) 78,412 (2,553 ) 258,634 Collateralized loan and debt obligations (876 ) 176,439 (72 ) 6,491 (948 ) 182,930 Asset-backed securities (415 ) 199,205 (158 ) 19,095 (573 ) 218,300 Total fixed maturity investments (8,557 ) 1,352,984 (7,060 ) 354,315 (15,617 ) 1,707,299 Short-term investments (1 ) 1,953 — — (1 ) 1,953 Total fixed income investments $ (8,558 ) $ 1,354,937 $ (7,060 ) $ 354,315 $ (15,618 ) $ 1,709,252 Equity securities Equity investments $ (3,292 ) $ 53,591 $ — $ — $ (3,292 ) $ 53,591 Emerging market debt funds (676 ) 60,150 — — (676 ) 60,150 Convertible funds (220 ) 46,111 — — (220 ) 46,111 Preferred equity investments (44 ) 4,449 — — (44 ) 4,449 Short-term fixed income fund (4 ) 6,736 — — (4 ) 6,736 Total equity securities $ (4,236 ) $ 171,037 $ — $ — $ (4,236 ) $ 171,037 (1) Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive (loss) income at December 31, 2014 . As of December 31, 2014 , 747 available for sale securities were in an unrealized loss position aggregating $19.9 million . Of those, 171 securities with aggregated unrealized losses of $7.1 million had been in a continuous unrealized loss position for twelve months or greater. 3. Investments, cont'd. The increase in gross unrealized losses on the Company's fixed income investments at September 30, 2015 compared to December 31, 2014 was primarily due to widening of credit spreads and broad equity market declines during the nine months ended September 30, 2015 . At September 30, 2015 , the Company did not have the intent to sell any of the remaining fixed income investments in an unrealized loss position and determined that it was unlikely that the Company would be required to sell those securities in an unrealized loss position. The Company has the ability and intent to hold its equity securities until recovery; therefore, the Company does not consider its fixed income investments or equity securities to be other-than-temporarily impaired at September 30, 2015 . Other Investments The Company is involved in the normal course of business with variable interest entities ("VIEs") as a passive investor in residential and commercial mortgage-backed securities and through its interests in various other investments that are structured as limited partnerships considered to be third party VIEs. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE's capital structure, contractual terms, nature of the VIE's operations and purpose and the Company's relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis. The Company determined that it was not the primary beneficiary for any of these investments as of September 30, 2015 . The Company believes its exposure to loss with respect to these investments is generally limited to the investment carrying amounts reported in the Company's Unaudited Condensed Consolidated Balance Sheets and any unfunded investment commitments. Collateralized Reinsurance Entities As of September 30, 2015, the Company owned 33.3% of the BCRH's common shares. BCRH is considered a VIE under U.S. generally accepted accounting principles ("U.S. GAAP") and the Company has determined that it is BCRH's primary beneficiary. As a result, the Company fully consolidates the assets, liabilities and operations of BCRH and its subsidiaries within its Unaudited Condensed Consolidated Financial Statements. The interests in BCRH and its subsidiaries that the Company fully consolidates that are attributable to third-party investors are reported within the Company's Unaudited Condensed Consolidated Financial Statements as non-controlling interests. The Company reassesses its VIE determination with respect to BCRH on an ongoing basis. As of September 30, 2015, the Company owned 25.1% of the BCGR Listed Fund's ordinary shares. The BCGR Listed Fund is considered a "voting interest entity" under U.S. GAAP and, because the Company owns less than 50% of its outstanding ordinary shares, the Company does not consolidate the BCGR Listed Fund's assets, liabilities or operations within its consolidated financial statements. However, the BCGR Cell and Blue Water Re Ltd. ("Blue Water Re"), the Company's wholly-owned Bermuda-based special purpose insurance vehicle, are considered VIEs under U.S. GAAP and the Company has determined that it is the primary beneficiary of these entities. Therefore, as funds held in the BCGR Listed Fund are deployed into the BCGR Cell, and ultimately into Blue Water Re, they are included in the Company's consolidated financial statements. Conversely, as funds previously deployed by the BCGR Listed Fund and the BCGR Cell into Blue Water Re are returned to the BCGR Listed Fund, they are no longer included in the Company's consolidated financial statements. The interests in the BCGR Cell and Blue Water Re that the Company fully consolidates which are attributable to third-party investors are reported within the Company's consolidated financial statements as non-controlling interests. The Company reassesses its VIE determinations with respect to the BCGR Cell and Blue Water Re on an ongoing basis. 3. Investments, cont'd. The following table summarizes the movements in the non-controlling interests balance during the three months ended September 30, 2015 : Three Months Ended September 30, 2015 Non-controlling interests acquired July 31, 2015 $ 258,529 Income attributable to third-party investments in the BCGR Cell 821 Income attributable to third-party investments in BCRH 1,886 Net income attributable to non-controlling interests 2,707 Net third-party investments in BCRH (7 ) Dividends declared by BCRH attributable to non-controlling interests (1,755 ) Non-controlling interests - ending balance $ 259,474 |