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Section 1: 10-Q (ARGO GROUP INTERNATIONAL HOLDINGS, LTD. FORM 10-Q - MARCH 31, 2019)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2019
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from              to              
Commission file number: 1-15259
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
 
Bermuda
 
98-0214719
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
110 Pitts Bay Road
Pembroke HM08
Bermuda
 
P.O. Box HM 1282
Hamilton HM FX
Bermuda
(Address of principal executive offices)
 
(Mailing address)
(441) 296-5858
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value of $1.00 per share
ARGO
New York Stock Exchange
Guarantee of Argo Group U.S., Inc.  6.500% Senior Notes due 2042
ARGD
New 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ☒
Accelerated filer  ☐
Non-accelerated filer  ☐
Smaller reporting company  ☐
Emerging growth company  ☐
If an emerging growth company, indicate by check mark whether 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 Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding (net of treasury shares) of each of the issuer’s classes of common shares as of May 6, 2019.
Title
Outstanding
Common Shares, par value $1.00 per share
34,105,100


Table of Contents

ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
INDEX
 
 
 
Page
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements
ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares and per share amounts)
 
 
 
March 31,
2019
 
December 31,
2018 *
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturities available-for-sale, at fair value (cost: 2019 - $3,580.1; 2018 - $3,529.1)
 
$
3,573.3

 
$
3,460.4

Equity securities, at fair value (cost: 2019 - $305.2; 2018 - $310.6)
 
403.2

 
354.5

Other investments (cost: 2019 - $473.7; 2018 - $482.0)
 
483.3

 
489.8

Short-term investments, at fair value (cost: 2019 - $444.1; 2018 - $482.3)
 
443.7

 
482.3

Total investments
 
4,903.5

 
4,787.0

Cash
 
152.7

 
139.2

Accrued investment income
 
27.5

 
27.2

Premiums receivable
 
673.2

 
649.9

Reinsurance recoverables
 
2,661.4

 
2,688.3

Goodwill
 
177.0

 
177.0

Intangible assets, net of accumulated amortization
 
93.1

 
93.5

Current income taxes receivable, net
 
5.0

 
8.2

Deferred acquisition costs, net
 
167.9

 
167.3

Ceded unearned premiums
 
562.5

 
457.7

Operating lease right-of-use assets
 
115.3

 

Other assets
 
415.4

 
362.9

Total assets
 
$
9,954.5

 
$
9,558.2

Liabilities and Shareholders' Equity
 
 
 
 
Reserves for losses and loss adjustment expenses
 
$
4,668.9

 
$
4,654.6

Unearned premiums
 
1,344.5

 
1,300.9

Accrued underwriting expenses and other liabilities
 
248.2

 
261.9

Ceded reinsurance payable, net
 
1,047.1

 
970.5

Funds held
 
36.3

 
37.2

Senior unsecured fixed rate notes
 
139.9

 
139.8

Other indebtedness
 
183.0

 
183.4

Junior subordinated debentures
 
257.0

 
257.0

Deferred tax liabilities, net
 
20.7

 
6.2

Operating lease liabilities
 
128.3

 

Total liabilities
 
8,073.9

 
7,811.5

Commitments and contingencies (Note 14)
 
 
 
 
Shareholders' equity:
 
 
 
 
Common shares - $1.00 par, 500,000,000 shares authorized; 45,365,223 and 45,276,999 shares issued at March 31, 2019 and December 31, 2018, respectively
 
45.4

 
45.3

Additional paid-in capital
 
1,374.9

 
1,372.0

Treasury shares (11,315,889 shares at March 31, 2019 and December 31, 2018, respectively)
 
(455.1
)
 
(455.1
)
Retained earnings
 
943.0

 
862.6

Accumulated other comprehensive loss, net of taxes
 
(27.6
)
 
(78.1
)
Total shareholders' equity
 
1,880.6

 
1,746.7

Total liabilities and shareholders' equity
 
$
9,954.5

 
$
9,558.2

*    Derived from audited consolidated financial statements. 
See accompanying notes.

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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except number of shares and per share amounts)
(Unaudited)
 
 
 
 
For the Three Months Ended
March 31,
 
 
2019
 
2018
Premiums and other revenue:
 
 
 
 
Earned premiums
 
$
420.5

 
$
414.7

Net investment income
 
33.9

 
36.0

Fee and other income
 
2.3

 
2.0

Net realized investment gains (losses):
 
 
 
 
Net realized investment (losses) gains
 
(1.7
)
 
15.2

Change in fair value of equity securities
 
54.2

 
(30.9
)
Net realized investment gains (losses)
 
52.5

 
(15.7
)
Total revenue
 
509.2

 
437.0

Expenses:
 
 
 
 
Losses and loss adjustment expenses
 
237.9

 
237.2

Underwriting, acquisition and insurance expenses
 
160.7

 
160.2

Interest expense
 
8.5

 
7.7

Fee and other expense
 
1.3

 
2.0

Foreign currency exchange losses
 
0.7

 
4.9

Total expenses
 
409.1

 
412.0

Income before income taxes
 
100.1

 
25.0

Income tax provision
 
8.9

 
0.2

Net income
 
$
91.2

 
$
24.8

Net income per common share:
 
 
 
 
Basic
 
$
2.68

 
$
0.73

Diluted
 
$
2.63

 
$
0.71

Dividend declared per common share
 
$
0.31

 
$
0.27

Weighted average common shares:
 
 
 
 
Basic
 
33,984,329

 
33,868,749

Diluted
 
34,737,939

 
34,740,343

 
 
 
For the Three Months Ended
March 31,
 
 
2019
 
2018
Net realized investment losses before
other-than-temporary impairment losses
 
$
56.8

 
$
(14.7
)
Other-than-temporary impairment losses recognized in earnings:
 
 
 
 
Other-than-temporary impairment losses on fixed maturities
 
(4.3
)
 
(1.0
)
Impairment losses recognized in earnings
 
(4.3
)
 
(1.0
)
Net realized investment gains (losses)
 
$
52.5

 
$
(15.7
)
 
See accompanying notes.

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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
 
 
 
For the Three Months Ended
March 31,
 
 
2019
 
2018
Net income
 
$
91.2

 
$
24.8

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
 
0.2

 
(1.1
)
Unrealized gains (losses) on securities:
 
 
 
 
 Gains (losses) arising during the year
 
56.8

 
(24.7
)
Reclassification adjustment for losses (gains) included in net income
 
3.1

 
(12.5
)
Other comprehensive income (loss) before tax
 
60.1

 
(38.3
)
Income tax provision related to other comprehensive income (loss):
 
 
 
 
Unrealized gains (losses) on securities:
 
 
 
 
Gains (losses) arising during the year
 
9.1

 
(4.0
)
Reclassification adjustment for losses (gains) included in net income
 
0.5

 
(2.3
)
Income tax provision (benefit) related to other comprehensive income
 
9.6

 
(6.3
)
Other comprehensive income (loss), net of tax
 
50.5

 
(32.0
)
Comprehensive income (loss)
 
$
141.7

 
$
(7.2
)
 
See accompanying notes.


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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except number of shares and per share amounts)
(Unaudited)
 
 
 
Common
Shares
 
Additional
Paid-In
Capital
 
Treasury
Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Shareholders'
Equity
Balance, December 31, 2017
 
$
40.4

 
$
1,129.1

 
$
(423.4
)
 
$
977.0

 
$
96.6

 
$
1,819.7

Net income
 

 

 

 
24.8

 

 
24.8

Other comprehensive loss- Change in fair value of fixed maturities, net of taxes
 

 

 

 

 
(30.9
)
 
(30.9
)
Other comprehensive loss, net- Other
 

 

 

 

 
(1.1
)
 
(1.1
)
Repurchase of common share (314,586 at a weighted average price of $59.23)
 

 

 
(18.6
)
 

 

 
(18.6
)
Activity under stock incentive plans
 
0.2

 
4.4

 

 

 

 
4.6

Retirement of common shares (tax payments on equity compensation)
 
(0.1
)
 
(2.1
)
 

 

 

 
(2.2
)
Employee stock purchase plan
 

 
0.4

 

 

 

 
0.4

15% Stock Dividend
 
4.4

 
232.9

 

 
(237.3
)
 

 

Cash dividend declared - common shares ($0.27/share)
 

 

 

 
(9.3
)
 

 
(9.3
)
Cumulative effect of adoption of ASU 2016-01, net of taxes
 

 

 

 
117.5

 
(117.5
)
 

Cumulative effect of adoption of ASU 2018-02, net of taxes
 

 

 

 
(20.9
)
 
20.9

 

Balance, March 31, 2018
 
$
44.9

 
$
1,364.7

 
$
(442.0
)
 
$
851.8

 
$
(32.0
)
 
$
1,787.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
 
$
45.3

 
$
1,372.0

 
$
(455.1
)
 
$
862.6

 
$
(78.1
)
 
$
1,746.7

Net income
 

 

 

 
91.2

 

 
91.2

Other comprehensive income- Change in fair value of fixed maturities, net of taxes
 

 

 

 

 
50.3

 
50.3

Other comprehensive income, net- Other
 

 

 

 

 
0.2

 
0.2

Activity under stock incentive plans
 
0.1

 
4.1

 

 

 

 
4.2

Retirement of common shares (tax payments on equity compensation)
 

 
(1.6
)
 

 

 

 
(1.6
)
Employee stock purchase plan
 

 
0.4

 

 

 

 
0.4

Cash dividend declared - common shares ($0.31/share)
 

 

 

 
(10.8
)
 

 
(10.8
)
Balance, March 31, 2019
 
$
45.4

 
$
1,374.9

 
$
(455.1
)
 
$
943.0

 
$
(27.6
)
 
$
1,880.6


See accompanying notes.


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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
  
 
 
For the Three Months Ended
March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
91.2

 
$
24.8

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Amortization and depreciation
 
6.7

 
6.1

Share-based payments expense
 
4.6

 
5.2

Deferred income tax provision (benefit), net
 
5.3

 
(3.7
)
Net realized investment (gains) loss
 
(52.5
)
 
15.7

Undistributed earnings from alternative investment portfolio
 
(1.9
)
 
(8.7
)
Change in:
 
 
 
 
Accrued investment income
 
(0.3
)
 
(0.7
)
Receivables
 
1.8

 
0.9

Deferred acquisition costs
 
(0.5
)
 
(2.5
)
Ceded unearned premiums
 
(104.9
)
 
(93.8
)
Reserves for losses and loss adjustment expenses
 
15.2

 
(42.7
)
Unearned premiums
 
43.9

 
47.7

Ceded reinsurance payable and funds held
 
75.8

 
133.9

Income taxes
 
3.2

 
3.6

Accrued underwriting expenses and other liabilities
 
6.7

 
106.4

Other, net
 
(38.7
)
 
(38.6
)
Cash provided by operating activities
 
55.6

 
153.6

Cash flows from investing activities:
 
 
 
 
Sales of fixed maturity investments
 
235.5

 
469.2

Maturities and mandatory calls of fixed maturity investments
 
65.8

 
144.8

Sales of equity securities
 
15.0

 
51.7

Sales of other investments
 
22.0

 
34.5

Purchases of fixed maturity investments
 
(358.9
)
 
(616.5
)
Purchases of equity securities
 
(12.1
)
 
(60.1
)
Purchases of other investments
 
(13.2
)
 
(10.9
)
Change in foreign regulatory deposits and voluntary pools
 
(0.3
)
 
5.1

Change in short-term investments
 
38.3

 
(166.1
)
Settlements of foreign currency exchange forward contracts
 
3.6

 
1.7

Cash acquired with acquisition of Ariscom
 

 
15.6

Purchases of fixed assets
 
(7.3
)
 
(6.4
)
Other, net
 
(20.1
)
 
8.9

Cash used in investing activities
 
(31.7
)
 
(128.5
)
Cash flows from financing activities:
 
 
 
 
Activity under stock incentive plans
 
0.3

 
0.2

Repurchase of Company's common shares
 

 
(18.6
)
Payment of cash dividends to common shareholders
 
(10.8
)
 
(9.3
)
Cash used in financing activities
 
(10.5
)
 
(27.7
)
Effect of exchange rate changes on cash
 
0.1

 
(0.3
)
Change in cash
 
13.5

 
(2.9
)
Cash, beginning of year
 
139.2

 
176.6

Cash, end of period
 
$
152.7

 
$
173.7

 
See accompanying notes.

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ARGO GROUP INTERNATIONAL HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
1.    Basis of Presentation
The accompanying consolidated financial statements of Argo Group International Holdings, Ltd. (“Argo Group,” “we” or the “Company”) and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The major estimates reflected in our consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses; reinsurance recoverables, including the reinsurance recoverables allowance for doubtful accounts; estimates of written and earned premiums; reinsurance premium receivable; fair value of investments and assessment of potential impairment; valuation of goodwill and intangibles and our deferred tax asset valuation allowance. Actual results could differ from those estimates. Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 25, 2019.
The interim financial information as of, and for the three months ended March 31, 2019 and 2018 is unaudited. However, in the opinion of management, the interim information includes all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results presented for the interim periods. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated in consolidation. Certain reclassifications have been made to financial information presented for prior years to conform to the current year’s presentation.
2.    Recently Issued Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820)." ASU 2018-13 eliminates, adds and modifies certain disclosure requirements on fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within the year of adoption. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are applied prospectively for only the most recent interim or annual period presented in the initial fiscal year adoption. All other amendments are applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. We are currently in the process of evaluating the impact that the adoption of the ASU will have on our financial disclosures.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ASU 2016-13 requires organizations to estimate credit losses on certain types of financial instruments, including receivables and available-for-sale debt securities, by introducing an approach based on expected losses. The expected loss approach will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within the year of adoption. The guidance requires a modified retrospective transition method and early adoption is permitted. We are currently in the process of evaluating the impact that the adoption of the ASU will have on our financial results and disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). ASU 2016-02 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additionally, the ASU modifies current guidance for lessors' accounting. In July 2018, the FASB issued ASU 2018-11), "Leases (Topic 842): Targeted Improvements", which provides for an alternative transition method by allowing entities to initially apply the new leases standard at the adoption date (such as January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases). The standard was effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted.

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We have entered into operating leases for office space and certain other assets. We adopted the new standard on the effective date of January 1, 2019. We applied the following practical expedients:
We have elected to adopt this standard using the option transition method, which allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the consolidated financial statements. The adoption of the standard had no effect on our consolidated shareholders’ equity. Prior periods were not restated.
We have elected the "package of practical expedients", which permits us not to reassess under the new standard our prior conclusion about lease identification, lease classification and initial direct costs.
Where we are the lessor, we have elected the practical expedient which permits us to not separate non-lease components from the associated lease components if the non-lease components otherwise would be accounted for in accordance with the new revenue standard.
For the majority of our asset classes, we elected not to separate lease and non-lease components. As a result, our right-of-use assets and lease liabilities represent base rent components of our leases. We have elected to not apply the practical expedient which allows the use of hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets. The remaining practical expedients did not specifically apply to our lease population as of the adoption date.
Please see Note 4 - “Leases” for further discussion on the impact of the adoptions of this standard.
3.    Investments
Included in “Total investments” in our Consolidated Balance Sheets at March 31, 2019 and December 31, 2018 is $145.5 million and $133.4 million, respectively, of assets managed on behalf of the trade capital providers, who are third-party participants that provide underwriting capital to the operations of Syndicates 1200 and 1910.
Fixed Maturities
The amortized cost, gross unrealized gains, gross unrealized losses and fair value in fixed maturity investments were as follows:
March 31, 2019
 
 
 
 
 
 
 
 
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
250.6

 
$
0.6

 
$
3.0

 
$
248.2

Foreign Governments
 
239.0

 
2.3

 
3.3

 
238.0

Obligations of states and political subdivisions
 
217.1

 
6.0

 
0.3

 
222.8

Corporate bonds
 
1,816.1

 
16.7

 
26.3

 
1,806.5

Commercial mortgage-backed securities
 
209.1

 
2.6

 
1.3

 
210.4

Residential mortgage-backed securities
 
406.9

 
5.1

 
3.5

 
408.5

Asset-backed securities
 
211.6

 
0.8

 
0.6

 
211.8

Collateralized loan obligations
 
229.7

 
0.3

 
2.9

 
227.1

Total fixed maturities
 
$
3,580.1

 
$
34.4

 
$
41.2

 
$
3,573.3


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December 31, 2018
 
 
 
 
 
 
 
 
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
240.9

 
$
0.2

 
$
4.9

 
$
236.2

Foreign Governments
 
224.1

 
0.5

 
7.8

 
216.8

Obligations of states and political subdivisions
 
236.7

 
4.3

 
1.2

 
239.8

Corporate bonds
 
1,808.7

 
7.5

 
58.7

 
1,757.5

Commercial mortgage-backed securities
 
205.3

 
0.7

 
3.2

 
202.8

Residential mortgage-backed securities
 
413.1

 
3.4

 
5.7

 
410.8

Asset-backed securities
 
173.6

 
0.4

 
1.2

 
172.8

Collateralized loan obligations
 
226.7

 
0.5

 
3.5

 
223.7

Total fixed maturities
 
$
3,529.1

 
$
17.5

 
$
86.2

 
$
3,460.4

Contractual Maturity
The amortized cost and fair values of fixed maturity investments as of March 31, 2019, by contractual maturity, were as follows:
(in millions)
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
345.0

 
$
342.6

Due after one year through five years
 
1,507.3

 
1,501.1

Due after five years through ten years
 
556.9

 
555.1

Thereafter
 
113.6

 
116.7

Structured securities
 
1,057.3

 
1,057.8

Total
 
$
3,580.1

 
$
3,573.3

The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations.
Other Investments
Details regarding the carrying value and unfunded investment commitments of other investments as of March 31, 2019 and December 31, 2018 were as follows:
March 31, 2019
 
 
 
 
(in millions)
 
Carrying
Value
 
Unfunded
Commitments
Investment Type
 
 
 
 
Hedge funds
 
$
115.9

 
$

Private equity
 
223.2

 
125.9

Long only funds
 
139.9

 

Other
 
4.3

 

Total other investments
 
$
483.3

 
$
125.9

December 31, 2018
 
 
 
 
(in millions)
 
Carrying
Value
 
Unfunded
Commitments
Investment Type
 
 
 
 
Hedge funds
 
$
120.6

 
$

Private equity
 
211.8

 
120.5

Long only funds
 
153.0

 

Other
 
4.4

 

Total other investments
 
$
489.8

 
$
120.5


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Table of Contents

The following describes each investment type:
Hedge funds: Hedge funds include funds that primarily buy and sell stocks, including short sales, multi-strategy credit, relative value credit and distressed credit.
Private equity: Private equity includes buyout funds, real asset/infrastructure funds, credit special situations funds, mezzanine lending funds and direct investments and strategic non-controlling minority investments in private companies that are principally accounted for using the equity method of accounting.
Long only funds: Our long only funds include a fund that primarily owns international stocks and funds that primarily own investment-grade corporate and sovereign fixed income securities.  
Other: Other includes participation in investment pools.
Unrealized Losses and Other-Than-Temporary Impairments
An aging of unrealized losses on our investments in fixed maturities is presented below:
March 31, 2019
 
Less Than One Year
 
One Year or Greater
 
Total
(in millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Governments
 
$
12.8

 
$
0.1

 
$
157.6

 
$
2.8

 
$
170.4

 
$
2.9

Foreign Governments
 
64.3

 
2.1

 
85.6

 
1.2

 
149.9

 
3.3

Obligations of states and political subdivisions
 
13.1

 
0.1

 
20.4

 
0.2

 
33.5

 
0.3

Corporate bonds
 
389.0

 
17.1

 
525.8

 
9.2

 
914.8

 
26.3

Commercial mortgage-backed securities
 
30.6

 
0.1

 
69.5

 
1.3

 
100.1

 
1.4

Residential mortgage-backed securities
 
43.3

 
0.2

 
170.2

 
3.3

 
213.5

 
3.5

Asset-backed securities
 
58.4

 
0.2

 
66.9

 
0.4

 
125.3

 
0.6

Collateralized loan obligations
 
200.0

 
2.5

 
19.1

 
0.4

 
219.1

 
2.9

Total fixed maturities
 
$
811.5

 
$
22.4

 
$
1,115.1

 
$
18.8

 
$
1,926.6

 
$
41.2

December 31, 2018
 
Less Than One Year
 
One Year or Greater
 
Total
(in millions)
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Governments
 
$
28.2

 
$
0.2

 
$
173.0

 
$
4.7

 
$
201.2

 
$
4.9

Foreign Governments
 
73.4

 
3.6

 
125.0

 
4.2

 
198.4

 
7.8

Obligations of states and political subdivisions
 
53.3

 
0.6

 
25.3

 
0.6

 
78.6

 
1.2

Corporate bonds
 
964.3

 
45.7

 
440.8

 
13.0

 
1,405.1

 
58.7

Commercial mortgage-backed securities
 
48.5

 
0.6

 
90.6

 
2.6

 
139.1

 
3.2

Residential mortgage-backed securities
 
63.5

 
0.7

 
176.1

 
5.0

 
239.6

 
5.7

Asset-backed securities
 
73.6

 
0.6

 
64.2

 
0.6

 
137.8

 
1.2

Collateralized loan obligations
 
209.5

 
3.3

 
10.3

 
0.2

 
219.8

 
3.5

Total fixed maturities
 
$
1,514.3

 
$
55.3

 
$
1,105.3

 
$
30.9

 
$
2,619.6

 
$
86.2


We regularly evaluate our investments for other-than-temporary impairment. For fixed maturity securities, the evaluation for a credit loss is generally based on the present value of expected cash flows of the security as compared to the amortized book value. For structured securities, frequency and severity of loss inputs are used in projecting future cash flows of the securities. Loss frequency is measured as the credit default rate, which includes such factors as loan-to-value ratios and credit scores of borrowers. We also recognize other-than-temporary losses on fixed maturity securities that we intend to sell. Effective January 1, 2018, the Company adopted ASU 2016-01. As a result, changes in the fair value of equity securities are recognized in net realized investment gains in the Consolidated Statement of Income.

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Table of Contents

We hold a total of 9,083 securities, of which 1,413 were in an unrealized loss position for less than one year and 1,393 were in an unrealized loss position for a period one year or greater as of March 31, 2019. Unrealized losses greater than twelve months on fixed maturities were the result of a number of factors, including increased credit spreads, foreign currency fluctuations and higher market yields relative to the date the securities were purchased, and for structured securities, by the performance of the underlying collateral, as well. In considering whether or not an investment is other-than-temporarily impaired, we also considered that we do not intend to sell the investments and it is unlikely that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider these investments to be other-than-temporarily impaired at March 31, 2019.
We recognized other-than-temporary losses on our fixed maturities portfolio as follows:
 
 
For the Three Months Ended
March 31,
(in millions)
 
2019
 
2018
Other-than-temporary impairment:
 
 
 
 
Corporate bonds
 
$
(4.3
)
 
$
(1.0
)
Other-than-temporary impairment losses
 
$
(4.3
)
 
$
(1.0
)
Net Realized Investment Gains and Losses
The following table presents our gross realized investment gains (losses):
 
 
For the Three Months Ended
March 31,
(in millions)
 
2019
 
2018
Realized gains on fixed maturities and other
 
 
 
 
Fixed maturities
 
$
3.6

 
$
7.5

Other investments
 
8.8

 
11.7

 
 
12.4

 
19.2

Realized losses on fixed maturities and other
 
 
 
 
Fixed maturities
 
(2.4
)
 
(4.9
)
Other investments
 
(8.1
)
 
(9.3
)
Other-than-temporary impairment losses on fixed maturities
 
(4.3
)
 
(1.0
)
 
 
(14.8
)
 
(15.2
)
Equity securities
 
 
 
 
Net realized gains on equity securities
 
0.7

 
11.2

Change in unrealized gains (losses) on equity securities held at the end of the period
 
54.2

 
(30.9
)
Net realized gains (losses) on equity securities
 
54.9

 
(19.7
)
Net realized investment gains (losses) before income taxes
 
52.5

 
(15.7
)
Income tax (provision) benefit
 
(9.7
)
 
2.9

Net realized investment gains (losses), net of income taxes
 
$
42.8

 
$
(12.8
)
The cost of securities sold is based on the specific identification method.

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Table of Contents

Changes in unrealized appreciation (depreciation) related to investments are summarized as follows:
 
 
For the Three Months Ended
March 31,
(in millions)
 
2019
 
2018
Change in unrealized gains (losses)
 
 
 
 
Fixed maturities
 
$
59.9

 
$
(37.1
)
Short-term investments
 

 
(0.1
)
Net unrealized investment gains (losses) before income taxes
 
59.9

 
(37.2
)
Income tax (provision) benefit
 
(9.6
)
 
6.3

Net unrealized investment gains (losses), net of income taxes
 
$
50.3

 
$
(30.9
)
Foreign Currency Exchange Forward Contracts
We entered into foreign currency exchange forward contracts to manage operational currency exposure on our Canadian dollar (“CAD”) investment portfolio, minimize negative impacts to investment portfolio returns, and gain exposure to a total return strategy which invests in multiple currencies.  The currency forward contracts are carried at fair value in our Consolidated Balance Sheets in “Other liabilities.” The gains and losses are included in “Net realized investment gains (losses)” in our Consolidated Statements of Income.
The fair value of our foreign currency exchange forward contracts as of March 31, 2019 and December 31, 2018 was as follows:
(in millions)
 
March 31, 2019
 
December 31, 2018
Operational currency exposure
 
$
(0.6
)
 
$
4.4

Asset manager investment exposure
 
0.1

 
(0.3
)
Total return strategy
 
0.2

 
(1.5
)
Total
 
$
(0.3
)
 
$
2.6

The following table represents our gross investment realized gains and losses on our foreign currency exchange forward contracts:
 
 
For the Three Months Ended
March 31,
(in millions)
 
2019
 
2018
Realized gains
 
 
 
 
Operational currency exposure
 
$
0.3

 
$
4.3

Asset manager investment exposure
 
1.1

 
4.3

Total return strategy
 
6.3

 
2.6

Gross realized investment gains
 
7.7

 
11.2

Realized losses
 
 
 
 
Operational currency exposure
 
(2.1
)
 
(0.6
)
Asset manager investment exposure
 
(0.2
)
 
(5.9
)
Total return strategy
 
(4.7
)
 
(2.1
)
Gross realized investment losses
 
(7.0
)
 
(8.6
)
Net realized investment gains on foreign currency exchange forward contracts
 
$
0.7

 
$
2.6


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Table of Contents

Regulatory Deposits, Pledged Securities and Letters of Credit
We are required to maintain assets on deposit with various regulatory authorities to support our insurance and reinsurance operations.  We maintain assets pledged as collateral in support of irrevocable letters of credit issued under the terms of certain reinsurance agreements for reported loss and loss expense reserves. The following table presents our components of restricted assets at March 31:
(in millions)
 
March 31, 2019
 
March 31, 2018
Securities on deposit for regulatory and other purposes
 
$
183.3

 
$
171.7

Securities pledged as collateral for letters of credit
 
126.1

 
62.8

Securities and cash on deposit supporting Lloyd’s business
 
391.8

 
373.9

Total restricted investments
 
$
701.2

 
$
608.4

Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability and willing to transfer the asset or liability.
Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. The inputs of these valuation techniques are categorized into three levels.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. We define actively traded as a security that has traded in the past seven days. We receive one quote per instrument for Level 1 inputs.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We receive one quote per instrument for Level 2 inputs.
Level 3 inputs are unobservable inputs. Unobservable inputs reflect our own judgments about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.
We receive fair value prices from third-party pricing services and our outside investment managers. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. We have reviewed the processes used by the third-party providers for pricing the securities, and have determined that these processes result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of March 31, 2019 and December 31,2018. A description of the valuation techniques we use to measure assets at fair value is as follows:
Fixed Maturities (Available-for-Sale) Levels 1 and 2:
United States Treasury securities are typically valued using Level 1 inputs. For these securities, we obtain fair value measurements from third-party pricing services using quoted prices (unadjusted) in active markets at the reporting date.
United States Government agencies, non-U.S. Government securities, obligations of states and political subdivisions, credit securities and foreign denominated government and credit securities are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, yield curves, live trading levels, trade execution data, credit information and the security’s terms and conditions, among other things.
Asset and mortgage-backed securities and collateralized loan obligations are reported at fair value using Level 2 inputs. For these securities, we obtain fair value measurements from third-party pricing services. Observable data may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

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Table of Contents

Fixed Maturities (Available-for-Sale) Levels 3:
We own term loans that are valued using unobservable inputs.
Equity Securities Level 1: Equity securities are principally reported at fair value using Level 1 inputs. For these securities, we obtain fair value measurements from a third-party pricing service using quoted prices (unadjusted) in active markets at the reporting date.
Equity Securities Level 3: We own certain equity securities that are reported at fair value using Level 3 inputs. The valuation techniques for these securities include the following:
Fair value measurements for an investment in an equity fund obtained by applying final prices provided by the administrator of the fund, which is based upon certain estimates and assumptions.
Fair value measurements from a broker and an independent valuation service, both based upon estimates and assumptions.
Other Investments Level 2: Foreign regulatory deposits are assets held in trust in jurisdictions where there is a legal and regulatory requirement to maintain funds locally in order to protect policyholders. Lloyd’s is the appointed investment manager for the funds. These assets are invested in short-term government securities, agency securities and corporate bonds and are valued using Level 2 inputs based upon values obtained from Lloyd’s.
Short-term Investments: Short-term investments are principally reported at fair value using Level 1 inputs, with the exception of short-term corporate and governmental bonds reported at fair value using Level 2 inputs as described in the fixed maturities section above. Values for the investments categorized as Level 1 are obtained from various financial institutions as of the reporting date.
Transfers Between Level 1 and Level 2 Securities: There were no transfers between Level 1 and Level 2 securities during the three months ended March 31, 2019.
Based on an analysis of the inputs, our financial assets measured at fair value on a recurring basis have been categorized as follows:
 
 
 
 
Fair Value Measurements at Reporting Date Using
(in millions)
 
March 31, 2019
 
Level 1 (a)
 
Level 2 (b)
 
Level 3 (c)
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
248.2

 
$
238.3

 
$
9.9

 
$

Foreign Governments
 
238.0

 

 
238.0

 

Obligations of states and political subdivisions
 
222.8

 

 
222.8

 

Corporate bonds
 
1,806.5

 
1.2

 
1,803.1

 
2.2

Commercial mortgage-backed securities
 
210.4

 

 
210.4

 

Residential mortgage-backed securities
 
408.5

 

 
408.5

 

Asset-backed securities
 
211.8

 

 
211.8

 

Collateralized loan obligations
 
227.1

 

 
227.1

 

Total fixed maturities
 
3,573.3

 
239.5

 
3,331.6

 
2.2

Equity securities
 
403.2

 
394.5

 

 
8.7

Other investments
 
96.0

 

 
96.0

 

Short-term investments
 
443.7

 
402.8

 
40.9

 

 
 
$
4,516.2

 
$
1,036.8

 
$
3,468.5

 
$
10.9

(a) 
Quoted prices in active markets for identical assets
(b) 
Significant other observable inputs
(c) 
Significant unobservable inputs

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Table of Contents

 
 
 
 
Fair Value Measurements at Reporting Date Using
(in millions)
 
December 31, 2018
 
Level 1 (a)
 
Level 2 (b)
 
Level 3 (c)
Fixed maturities
 
 
 
 
 
 
 
 
U.S. Governments
 
$
236.2

 
$
226.7

 
$
9.5

 
$

Foreign Governments
 
216.8

 

 
216.8

 

Obligations of states and political subdivisions
 
239.8

 

 
239.8

 

Corporate bonds
 
1,757.5

 

 
1,755.3

 
2.2

Commercial mortgage-backed securities
 
202.8

 

 
202.8

 

Residential mortgage-backed securities
 
410.8

 

 
410.8

 

Asset-backed securities
 
172.8

 

 
172.8

 

Collateralized loan obligations
 
223.7

 

 
223.7

 

Total fixed maturities
 
3,460.4

 
226.7

 
3,231.5

 
2.2

Equity securities
 
354.5

 
346.3

 

 
8.2

Other investments
 
114.4

 

 
114.4

 

Short-term investments
 
482.3

 
453.9

 
28.4

 

 
 
$
4,411.6

 
$
1,026.9

 
$
3,374.3

 
$
10.4

(a) 
Quoted prices in active markets for identical assets
(b) 
Significant other observable inputs
(c) 
Significant unobservable inputs
The fair value measurements in the tables above do not equal “Total investments” on our Consolidated Balance Sheets as they exclude certain other investments that are accounted for under the equity-method of accounting.
A reconciliation of the beginning and ending balances for the investments categorized as Level 3 are as follows:
Fair Value Measurements Using Observable Inputs (Level 3)
(in millions)
 
Credit Financial
 
Equity
Securities
 
Total
Beginning balance, January 1, 2019
 
$
2.2

 
$
8.2

 
$
10.4

Transfers into Level 3
 

 

 

Transfers out of Level 3
 

 

 

Total gains or losses (realized/unrealized):
 
 
 
 
 
 
Included in net income (loss)
 

 
0.5

 
0.5

Included in other comprehensive income (loss)
 

 

 

Purchases, issuances, sales, and settlements:
 
 
 
 
 
 
Purchases
 

 

 

Issuances
 

 

 

Sales
 

 

 

Settlements
 

 

 

 Ending balance, March 31, 2019
 
$
2.2

 
$
8.7

 
$
10.9

Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2019
 
$

 
$

 
$


16

Table of Contents

(in millions)
 
Credit Financial
 
Equity
Securities
 
Total
Beginning balance, January 1, 2018
 
$
1.9

 
$
2.3

 
$
4.2

Transfers into Level 3
 

 

 

Transfers out of Level 3
 

 

 

Total gains or losses (realized/unrealized):
 
 
 
 
 
 
Included in net income (loss)
 

 
0.2

 
0.2

Included in other comprehensive income (loss)
 
0.3

 

 
0.3

Purchases, issuances, sales, and settlements:
 
 
 
 
 
 
Purchases
 

 
7.3

 
7.3

Issuances
 

 

 

Sales
 

 
(1.6
)
 
(1.6
)
Settlements
 

 

 

 Ending balance, December 31, 2018
 
$
2.2

 
$
8.2

 
$
10.4

Amount of total gains or losses for the year included in net income (loss) attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2018
 
$

 
$

 
$

At March 31, 2019 and December 31, 2018, we did not have any financial assets or financial liabilities measured at fair value on a nonrecurring basis or any financial liabilities on a recurring basis.
4.     Leases
We adopted ASU 2016-02, "Leases" on January 1, 2019, which resulted in the recognition of operating leases on the balance sheet in beginning in 2019 and forward. See Note 2, “Recently Issued Accounting Pronouncements,” for additional information on the adoption of the ASU.
We determine if a contract contains a lease at inception and recognize operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease agreements have lease and non-lease components. We account for these components separately, therefore our right-of-use and lease liabilities represent base rent only. Lease expense is recognized on a straight-line basis over the lease term.
Our operating lease obligations are for office facilities, including corporate housing, and equipment, including corporate aviation. Our leases have remaining lease terms of less than 1 year to 14 years, some of which include options to extend the leases. Expenses associated with leases totaled $5.3 million and $4.5 million for the three months ended March 31, 2019 and 2018, respectively. The components of lease expense and other lease information as of and during the three months ended March 31, 2019 are as follows:
(in millions)
 
March 31, 2019
Operating leases right-of-use assets
 
$
115.3

Operating lease liabilities
 
128.3

 
 
 
Operating lease weighted-average remaining lease term
 
10.26 years

Operating lease weighted-average discount rate
 
3.87
%

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Table of Contents

(in millions)
 
For the Three Months Ended
March 31, 2019
Operating leases costs
 
$
5.1

Variable lease costs
 
0.3

Sublease income
 
(0.1
)
Total lease costs
 
$
5.3

 
 
 
Operating cash flows from operating lease (fixed payments)
 
$
4.7

Operating cash flows from operating lease (liability reduction)
 
3.7

Our finance leases and short-term leases as of March 31, 2019 are not material.
Future minimum lease payments under operating leases as of March 31, 2019 and December 31, 2018 were as follows:
(in millions)
 
March 31, 2019
 
December 31, 2018
2019
 
$
14.2

 
$
18.7

2020
 
18.3

 
18.6

2021
 
17.5

 
17.5

2022
 
14.7

 
14.7

2023
 
12.3

 
12.3

Thereafter
 
80.6

 
80.1

Total future minimum lease payments
 
$
157.6

 
$
161.9

 
 
 
 
 
Less imputed interest
 
(29.3
)
 
 N/A

Total operating lease liability
 
$
128.3

 
 N/A

We have certain investment properties that we lease to independent, third parties. These properties consist of an office building that is currently leased through August 2026 and three condominiums that are leased on a short-term basis. The carrying value of these assets are included in "Other assets" on our consolidated balance sheet. Income for these leased properties was $0.8 million for each of the three months ended March 31, 2019 and 2018, and is included in "Fee and other income" on our consolidated statements of income.

18

Table of Contents

5.    Reserves for Losses and Loss Adjustment Expenses
The following table provides a reconciliation of reserves for losses and loss adjustment expenses (“LAE”):
 
 
For the Three Months Ended
March 31,
(in millions)
 
2019
 
2018
Net reserves beginning of the year
 
$
2,562.9

 
$
2,488.0

Net Ariscom reserves acquired
 

 
47.2

Add:
 
 
 
 
Losses and LAE incurred during current calendar year, net of reinsurance:
 
 
 
 
Current accident year
 
240.4

 
239.2

Prior accident years
 
(2.5
)
 
(2.0
)
Losses and LAE incurred during calendar year, net of reinsurance
 
237.9

 
237.2

Deduct:
 
 
 
 
Losses and LAE payments made during current calendar year, net of reinsurance:
 
 
 
 
Current accident year
 
34.7

 
33.3

Prior accident years
 
221.0

 
186.6

Losses and LAE payments made during current calendar year, net of reinsurance:
 
255.7

 
219.9

Change in participation interest (1)
 
(14.6
)
 
(16.9
)
Foreign exchange adjustments
 
(9.1
)
 
(0.8
)
Net reserves - end of period
 
2,521.4

 
2,534.8

Add:
 
 
 
 
Reinsurance recoverables on unpaid losses and LAE, end of period
 
2,147.5

 
1,748.8

Gross reserves - end of period
 
$
4,668.9

 
$
4,283.6

(1) 
Amount represents the change in reserves due to changing our participation in Syndicates 1200 and 1910.
Reserves for losses and LAE represent the estimated indemnity cost and related adjustment expenses necessary to investigate and settle claims. Such estimates are based upon individual case estimates for reported claims, estimates from ceding companies for reinsurance assumed and actuarial estimates for losses that have been incurred but not yet reported to the insurer. Any change in probable ultimate liabilities is reflected in current operating results.
The impact from the (favorable) unfavorable development of prior accident years’ loss and LAE reserves on each reporting segment is presented below: 
 
 
For the Three Months Ended
March 31,
(in millions)
 
2019
 
2018
U.S. Operations
 
$
(4.0
)
 
$
(1.0
)
International Operations
 
0.8

 
(2.8
)
Run-off Lines
 
0.7

 
1.8

Total favorable prior-year development
 
$
(2.5
)
 
$
(2.0
)
The following describes the primary factors behind each segment’s prior accident year reserve development for the three months ended March 31, 2019 and 2018:
Three months ended March 31, 2019:
U.S. Operations: Favorable development in liability and specialty lines, partially offset by unfavorable development in workers compensation and commercial multi-peril lines.
International Operations: Unfavorable development in general liability, partially offset by favorable development in property reinsurance.  
Run-off Lines: Unfavorable development in other run-off lines.

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Table of Contents

Three months ended March 31, 2018:
U.S. Operations: Favorable development in liability and specialty lines.
International Operations: Favorable development in property lines driven by 2017 catastrophe events, partially offset by unfavorable development within specialty lines.
Run-off Lines: Unfavorable development in risk management lines and other run-off lines.
In the opinion of management, our reserves represent the best estimate of our ultimate liabilities, based on currently known facts, current law, current technology and assumptions considered reasonable where facts are not known. Due to the significant uncertainties and related management judgments, there can be no assurance that future favorable or unfavorable loss development, which may be material, will not occur.
6.    Disclosures about Fair Value of Financial Instruments
Cash. The carrying amount approximates fair value.
Investment securities and short-term investments. See Note 3, “Investments,” for additional information.
Premiums receivable and reinsurance recoverables on paid losses. The carrying value of current receivables and reinsurance recoverables on paid losses approximates fair value.                          
Debt. At March 31, 2019 and December 31, 2018, the fair value of our Junior subordinated debentures, Senior unsecured fixed rate notes and Other indebtedness was estimated using appropriate market indices or quoted prices from external sources based on current market conditions. All of these debt instruments would be in Level 3 of the fair value hierarchy, as the fair value estimates shown below were calculated using unobservable inputs reflecting our assumptions about the assumptions market participants would use in pricing the liabilities.
A summary of our financial instruments whose carrying value did not equal fair value is shown below:
 
 
March 31, 2019
 
December 31, 2018
(in millions)
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Junior subordinated debentures:
 

 

 
 
 
 
Trust preferred debentures
 
$
172.7

 
$
166.3

 
$
172.7

 
$
163.2

Subordinated debentures acquired with Maybrooke
 
84.3

 
86.3

 
84.3

 
85.0

Total junior subordinated debentures
 
257.0

 
252.6

 
257.0

 
248.2

Senior unsecured fixed rate notes
 
139.9

 
142.6

 
139.8

 
139.5

Floating rate loan stock
 
57.4

 
55.2

 
57.8

 
54.5

 
7.    Shareholders’ Equity
On February 20, 2019, our Board of Directors declared a quarterly cash dividend in the amount of $0.31 on each share of common stock outstanding. On March 15, 2019, we paid $10.8 million to our shareholders of record on March 1, 2019.
On February 20, 2018, our Board of Directors declared a quarterly cash dividend in the amount of $0.27 on each share of common stock outstanding. On March 23, 2018, we paid $9.3 million to our shareholders of record on March 7, 2018
On February 20, 2018, the Board of Directors declared a 15% stock dividend, payable March 21, 2018 to all shareholders of record at the close of business on March 7, 2018. As a result of the stock dividend, 4,397,520 additional shares were issued. Cash was paid in lieu of fractional shares of our common shares. Excluding repurchased shares, all references to common shares and related per share amounts in this document and related disclosures have been adjusted to reflect the stock dividend for all periods presented.
On May 3, 2016, our Board of Directors authorized the repurchase of up to $150.0 million of our common shares (“2016 Repurchase Authorization”). The 2016 Repurchase Authorization supersedes all previous Repurchase Authorizations. As of March 31, 2019, availability under the 2016 Repurchase Authorization for future repurchases of our common shares was $53.3 million.

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Table of Contents

We did not repurchase any common shares for the three months ended March 31, 2019.
8.    Accumulated Other Comprehensive (Loss) Income
A summary of changes in accumulated other comprehensive (loss) income, net of taxes (where applicable) by component for the three months ended March 31, 2019, and 2018 is presented below:
(in millions)
 
Foreign Currency Translation Adjustments
 
Unrealized
Holding Gains
on Securities
 
Defined Benefit Pension Plans
 
Total
Balance, January 1, 2019
 
$
(22.4
)
 
$
(49.0
)
 
$
(6.7
)
 
$
(78.1
)
Other comprehensive income before reclassifications
 
0.2

 
47.7

 

 
47.9

Amounts reclassified from accumulated other comprehensive income
 

 
2.6

 

 
2.6

Net current-period other comprehensive income
 
0.2

 
50.3

 

 
50.5

Balance at March 31, 2019
 
$
(22.2
)
 
$
1.3

 
$
(6.7
)
 
$
(27.6
)
 
(in millions)
 
Foreign Currency Translation Adjustments
 
Unrealized
Holding Gains
on Securities
 
Defined Benefit Pension Plans
 
Total
Balance, January 1, 2018
 
$
(19.0
)
 
$
121.9

 
$
(6.3
)
 
$
96.6

Other comprehensive loss before reclassifications
 
(1.1
)
 
(20.7
)
 

 
(21.8
)
Amounts reclassified from accumulated other comprehensive loss