SiriusPoint - 10-Q quarterly report FY2017 Q3

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



¨	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 001-35039

THIRD POINT REINSURANCE LTD.

(Exact name of registrant as specified in its charter)



Bermuda		98-1039994
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Point House

3 Waterloo Lane

Pembroke HM 08, Bermuda

+1 441 542-3300

(Address, including Zip Code and Telephone Number, including Area Code of Registrant’s Principal Executive Office)

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 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 (§232.405 of this chapter) 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, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	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. Yes ¨ No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The registrant’s common shares began trading on the New York Stock Exchange on August 15, 2013.

As of November 7, 2017, there were 107,383,405 common shares of the registrant’s common shares issued and outstanding, including 2,029,646 restricted shares.

Third Point Reinsurance Ltd.

INDEX



	Page
PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3. Quantitative and Qualitative Disclosures About Market Risk	72
Item 4. Controls and Procedures	77
PART II. OTHER INFORMATION	77
Item 1. Legal Proceedings	77
Item 1A. Risk Factors	77
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3. Defaults Upon Senior Securities	80
Item 4. Mine Safety Disclosures	80
Item 5. Other Information	80
Item 6. Exhibits	81

PART I - Financial Information

ITEM 1. Financial Statements

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of September 30, 2017 and December 31, 2016

(expressed in thousands of U.S. dollars, except per share and share amounts)



	September 30, 2017			December 31, 2016
Assets
Equity securities, trading, at fair value (cost - $1,676,001; 2016 - $1,385,866)	$	2,017,463		$	1,506,854
Debt securities, trading, at fair value (cost - $676,972; 2016 - $1,036,716)	656,118			1,057,957
Other investments, at fair value	30,932			82,701
Total investments in securities	2,704,513			2,647,512
Cash and cash equivalents	6,434			9,951
Restricted cash and cash equivalents	477,362			298,940
Due from brokers	387,786			284,591
Derivative assets, at fair value	75,781			27,432
Interest and dividends receivable	4,210			6,505
Reinsurance balances receivable	478,206			381,951
Deferred acquisition costs, net	223,091			221,618
Other assets	11,464			17,144
Total assets	$	4,368,847		$	3,895,644
Liabilities
Accounts payable and accrued expenses	$	24,580		$	10,321
Reinsurance balances payable	54,654			43,171
Deposit liabilities	126,491			104,905
Unearned premium reserves	615,375			557,076
Loss and loss adjustment expense reserves	699,369			605,129
Securities sold, not yet purchased, at fair value	405,845			92,668
Due to brokers	602,230			899,601
Derivative liabilities, at fair value	17,280			16,050
Performance fee payable to related party	73,210			—
Interest and dividends payable	1,917			3,443
Senior notes payable, net of deferred costs	113,688			113,555
Total liabilities	2,734,639			2,445,919
Commitments and contingent liabilities
Redeemable noncontrolling interests in related party	16,813			—
Shareholders’ equity
Preference shares (par value $0.10; authorized, 30,000,000; none issued)	—			—
Common shares (par value $0.10; authorized, 300,000,000; issued and outstanding, 107,383,405 (2016 - 106,501,299))	10,738			10,650
Treasury shares (3,944,920 shares (2016 - 644,768 shares))	(48,253		)	(7,389		)
Additional paid-in capital	1,099,998			1,094,568
Retained earnings	549,671			316,222
Shareholders’ equity attributable to Third Point Re common shareholders	1,612,154			1,414,051
Noncontrolling interests in related party	5,241			35,674
Total shareholders’ equity	1,617,395			1,449,725
Total liabilities, noncontrolling interests and shareholders' equity	$	4,368,847		$	3,895,644

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the three and nine months ended September 30, 2017 and 2016

(expressed in thousands of U.S. dollars, except per share and share amounts)



	Three months ended						Nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Revenues
Gross premiums written	$	174,539		$	142,573		$	477,457		$	536,595
Gross premiums ceded	—			(927		)	(2,550		)	(2,352		)
Net premiums written	174,539			141,646			474,907			534,243
Change in net unearned premium reserves	(68,564		)	(13,463		)	(57,365		)	(136,136		)
Net premiums earned	105,975			128,183			417,542			398,107
Net investment income before management and performance fees to related parties	119,516			121,208			427,982			191,084
Management and performance fees to related parties	(30,548		)	(32,852		)	(103,179		)	(56,492		)
Net investment income	88,968			88,356			324,803			134,592
Total revenues	194,943			216,539			742,345			532,699
Expenses
Loss and loss adjustment expenses incurred, net	77,275			85,015			270,549			273,822
Acquisition costs, net	33,974			45,127			157,067			145,296
General and administrative expenses	13,218			12,354			38,804			33,885
Other expenses	3,846			347			8,852			6,226
Interest expense	2,074			2,069			6,151			6,163
Foreign exchange (gains) losses	5,437			(3,905		)	10,233			(14,359		)
Total expenses	135,824			141,007			491,656			451,033
Income before income tax expense	59,119			75,532			250,689			81,666
Income tax expense	(3,475		)	(2,484		)	(14,080		)	(5,865		)
Net income	55,644			73,048			236,609			75,801
Net income attributable to noncontrolling interests in related party	(959		)	(967		)	(3,160		)	(1,473		)
Net income available to Third Point Re common shareholders	$	54,685		$	72,081		$	233,449		$	74,328
Earnings per share available to Third Point Re common shareholders
Basic earnings per share available to Third Point Re common shareholders	$	0.54		$	0.69		$	2.27		$	0.71
Diluted earnings per share available to Third Point Re common shareholders	$	0.52		$	0.68		$	2.22		$	0.70
Weighted average number of common shares used in the determination of earnings per common share
Basic	101,391,145			103,780,196			102,553,346			104,055,946
Diluted	104,679,574			105,795,313			105,040,251			105,590,668

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

For the nine months ended September 30, 2017 and 2016

(expressed in thousands of U.S. dollars)



	2017			2016
Common shares
Balance, beginning of period	$	10,650		$	10,548
Issuance of common shares	88			90
Balance, end of period	10,738			10,638
Treasury shares
Balance, beginning of period	(7,389		)	—
Repurchase of common shares	(40,864		)	(7,389		)
Balance, end of period	(48,253		)	(7,389		)
Additional paid-in capital
Balance, beginning of period	1,094,568			1,080,591
Issuance of common shares, net	1,416			3,788
Share compensation expense	4,014			6,596
Balance, end of period	1,099,998			1,090,975
Retained earnings
Balance, beginning of period	316,222			288,587
Net income	236,609			75,801
Net income attributable to noncontrolling interests in related party	(3,160		)	(1,473		)
Balance, end of period	549,671			362,915
Shareholders’ equity attributable to Third Point Re common shareholders	1,612,154			1,457,139
Noncontrolling interests in related party	5,241			18,630
Total shareholders’ equity	$	1,617,395		$	1,475,769

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

THIRD POINT REINSURANCE LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the nine months ended September 30, 2017 and 2016

(expressed in thousands of U.S. dollars)



	2017			2016
Operating activities
Net income	$	236,609		$	75,801
Adjustments to reconcile net income to net cash provided by operating activities:
Share compensation expense	4,014			6,596
Net interest (income) expense on deposit liabilities	1,472			(507		)
Net unrealized gain on investments and derivatives	(203,299		)	(90,675		)
Net realized gain on investments and derivatives	(180,382		)	(62,316		)
Net foreign exchange (gains) losses	10,233			(14,359		)
Amortization of premium and accretion of discount, net	(452		)	4,954
Changes in assets and liabilities:
Reinsurance balances receivable	(77,444		)	(145,593		)
Deferred acquisition costs, net	(1,473		)	(58,286		)
Other assets	5,698			(4,960		)
Interest and dividends receivable, net	769			(3,697		)
Unearned premium reserves	58,299			137,270
Loss and loss adjustment expense reserves	78,931			111,014
Accounts payable and accrued expenses	14,173			1,518
Reinsurance balances payable	11,462			24,013
Performance fee payable to related party	73,210			24,846
Net cash provided by operating activities	31,820			5,619
Investing activities
Purchases of investments	(2,238,167		)	(2,803,862		)
Proceeds from sales of investments	2,536,688			2,533,656
Purchases of investments to cover short sales	(440,242		)	(978,039		)
Proceeds from short sales of investments	735,132			854,689
Change in due to/from brokers, net	(400,566		)	362,695
Increase in securities sold under an agreement to repurchase	—			46,936
Change in restricted cash and cash equivalents	(178,422		)	(34,536		)
Net cash provided by (used in) investing activities	14,423			(18,461		)
Financing activities
Proceeds from issuance of Third Point Re common shares, net of costs	1,504			3,878
Purchases of Third Point Re common shares under share repurchase program	(40,864		)	(7,389		)
Increase in deposit liabilities, net	6,380			15,928
Change in total noncontrolling interests in related party, net	(16,780		)	1,000
Net cash provided by (used in) financing activities	(49,760		)	13,417
Net increase (decrease) in cash and cash equivalents	(3,517		)	575
Cash and cash equivalents at beginning of period	9,951			20,407
Cash and cash equivalents at end of period	$	6,434		$	20,982
Supplementary information
Interest paid in cash	$	17,551		$	19,605
Income taxes paid in cash	$	5,996		$	3,775

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the Condensed Consolidated Financial Statements.

Third Point Reinsurance Ltd.

Notes to the Condensed Consolidated Financial Statements (UNAUDITED)

(Expressed in United States Dollars)

1. Organization

Third Point Reinsurance Ltd. (together with its wholly and majority owned subsidiaries, “Third Point Re” or the “Company”) was incorporated under the laws of Bermuda on October 6, 2011. Through its reinsurance subsidiaries, the Company is a provider of global specialty property and casualty reinsurance products. The Company operates through two licensed reinsurance subsidiaries, Third Point Reinsurance Company Ltd. (“Third Point Re BDA”), a Bermuda reinsurance company that commenced operations in January 2012, and Third Point Reinsurance (USA) Ltd. (“Third Point Re USA”).

Third Point Re USA is a Bermuda reinsurance company that was incorporated on November 21, 2014 and commenced operations in February 2015. Third Point Re USA made an election under Section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be taxed as a U.S. entity. Third Point Re USA prices and underwrites U.S. domiciled reinsurance business from an office in the United States. Third Point Re USA is a wholly owned subsidiary of Third Point Re (USA) Holdings, Inc. (“TPRUSA”), an intermediate holding company based in the U.S., which is a wholly owned subsidiary of Third Point Re (UK) Holdings Ltd. (“Third Point Re UK”), an intermediate holding company based in the United Kingdom. Third Point Re UK is a wholly owned subsidiary of Third Point Re.

In August 2012, the Company established a wholly-owned subsidiary in the United Kingdom, Third Point Re Marketing (UK) Limited (“TPRUK”). In May 2013, TPRUK was licensed as an insurance intermediary by the UK Financial Conduct Authority.

These unaudited condensed consolidated financial statements include the results of Third Point Re and its wholly and majority owned subsidiaries (together, the “Company”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 in Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. This Quarterly Report should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 10-K”), as filed with the U.S. Securities and Exchange Commission on February 24, 2017.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. All significant intercompany accounts and transactions have been eliminated.

The results for the nine months ended September 30, 2017 are not necessarily indicative of the results expected for the full calendar year.

2. Significant accounting policies

There have been no material changes to the Company’s significant accounting policies as described in its 2016 10-K.

Changes in the presentation of noncontrolling interests

During the quarter ended September 30, 2017, the Company identified that a portion of its noncontrolling interests were redeemable. See additional information regarding noncontrolling interests in Note 16. This portion of the noncontrolling interests had previously been presented in noncontrolling interests to related party within shareholders’ equity when it should have been presented in the mezzanine section of the consolidated balance sheet as redeemable noncontrolling interests in related party. As of December 31, 2016, $31.2 million of the noncontrolling interests in related party should have been presented in the mezzanine section of the consolidated balance sheet as redeemable noncontrolling interests in related party. As of September 30, 2016, $14.1 million should have been presented as part of redeemable noncontrolling interests in related party and excluded from noncontrolling interests in related party in

shareholders’ equity. Although this impacted total shareholders’ equity, it did not impact shareholders’ equity attributable to Third Point Re common shareholders or retained earnings. In addition, this change did not impact the condensed consolidated statements of income, earnings per share or condensed consolidated statement of cash flows. The Company has evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that it did not have a material impact on, nor require amendment of, any previously filed annual or quarterly consolidated financial statements.

Recently issued accounting standards

Issued and effective as of September 30, 2017

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. This new accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.

In October 2016, the FASB issued Accounting Standards Update 2016-17, Consolidation (Topic 810): Interests held through Related Parties that are under Common Control (ASU 2016-17). ASU 2016-17 alters how the Company needs to consider indirect interests in a variable interest entity held through an entity under common control. The new guidance amended ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, issued in February 2015. ASU 2016-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company made the election to account for forfeitures when they occur, which results in no material impact on the Company’s condensed consolidated financial statements.

Issued but not yet effective as of September 30, 2017

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842): Section A - Leases, Section B - Conforming Amendments Related to Leases and Section C - Background Information and Basis for Conclusions (ASU 2016-02). ASU 2016-02 intends to improve financial reporting related to leasing transactions. The new standard affects all entities that lease assets such as real estate, airplanes and manufacturing equipment. ASU 2016-01 will require entities that lease assets, referred to as “lessees”, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance; however, it is not expected to have a material impact on the Company’s condensed consolidated financial statements as a result of the limited number of leases the Company currently has in place.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 amends the guidance on the impairment of financial instruments. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements.

In March 2017, the FASB issued Accounting Standards Update 2017-08, Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). ASU 2017-08 is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities.The amendments are effective for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). ASU 2017-09 is intended to reduce diversity in practice and subsequent to its adoption, an entity will not apply modification accounting as a result of changes to terms and conditions

of a share-based payment award if certain conditions are met. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. This new accounting standard is not expected to have a material impact on the Company’s condensed consolidated financial statements when it becomes effective.

In July 2017, the FASB issued Accounting Standards Update 2017-11, (Part I) Accounting for Certain Financial Instruments With Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception (ASU 2017-11). ASU 2017-11 is intended to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. In addition, ASU 2017-11 re-characterizes the indefinite deferral of certain provisions of Topic 480 to a scope exception. The recharacterization has no accounting effect. The amendments are effective for interim and annual periods beginning after December 15, 2018. The Company does not currently have financial instruments with down round features, therefore, the Company does not expect any impact to the Company’s condensed consolidated financial statements.

3. Restricted cash and cash equivalents and restricted investments

Restricted cash and cash equivalents and restricted investments as of September 30, 2017 and December 31, 2016 consisted of the following:



	September 30, 2017		December 31, 2016
	($ in thousands)
Restricted cash securing letter of credit facilities (1)	$	209,494	$	231,822
Restricted cash securing other reinsurance contracts (2)	267,868		67,118
Total restricted cash and cash equivalents	477,362		298,940
Restricted investments securing other reinsurance contracts (2)	328,033		427,308
Total restricted cash and cash equivalents and restricted investments	$	805,395	$	726,248


(1)	Restricted cash securing letter of credit facilities primarily pertains to letters of credit issued to clients and cash securing these obligations that the Company will not be released until the underlying reserves have been settled. The time period for which the Company expects these letters of credit to be in place varies from contract to contract, but can last several years.

(2)

Restricted cash and restricted investments securing other reinsurance contracts pertain to trust accounts securing the Company’s contractual obligations under certain reinsurance contracts that the Company will not be released from until all underlying risks have expired or have been settled. Restricted investments include certain investments in debt securities including U.S. Treasury securities and sovereign debt. The time period for which the Company expects these trust accounts to be in place varies from contract to contract, but can last several years.

4. Investments

The Company’s investments are managed by its investment manager, Third Point LLC (“Third Point LLC” or the “Investment Manager”), under long-term investment management contracts. The Company directly owns the investments that are held in separate accounts and managed by Third Point LLC. The following is a summary of the separate accounts managed by Third Point LLC:



	September 30, 2017		December 31, 2016
Assets	($ in thousands)
Total investments in securities	$	2,703,605	$	2,619,839
Cash and cash equivalents	449		5
Restricted cash and cash equivalents	477,362		298,940
Due from brokers	387,786		284,591
Derivative assets	75,781		27,432
Interest and dividends receivable	4,210		6,505
Total assets	3,649,193		3,237,312
Liabilities and noncontrolling interests in related party
Accounts payable and accrued expenses	2,674		1,374
Securities sold, not yet purchased	405,845		92,668
Due to brokers	602,230		899,601
Derivative liabilities	17,280		16,050
Performance fee payable to related party	73,210		—
Interest and dividends payable	891		386
Total noncontrolling interests in related party ⁽¹⁾	22,054		35,674
Total liabilities and noncontrolling interests in related party	1,124,184		1,045,753
Total net investments managed by Third Point LLC	$	2,525,009	$	2,191,559


(1)	See Note 16 for additional information.

Investments are carried at fair value. The fair values of investments are estimated using prices obtained from third-party pricing services, when available. However, situations may arise where the Company believes that the fair value provided by the third-party pricing service does not represent current market conditions. In those situations, Third Point LLC may use dealer quotes to value the investments. The methodology for valuation is generally determined based on the investment’s asset class per the Company’s Investment Manager’s valuation policy. For investments where fair values from pricing services or brokers are unavailable, fair values are estimated using information obtained by the Company’s Investment Manager.

Securities listed on a national securities exchange or quoted on NASDAQ are valued at their last sales price as of the last business day of the period. Listed securities with no reported sales on such date and over-the-counter (“OTC”) securities are valued at their last closing bid price if held long by the Company, and last closing ask price if held short by the Company. As of September 30, 2017, securities valued at $194.7 million (December 31, 2016 - $315.3 million), representing 7.0% (December 31, 2016 - 11.9%) of investments in securities and derivative assets, and $2.2 million (December 31, 2016 - $2.0 million), representing 0.5% (December 31, 2016 - 1.8%) of securities sold, not yet purchased and derivative liabilities, are valued based on broker quotes.

Private securities, real estate and related debt investments are those not registered for public sale and are carried at an estimated fair value at the end of the period, as determined by Third Point LLC. Valuation techniques used by Third Point LLC may include market approach, last transaction analysis, liquidation analysis and/or using discounted cash flow models where the significant inputs could include but are not limited to additional rounds of equity financing, financial metrics such as revenue multiples or price-earnings ratio, discount rates and other factors. In addition, third party valuation firms may be employed to conduct investment valuations of such private securities. The third party

valuation firms provide written reports documenting their recommended valuation as of the determination date for the specified investments.

As of September 30, 2017, the Company had $95.9 million (December 31, 2016 - $63.2 million) of investments fair valued by the Company’s Investment Manager representing approximately 3.5% (December 31, 2016 - 2.4%) of total investments in securities and derivative assets of which 98.3% were also separately valued by third party valuation firms using information obtained from the Company’s Investment Manager. As a result of the inherent uncertainty of valuation for private securities, the estimated fair value may differ materially from the value that would have been used had a ready market existed for these investments. The actual value at which these securities could be sold or settled with a willing buyer or seller may differ from the Company’s estimated fair values depending on a number of factors including, but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller.

The Company’s free standing derivatives are recorded at fair value, and are included in the condensed consolidated balance sheets in derivative assets and derivative liabilities. Third Point LLC values exchange-traded derivatives at their last sales price on the exchange where they are primarily traded. OTC derivatives, which include swap, option, swaption, forward, future and contract for differences, are valued by an industry recognized third party valuation vendor when available; otherwise, fair values are obtained from broker quotes that are based on pricing models that consider the time value of money, volatility, and the current market and contractual prices of the underlying financial instruments.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of the embedded derivative reported in other expenses. The Company’s embedded derivatives relate to interest crediting features in certain reinsurance and deposit contracts that vary based on the returns on the Company’s investments managed by Third Point LLC. The Company determines the fair value of the embedded derivatives using models developed by the Company.

The Company values its investments in limited partnerships at fair value, which is estimated based on the Company’s share of the net asset value (“NAV”) of the limited partnerships as provided by the investment managers of the underlying investment funds. The resulting net gains or net losses are reflected in the condensed consolidated statements of income. These investments are included in investment in funds valued at NAV and excluded from the presentation of investments categorized by the level of the fair value hierarchy. These investments are non-redeemable and distributions are made by the investment funds as underlying investments are monetized.

As of September 30, 2017 and December 31, 2016, the Company’s asset-backed securities (“ABS”) holdings were as follows:



	September 30, 2017				December 31, 2016
	($ in thousands)
Reperforming loans	$	123,813	63.0	%	$	44,359	17.4	%
Subprime RMBS	—		—	%	117,152		46.0	%
Market place loans	54,403		27.7	%	44,143		17.3	%
Other (1)	18,189		9.3	%	49,198		19.3	%
	$	196,405	100.0	%	$	254,852	100.0	%


(1)	Other includes: U.S. Alt-A positions, collateralized debt obligations, commercial mortgage-backed securities, non-U.S. RMBS and student loans ABS.

As of September 30, 2017, all of the Company’s ABS holdings were private-label issued, non-investment grade securities, and none of these securities were guaranteed by a government sponsored entity. These investments are valued using broker quotes or a recognized third-party pricing vendor. All of these classes of ABS are sensitive to changes in interest rates and any resulting change in the rate at which borrowers sell their properties, refinance, or otherwise pre-pay their loans. As an investor in these classes of ABS, the Company may be exposed to the credit risk of underlying borrowers not being able to make timely payments on loans or the likelihood of borrowers defaulting on their loans. In addition, the Company may be exposed to significant market and liquidity risks.

In 2015, the Company made a $25.0 million investment in the Kiskadee Diversified Fund Ltd. (the “Kiskadee Fund”), a fund vehicle managed by Hiscox Insurance Company (Bermuda) Limited. The Kiskadee Fund invests in property catastrophe exposures through collateralized reinsurance transactions and other insurance-linked investments. For the nine months ended September 30, 2017, the Company redeemed $26.7 million (2016 - $0.3 million). The Company has elected the fair value option for this investment. This investment is included in investment in funds valued at NAV and is excluded from the presentation of investments categorized by the level of the fair value hierarchy. The fair value is estimated based on the Company’s share of the net asset value in the Kiskadee Fund, as provided by the investment manager, and was $0.9 million as of September 30, 2017 (December 31, 2016 - $27.7 million). The resulting net gains or losses are reflected in the condensed consolidated statements of income.

U.S. GAAP disclosure requirements establish a framework for measuring fair value, including a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy of inputs is summarized below:


•	Level 1 – Quoted prices available in active markets/exchanges for identical investments as of the reporting date.

•

Level 2 – Observable inputs to the valuation methodology other than unadjusted quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include, but are not limited to, prices quoted for similar assets or liabilities in active markets/exchanges, prices quoted for identical or similar assets or liabilities in markets that are not active and fair values determined through the use of models or other valuation methodologies.


•	Level 3 – Pricing inputs unobservable for the investment and include activities where there is little, if any, market activity for the investment. The inputs applied in the determination of fair value require significant management judgment and estimation.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources other than those of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and considers factors specific to the investment.

The key inputs for corporate, government and sovereign bond valuation are coupon frequency, coupon rate and underlying bond spreads. The key inputs for ABS are yield, probability of default, loss severity and prepayment.

Key inputs for OTC valuations vary based on the type of underlying security on which the contract was written:


•	The key inputs for most OTC option contracts include notional, strike price, maturity, payout structure, current foreign exchange forward and spot rates, current market price of the underlying security and volatility of the underlying security.


•	The key inputs for most forward contracts include notional, maturity, forward rate, spot rate, various interest rate curves and discount factor.


•	The key inputs for swap valuation will vary based on the type of underlying on which the contract was written. Generally, the key inputs for most swap contracts include notional, swap period, fixed rate, credit or interest rate curves, current market or spot price of the underlying security and the volatility of the underlying security.

The following tables present the Company’s investments, categorized by the level of the fair value hierarchy as of September 30, 2017 and December 31, 2016:



	September 30, 2017
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets	($ in thousands)
Equity securities	$	1,942,935	$	17,068	$	—	$	1,960,003
Private common equity securities	—		—		4,774		4,774
Private preferred equity securities	—		—		52,686		52,686
Total equities	1,942,935		17,068		57,460		2,017,463
Asset-backed securities	—		174,613		21,792		196,405
Bank debt	—		9,558		10,721		20,279
Corporate bonds	—		42,163		9,685		51,848
U.S. Treasury securities	—		251,861		—		251,861
Sovereign debt	—		123,843		—		123,843
Other debt securities	—		4,614		7,268		11,882
Total debt securities	—		606,652		49,466		656,118
Options	997		2,975		—		3,972
Rights and warrants	—		20		2		22
Real estate	—		—		2,755		2,755
Trade claims	—		7,246		—		7,246
Total other investments	997		10,241		2,757		13,995
Derivative assets (free standing)	1,295		74,486		—		75,781
	$	1,945,227	$	708,447	$	109,683	2,763,357
Investments in funds valued at NAV							16,937
Total assets							$	2,780,294
Liabilities
Equity securities	$	386,102	$	—	$	—	$	386,102
Corporate bonds	—		11,269		—		11,269
Options	1,894		6,580		—		8,474
Total securities sold, not yet purchased	387,996		17,849		—		405,845
Derivative liabilities (free standing)	—		15,115		2,165		17,280
Derivative liabilities (embedded)	—		—		180		180
Total liabilities	$	387,996	$	32,964	$	2,345	$	423,305



	December 31, 2016
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets	($ in thousands)
Equity securities	$	1,450,966	$	2,255	$	—	$	1,453,221
Private common equity securities	—		—		4,799		4,799
Private preferred equity securities	—		—		48,834		48,834
Total equities	1,450,966		2,255		53,633		1,506,854
Asset-backed securities	—		237,224		17,628		254,852
Bank debt	—		48,546		8,350		56,896
Corporate bonds	—		209,025		9,255		218,280
U.S. Treasury securities	—		327,016		—		327,016
Sovereign debt	—		200,913		—		200,913
Total debt securities	—		1,022,724		35,233		1,057,957
Options	343		681		—		1,024
Trade claims	—		9,022		—		9,022
Total other investments	343		9,703		—		10,046
Derivative assets (free standing)	961		26,471		—		27,432
	$	1,452,270	$	1,061,153	$	88,866	2,602,289
Investments in funds valued at NAV							72,655
Total assets							$	2,674,944
Liabilities
Equity securities	$	71,457	$	—	$	—	$	71,457
Corporate bonds	—		17,683		—		17,683
Options	—		3,528		—		3,528
Total securities sold, not yet purchased	71,457		21,211		—		92,668
Derivative liabilities (free standing)	1,608		13,116		1,326		16,050
Derivative liabilities (embedded)	—		—		92		92
Total liabilities	$	73,065	$	34,327	$	1,418	$	108,810

During the nine months ended September 30, 2017, the Company made $nil (December 31, 2016 - $nil) of reclassifications of assets or liabilities between Levels 1 and 2.

The following table presents the reconciliation of all investments measured at fair value using Level 3 inputs for the three and nine months ended September 30, 2017 and 2016:



	July 1, 2017			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains (Losses) ⁽¹⁾			September 30, 2017
	($ in thousands)
Assets
Private common equity securities	$	4,775		$	—		$	—	$	—		$	(1	)	$	4,774
Private preferred equity securities	50,759			—			2,095		(1,607		)	1,439			52,686
Asset-backed securities	35,711			(8,759		)	23,320		(24,581		)	(3,899		)	21,792
Bank debt	10,246			—			—		—			475			10,721
Corporate bonds	9,095			(236		)	1,183		(198		)	(159		)	9,685
Other debt securities	3,312			—			5,120		(3,307		)	2,143			7,268
Rights and warrants	—			2			—		—			—			2
Real estate	—			—			2,357		—			398			2,755
Total assets	$	113,898		$	(8,993	)	$	34,075	$	(29,693	)	$	396		$	109,683
Liabilities
Derivative liabilities (free standing)	$	(1,367	)	$	—		$	—	$	—		$	(798	)	$	(2,165	)
Derivative liabilities (embedded)	(180		)	—			—		—			—			(180		)
Total liabilities	$	(1,547	)	$	—		$	—	$	—		$	(798	)	$	(2,345	)


	January 1, 2017			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains (Losses) ⁽¹⁾			September 30, 2017
	($ in thousands)
Assets
Private common equity securities	$	4,799		$	—		$	—	$	—		$	(25	)	$	4,774
Private preferred equity securities	48,834			—			3,034		(2,102		)	2,920			52,686
Asset-backed securities	17,628			16,437			57,346		(56,947		)	(12,672		)	21,792
Bank debt	8,350			—			4		(310		)	2,677			10,721
Corporate bonds	9,255			(262		)	1,211		(719		)	200			9,685
Other debt securities	—			—			5,120		—			2,148			7,268
Rights and warrants	—			2			—		—			—			2
Real estate	—			—			2,357		—			398			2,755
Total assets	$	88,866		$	16,177		$	69,072	$	(60,078	)	$	(4,354	)	$	109,683
Liabilities
Derivative liabilities (free standing)	$	(1,326	)	$	—		$	—	$	(38	)	$	(801	)	$	(2,165	)
Derivative liabilities (embedded)	(92		)	—			—		—			(88		)	(180		)
Total liabilities	$	(1,418	)	$	—		$	—	$	(38	)	$	(889	)	$	(2,345	)



	July 1, 2016			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains (Losses) ⁽¹⁾			September 30, 2016
	($ in thousands)
Assets
Private common equity securities	$	3,170		$	—		$	60	$	—		$	203		$	3,433
Private preferred equity securities	31,079			—			2,646		(60		)	2,951			36,616
Asset-backed securities	2,814			(213		)	225		(334		)	303			2,795
Corporate bonds	3,110			—			4,967		—			256			8,333
Sovereign debt	2			—			—		(2		)	—			—
Total assets	$	40,175		$	(213	)	$	7,898	$	(396	)	$	3,713		$	51,177
Liabilities
Derivative liabilities (free standing)	$	(1,220	)	$	—		$	—	$	(106	)	$	—		$	(1,326	)
Derivative liabilities (embedded)	(6,335		)	—			—		—			39			(6,296		)
Total liabilities	$	(7,555	)	$	—		$	—	$	(106	)	$	39		$	(7,622	)

	January 1, 2016			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains (Losses) ⁽¹⁾			September 30, 2016
	($ in thousands)
Assets
Private common equity securities	$	4,357		$	—		$	60	$	—		$	(984	)	$	3,433
Private preferred equity securities	24,178			—			14,900		(60		)	(2,402		)	36,616
Asset-backed securities	2,617			1,967			1,001		(1,941		)	(849		)	2,795
Bank debt	7,660			(7,660		)	—		—			—			—
Corporate bonds	3,252			—			5,166		(80		)	(5		)	8,333
Sovereign debt	21			—			—		(20		)	(1		)	—
Total assets	$	42,085		$	(5,693	)	$	21,127	$	(2,101	)	$	(4,241	)	$	51,177
Liabilities
Derivative liabilities (free standing)	$	(1,020	)	$	—		$	—	$	(306	)	$	—		$	(1,326	)
Derivative liabilities (embedded)	(5,563		)	—			—		(861		)	128			(6,296		)
Total liabilities	$	(6,583	)	$	—		$	—	$	(1,167	)	$	128		$	(7,622	)


(1)	Total change in realized and unrealized gains (losses) recorded on Level 3 financial instruments is included in net investment income in the condensed consolidated statements of income.

Total change in unrealized gains (losses) on fair value of assets using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 was $0.1 million and $(3.2) million respectively (2016 - $3.4 million and $(4.1) million, respectively).

For assets and liabilities that were transferred into Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred into Level 3 at the beginning of the period; similarly, for assets and liabilities that were transferred out of Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred out of Level 3 at the beginning of the period.

The following table summarizes information about the significant unobservable inputs used in determining the fair value of the Level 3 investments held by the Company. Level 3 investments not presented in the table below are insignificant or do not have any unobservable inputs to disclose, as they are valued primarily using dealer quotes or at cost.



September 30, 2017
Assets	Fair value ($ in thousands)		Valuation technique	Unobservable input	Range
Private equity investments	$	45,991	Market approach	Volatility	29.0% - 55.0%
				Time to exit	0.8 - 3.0 years
Bank debt	10,284		Discounted cash flow	Credit spread	1024 - 1144 bps
				Duration	1.0 - 4.0 years
Other debt securities	7,268		Discounted cash flow	Discount rate	9.5	%
				Capitalization rate	6.5% - 10.0%
Real estate	2,755		Discounted cash flow	Discount rate	8.5	%
				Capitalization rate	7.0	%

December 31, 2016
Assets	Fair value ($ in thousands)		Valuation technique	Unobservable input	Range
Private equity investments	$	47,608	Market approach	Discount	5.0% - 25.0%
				Volatility	40.0% - 60.0%
				Time to exit	0.4 - 2.8 years
				Multiple	2.0 - 3.8x

Private equity investments

The Company’s private equity investments include investments in four privately held companies with a total fair value of $46.0 million as of September 30, 2017. The Company measures the fair value of these investments using a market approach which typically utilizes guideline comparable company trading multiples and/or a discounted cash flow analysis. Under the guideline comparable company multiples approach, the Company determines comparable public companies based on industry, size, developmental stage, strategy, etc., and then calculates a trading multiple for each comparable company. The trading multiple may then be discounted for various considerations as appropriate. The concluded multiple is then applied to the subject company to calculate the value of the subject company. The discounted cash flow model involves using the financial information of the portfolio companies to develop revenue and income projections for the subject company for future years based on information on growth rates relative to the company’s development stage. The enterprise value of the subject company is calculated by discounting the projected cash flows and the terminal value to net present value. The fair value of the company’s debt is reduced from the enterprise value to determine the equity value.

Bank debt

Included in the Company’s bank debt investments is an investment with a fair value of $10.3 million as of September 30, 2017. Corporate debt and selected index spreads are used as benchmarks to estimate market rates of return within the discounted cash flow model. The Company also considers relevant market and company transactions as part of their valuation approach.

Other debt securities and real estate

The values of the investments are based upon available information concerning the market for real estate property investments and the underlying assets of the other debt investments. The valuation methods include, but are not limited

to the following: (1) forecasts of future net cash flows based on the Investment Manager’s analysis of future earnings from the investment plus anticipated net proceeds from the sale, disposition or resolution of the investment; (2) discounted earnings multiples applied to stabilized income or adjusted earnings from the investment; (3) recent sales of comparable investments.

For the nine months ended September 30, 2017 and 2016, there were no changes in the valuation techniques as they relate to the above.

5. Due from/to brokers

The Company holds substantially all of its investments through prime brokers pursuant to agreements between the Company and each prime broker. The brokerage arrangements differ from broker to broker, but generally cash and investments in securities are available as collateral against investments in securities sold, not yet purchased and derivative positions, if required.

As of September 30, 2017 and December 31, 2016, the Company’s due from/to brokers were comprised of the following:



	September 30, 2017		December 31, 2016
	($ in thousands)
Due from brokers
Cash held at brokers	$	373,476	$	240,205
Receivable from unsettled trades (1)	14,310		44,386
	$	387,786	$	284,591
Due to brokers
Borrowing from prime brokers (2)	$	580,081	$	855,576
Payable from unsettled trades	22,149		44,025
	$	602,230	$	899,601

(1) Receivables relating to securities sold by the Company are recorded as receivable from unsettled trades in due from brokers in the Company’s condensed consolidated balance sheets. During the year ended December 31, 2015, the Company’s investment manager, Third Point LLC, exercised appraisal rights relating to an underlying investment, which was bought by a private equity firm. As of December 31, 2016, $37.6 million was included in receivable from unsettled trades in due from brokers while the Company awaited the court decision regarding the sale price. In the second quarter of 2017, the court decision resulted in the Company receiving the total value of $37.6 million as well as interest of $5.0 million for the trial period.


(2)	As of September 30, 2017, the Company’s borrowing from prime brokers includes a total non-U.S. currency balance of $25.2 million (December 31, 2016 - $22.0 million).

The Company uses prime brokerage borrowing arrangements to provide collateral for its letter of credit facilities and to fund trust accounts securing certain reinsurance contracts. As of September 30, 2017, the Company had $805.4 million (December 31, 2016 - $726.2 million) of restricted cash and investments securing letter of credit facilities and certain reinsurance contracts. Margin debt at the brokers primarily relates to borrowings to fund letter of credit facilities, trust accounts and investment activities which are collateralized by cash and certain securities of the Company. Amounts are borrowed through committed facilities with terms of up to 90 days, secured by assets of the Company held by the prime broker, and incur interest based on the Company’s negotiated rates. This interest expense is reflected in net investment income in the condensed consolidated statements of income.

6. Derivatives

The following tables identify the listing currency, fair value and notional amounts of derivative instruments included in the condensed consolidated balance sheets, categorized by primary underlying risk. Balances are presented on a gross basis.



	As of September 30, 2017
	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Assets by Primary Underlying Risk	($ in thousands)
Credit
Credit Default Swaps - Protection Purchased	USD	$	9,336	$	51,827
Total Return Swaps - Long Contracts	EGP	24,714		24,714
Equity Price
Contracts for Differences - Long Contracts	BRL/CHF/DKK/EUR/GBP/USD	23,257		178,049
Contracts for Differences - Short Contracts	DKK/EUR/SEK/USD	1,252		29,555
Total Return Swaps - Long Contracts	BRL/USD	13,503		148,591
Interest Rates
Interest Rate Swaptions	JPY/USD	1,420		93,834
Sovereign Debt Futures - Short Contracts	EUR	1,295		155,191
Foreign Currency Exchange Rates
Foreign Currency Forward Contracts	EUR/HKD	1,004		194,851
Total Derivative Assets		$	75,781	$	876,612

	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Liabilities by Primary Underlying Risk	($ in thousands)
Credit
Credit Default Swaps - Protection Purchased	EUR/USD	$	3,196	$	57,512
Credit Default Swaps - Protection Sold	JPY/USD	2,828		7,031
Equity Price
Contracts for Differences - Long Contracts	BRL/EUR/GBP/USD	857		27,511
Contracts for Differences - Short Contracts	EUR/NOK/SEK	632		16,022
Total Return Swaps - Long Contracts	BRL/USD	559		27,433
Total Return Swaps - Short Contracts	USD	4,852		72,645
Interest Rates
Interest Rate Swaptions	JPY	120		64,600
Foreign Currency Exchange Rates
Foreign Currency Forward Contracts	CHF/CNH/HKD/SAR	4,236		503,808
Total Derivative Liabilities (free standing)		$	17,280	$	776,562

Embedded derivative liabilities in reinsurance contracts (3)	USD	$	180	$	20,000
Total Derivative Liabilities (embedded)		$	180	$	20,000


(1)	BRL = Brazilian Real, CHF = Swiss Franc, CNH = Chinese Yuan, DKK = Danish Krone, EGP = Egyptian Pound, EUR = Euro, GBP = British Pound, HKD = Hong Kong Dollar, JPY = Japanese Yen, NOK = Norwegian Krone, SAR = Saudi Arabian Riyal, SEK = Swedish Krona, USD = US Dollar


(2)	The absolute notional exposure represents the Company’s derivative activity as of September 30, 2017, which is representative of the volume of derivatives held during the period.


(3)	The fair value of embedded derivatives in reinsurance contracts is included in reinsurance balances payable in the condensed consolidated balance sheets.



	As of December 31, 2016
	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Assets by Primary Underlying Risk	($ in thousands)
Credit
Credit Default Swaps - Protection Purchased	EUR/ USD	$	10,905	$	84,327
Equity Price
Contracts for Differences - Long Contracts	EUR/ GBP	1,765		36,879
Total Return Swaps - Long Contracts	BRL/ USD	617		19,140
Total Return Swaps - Short Contracts	JPY	183		8,696
Interest Rates
Interest Rate Swaps	GBP/USD	2,462		195,571
Interest Rate Swaptions	JPY / USD	5,354		424,816
Sovereign Debt Futures - Short Contracts	USD	961		107,591
Foreign Currency Exchange Rates
Foreign Currency Forward Contracts	CAD/ CNH/ GBP/ MXN	653		47,754
Foreign Currency Options - Purchased	CNH/EUR/HKD/JPY/SAR	4,532		501,465
Total Derivative Assets		$	27,432	$	1,426,239


	Listing currency (1)	Fair Value		Notional Amounts (2)
Derivative Liabilities by Primary Underlying Risk	($ in thousands)
Credit
Credit Default Swaps - Protection Purchased	USD	$	3,286	$	43,184
Credit Default Swaps - Protection Sold	USD	1,952		3,943
Equity Price
Contracts for Differences - Long Contracts	GBP	—		67
Contracts for Differences - Short Contracts	EUR / ZAR	1,106		11,424
Total Return Swaps - Long Contracts	USD	1,675		26,800
Total Return Swaps - Short Contracts	JPY / USD	1,302		10,095
Interest Rates
Interest Rate Swaps	GBP	722		59,115
Interest Rate Swaptions	JPY/USD	1,056		417,052
Sovereign Debt Futures - Short Contracts	EUR / GBP	1,608		159,923
Foreign Currency Exchange Rates
Foreign Currency Forward Contracts	EUR /JPY /SAR	2,009		214,854
Foreign Currency Options - Sold	CNH/JPY	1,334		363,840
Total Derivative Liabilities (free standing)		$	16,050	$	1,310,297

Embedded derivative liabilities in reinsurance contracts (3)	USD	$	92	$	20,000
Total Derivative Liabilities (embedded)		$	92	$	20,000


(1)	BRL = Brazilian Real, CAD = Canadian Dollar, CNH = Chinese Yuan, EUR = Euro, GBP = British Pound, HKD = Hong Kong Dollar, JPY = Japanese Yen, MXN = Mexican Peso, SAR = Saudi Arabian Riyal, USD = US Dollar, ZAR = South African Rand


(2)	The absolute notional exposure represents the Company’s derivative activity as of December 31, 2016, which is representative of the volume of derivatives held during the period.


(3)	The fair value of embedded derivatives in reinsurance contracts is included in reinsurance balances payable in the condensed consolidated balance sheets.

The following table sets forth, by major risk type, the Company’s realized and unrealized gains (losses) relating to derivatives for the three and nine months ended September 30, 2017 and 2016. Realized and unrealized gains (losses) related to free standing derivatives are included in net investment income in the condensed consolidated statements of income. Realized and unrealized gains (losses) related to embedded derivatives are included in other expenses in the condensed consolidated statements of income.



	Three months ended
	September 30, 2017						September 30, 2016
Free standing Derivatives - Primary Underlying Risk	Realized Gain (Loss)			Unrealized Gain (Loss)*			Realized Gain (Loss)			Unrealized Gain (Loss)*
Credit	($ in thousands)
Commodity Future Options - Purchased	$	—		$	—		$	(475	)	$	(1,310	)
Credit
Credit Default Swaps - Protection Purchased	2,824			(4,059		)	(887		)	(433		)
Credit Default Swaps - Protection Sold	(26		)	(288		)	38			(7		)
Total Return Swaps - Long Contracts	—			1,506			—			—
Equity Price
Contracts for Differences - Long Contracts	5,021			13,949			1,666			791
Contracts for Differences - Short Contracts	(511		)	(1,219		)	(3,767		)	(2,166		)
Total Return Swaps - Long Contracts	4,655			5,455			2,172			3,174
Total Return Swaps - Short Contracts	(2,732		)	(4,519		)	(4,392		)	831
Interest Rates
Commodity Futures - Short Contracts	—			—			870			—
Interest Rate Swaps	(7		)	—			—			—
Interest Rate Swaptions	—			(512		)	(244		)	216
Sovereign Debt Futures - Short Contracts	(139		)	1,284			—			—
Total Return Swaps - Long Contracts	—			—			268			(261		)
Total Return Swaps - Short Contracts	—			—			(100		)	65
Treasury Futures - Short Contracts	—			—			14			1,191
Foreign Currency Exchange Rates
Foreign Currency Forward Contracts	(1,863		)	(609		)	(4,110		)	2,838
Foreign Currency Options - Purchased	(529		)	3			—			(384		)
Foreign Currency Options - Sold	1			(2		)	—			(1		)
	$	6,694		$	10,989		$	(8,947	)	$	4,544
Embedded Derivatives
Embedded derivatives in reinsurance contracts	$	—		$	—		$	—		$	39
Total Derivative Liabilities (embedded)	$	—		$	—		$	—		$	39



	Nine months ended
	September 30, 2017						September 30, 2016
Free standing Derivatives - Primary Underlying Risk	Realized Gain (Loss)			Unrealized Gain (Loss)*			Realized Gain (Loss)			Unrealized Gain (Loss)*
Commodity Price	($ in thousands)
Commodity Future Options - Purchased	$	—		$	—		$	106		$	490
Credit
Credit Default Swaps - Protection Purchased	359			(4,029		)	5,520			(5,420		)
Credit Default Swaps - Protection Sold	11			(347		)	(4,129		)	4,245
Total Return Swaps - Long Contracts	(29		)	1,469			—			—
Equity Price
Contracts for Differences - Long Contracts	51,946			20,636			(756		)	412
Contracts for Differences - Short Contracts	(4,716		)	1,726			803			(1,888		)
Total Return Swaps - Long Contracts	8,517			14,002			(2,654		)	3,974
Total Return Swaps - Short Contracts	(6,475		)	(3,731		)	(3,701		)	(931		)
Interest Rates
Commodities Futures - Short Contracts	—			—			(281		)	(52		)
Fixed Income Swap - Short Contracts	—			—			(94		)	—
Interest Rate Swaps	(3,104		)	(1,740		)	—			—
Interest Rate Swaptions	522			(2,854		)	(356		)	171
Sovereign Debt Futures - Short Contracts	(8,795		)	1,942			—			—
Treasury Futures - Short Contracts	—			—			14			1,191
Foreign Currency Exchange Rates
Foreign Currency Forward Contracts	(11,898		)	(1,877		)	(13,014		)	(1,913		)
Foreign Currency Options - Purchased	(6,716		)	1,165			(2,040		)	(2,001		)
Foreign Currency Options - Sold	2,185			(82		)	617			(183		)
	$	21,807		$	26,280		$	(19,965	)	$	(1,905	)
Embedded Derivatives
Embedded derivatives in reinsurance contracts	$	—		$	(88	)	$	—		$	128
Total Derivative Liabilities (embedded)	$	—		$	(88	)	$	—		$	128

*Unrealized gain (loss) relates to derivatives still held at reporting date.

The Company’s derivative contracts are generally subject to International Swaps and Derivatives Association (“ISDA”) Master Agreements or other similar agreements that contain provisions setting forth events of default and/or termination events (“credit-risk-related contingent features”), including but not limited to provisions setting forth maximum permissible declines in the Company’s net asset value. Upon the occurrence of a termination event with respect to an ISDA Agreement, the Company’s counterparty could elect to terminate the derivative contracts governed by such agreement, resulting in the realization of any net gains or losses with respect to such derivative contracts and the return of collateral held by such party.

The Company obtains/provides collateral from/to various counterparties for OTC derivative and futures contracts in accordance with bilateral collateral agreements. As of September 30, 2017, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $4.3 million (December 31, 2016 - $6.1 million) for which the Company posted collateral in the form of cash of $117.7 million (December 31, 2016 - $48.8 million) in the normal course of business. Similarly, the Company held collateral (approximately $2.8 million) in cash from certain counterparties as of September 30, 2017. If the credit-risk-related contingent features underlying these instruments had been triggered as of September 30, 2017 and the Company had to settle these instruments immediately, no additional amounts would be required to be posted that would exceed the settlement amounts of open derivative contracts or in the case of cross margining relationships, the assets in the Company’s prime brokerage accounts are sufficient to offset the derivative liabilities.

The Company’s derivatives do not qualify as hedges for financial reporting purposes and are recorded in the condensed consolidated financial statements on a gross basis and not offset against any collateral pledged or received. Pursuant to ISDA master agreements and other counterparty agreements, the Company and its counterparties typically have the ability to net certain payments owed to each other in specified circumstances. In addition, in the event a party to one of the ISDA master agreements or other derivatives agreements defaults, or a transaction is otherwise subject to termination, the non-defaulting party generally has the right to offset against payments owed to the defaulting party or collateral held by the non-defaulting party.

The Company has pledged cash collateral to counterparties to support the current value of amounts due to the counterparties based on the value of the underlying security. As of September 30, 2017 and December 31, 2016, the gross and net amounts of derivative instruments and repurchase and reverse repurchase agreements that are subject to enforceable master netting arrangements or similar agreements were as follows:



	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
September 30, 2017 Derivative Contracts	Gross Amount (1)		Financial Instruments		Cash Collateral Received		Net Amount
Financial assets, derivative assets and collateral received	($ in thousands)
Counterparty 1	$	1,174	$	1,174	$	—	$	—
Counterparty 2	3,279		300		—		2,979
Counterparty 3	38,429		5,408		—		33,021
Counterparty 4	5,041		4,290		—		751
Counterparty 5	12,275		3,515		—		8,760
Counterparty 6	3,625		8		2,806		811
Counterparty 8	13,969		3,889		—		10,080
Counterparty 9	965		965		—		—
	$	78,757	$	19,549	$	2,806	$	56,402

	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
September 30, 2017 Derivative Contracts	Gross Amount (2)		Financial Instruments		Cash Collateral Pledged		Net Amount
Financial liabilities, derivative liabilities and collateral pledged	($ in thousands)
Counterparty 1	$	3,825	$	1,174	$	2,651	$	—
Counterparty 2	300		300		—		—
Counterparty 3	5,408		5,408		—		—
Counterparty 4	4,290		4,290		—		—
Counterparty 5	3,515		3,515		—		—
Counterparty 6	8		8		—		—
Counterparty 8	3,889		3,889		—		—
Counterparty 9	2,215		965		1,250		—
Counterparty 15	410		—		359		51
	$	23,860	$	19,549	$	4,260	$	51


(1)	The gross amounts of assets presented in the condensed consolidated balance sheets presented above includes the fair value of derivative contract assets as well as gross OTC option contract assets of $3.0 million included in other investments in the condensed consolidated balance sheets.


(2)	The gross amounts of liabilities presented in the condensed consolidated balance sheets presented above includes the fair value of derivative contract liabilities as well as gross OTC option contract liabilities of $6.6 million included in securities sold, not yet purchased in the condensed consolidated balance sheets.



	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
December 31, 2016 Derivative Contracts	Gross Amount (1)		Financial Instruments		Cash Collateral Received		Net Amount
Financial assets, derivative assets and collateral received	($ in thousands)
Counterparty 1	$	535	$	535	$	—	$	—
Counterparty 2	3,147		607		—		2,540
Counterparty 3	8,652		4,760		—		3,892
Counterparty 4	1,639		1,639		—		—
Counterparty 5	7,336		3,027		—		4,309
Counterparty 6	6,262		2,599		3,383		280
Counterparty 7	227		—		197		30
Counterparty 8	277		277		—		—
Counterparty 9	37		37		—		—
	$	28,112	$	13,481	$	3,580	$	11,051

	Gross Amounts not Offset in the Condensed Consolidated Balance Sheet
December 31, 2016 Derivative Contracts	Gross Amount (2)		Financial Instruments		Cash Collateral Pledged		Net Amount
Financial liabilities, derivative liabilities and collateral pledged	($ in thousands)
Counterparty 1	$	2,959	$	535	$	2,424	$	—
Counterparty 2	607		607		—		—
Counterparty 3	4,760		4,760		—		—
Counterparty 4	3,827		1,639		2,188		—
Counterparty 5	3,027		3,027		—		—
Counterparty 6	2,599		2,599		—		—
Counterparty 8	977		277		—		700
Counterparty 9	822		37		785		—
	$	19,578	$	13,481	$	5,397	$	700

Securities lending transactions
Counterparty 3	$	302	$	302	$	—	$	—
	$	302	$	302	$	—	$	—


(1)	The gross amounts of assets presented in the condensed consolidated balance sheets presented above includes the fair value of derivative contract assets as well as gross OTC option contract assets of $0.7 million included in other investments in the condensed consolidated balance sheets.


(2)	The gross amounts of liabilities presented in the condensed consolidated balance sheets presented above includes the fair value of derivative contract liabilities as well as gross OTC option contract liabilities of $3.5 million included in securities sold, not yet purchased in the condensed consolidated balance sheets.

7. Loss and loss adjustment expense reserves

As of September 30, 2017 and December 31, 2016, loss and loss adjustment expense reserves in the condensed consolidated balance sheets was comprised of the following:



	September 30, 2017		December 31, 2016
	($ in thousands)
Case loss and loss adjustment expense reserves	$	118,444	$	80,370
Incurred but not reported loss and loss adjustment expense reserves	580,151		522,818
Deferred gains on retroactive reinsurance contracts	774		1,941
	$	699,369	$	605,129

The following table represents the activity in the loss and loss adjustment expense reserves for the nine months ended September 30, 2017 and 2016:



	September 30, 2017			September 30, 2016
	($ in thousands)
Gross reserves for loss and loss adjustment expenses, beginning of period	$	605,129		$	466,047
Less: loss and loss adjustment expenses recoverable, beginning of period	(1		)	(125		)
Net reserves for loss and loss adjustment expenses, beginning of period	605,128			465,922
Increase (decrease) in net loss and loss adjustment expenses incurred in respect of losses occurring in:
Current year	295,379			249,212
Prior years	(23,433		)	25,495
Amortization of deferred gains on retroactive reinsurance contracts	(1,397		)	(885		)
Total incurred loss and loss adjustment expenses	270,549			273,822
Net loss and loss adjustment expenses paid in respect of losses occurring in:
Current year	(47,655		)	(58,523		)
Prior years	(145,550		)	(104,161		)
Total net paid losses	(193,205		)	(162,684		)
Foreign currency translation	15,310			(11,379		)
Net reserve for loss and loss adjustment expenses, end of period	697,782			565,681
Plus: loss and loss adjustment expenses recoverable, end of period	1,587			1
Gross reserve for loss and loss adjustment expenses, end of period	$	699,369		$	565,682

Changes in the Company’s loss and loss adjustment expense reserves result from re-estimating loss reserves and from changes in premium estimates. Furthermore, many of the Company’s contracts have sliding scale or profit commissions whereby loss reserve development can be offset by changes in acquisition costs that vary inversely with loss experience. In some instances, the Company can have loss reserve development on contracts where there is no sliding scale or profit commission or where the loss ratio falls outside of the loss ratio range to which the sliding scale or profit commission applies.

The $24.8 million decrease in prior years’ reserves, which includes amortization of deferred gains, for the nine months ended September 30, 2017 includes $31.7 million of net favorable reserve development related to re-estimating loss reserves, partially offset by $6.9 million of additional loss reserves resulting from increases in premium estimates on certain contracts. The net decrease in loss reserves as well as the impact of any offsetting changes in acquisition costs as a result of sliding scale or profit commissions is explained as follows:


•	The $31.7 million of net favorable prior years’ reserve development for the nine months ended September 30, 2017 was primarily a result of net favorable loss development on certain retroactive reinsurance contracts.

These retroactive reinsurance contracts had profit commission terms such that the net favorable reserve development associated with these contracts was offset by similar increases in acquisition costs, resulting in minimal impact in net underwriting loss.

•

The $6.9 million increase in loss and loss adjustment expenses incurred related to increases in premium estimates on certain contracts was accompanied by minimal increases in acquisition costs. The increase in earned premium related to the increase in premium estimates was $8.1 million, resulting in a net decrease of $1.2 million in net underwriting loss for the nine months ended September 30, 2017.

The $24.6 million increase in prior years’ reserves, which includes amortization of deferred gains, for the nine months ended September 30, 2016 includes $15.0 million of net adverse reserve development related to re-estimating loss reserves and $9.6 million of additional loss reserves resulting from increases in premium estimates on certain contracts. The net increase in loss reserves as well as the impact of any offsetting changes in acquisition costs as a result of sliding scale or profit commissions is explained as follows:


•	The $15.0 million of net adverse prior years’ reserve development for the nine months ended September 30, 2016 was accompanied by net decreases of $2.5 million in acquisition costs, resulting in a net increase of $12.5 million in net underwriting loss. The net underwriting loss impact of the adverse loss development was

primarily due to:


◦	$4.8 million of net adverse underwriting loss development relating to one multi-line contract written since 2014. This contract contains underlying commercial auto physical damage and auto extended warranty exposure. The adverse loss experience is a result of an increase in the number of reported claims and inadequate pricing in certain segments of the underlying business;

◦

$3.5 million of net adverse underwriting loss development relating to our Florida homeowners’ reinsurance contracts primarily as a result of higher than anticipated water damage claims and an increase in the practice of assignment of benefits whereby homeowners assign their rights for filing and settling claims to attorneys and public adjusters, which has led to increases in the frequency of claims reported as well as the severity of losses and loss adjustment expenses. Contracts for which we experienced this adverse loss development have not been renewed;


◦	$3.3 million of net adverse underwriting loss development relating to a workers’ compensation contract written in 2012, 2013, and 2014 under which we have been experiencing claims developing with higher than anticipated severity, which led to an increase in our previous loss assumptions on this contract; and


◦	$3.1 million of net adverse underwriting loss development relating to non-standard auto contracts, primarily due to the inability of cedents to promptly react to increasing frequency and severity trends, resulting in underpriced business and adverse selection.

•

The $9.6 million increase in loss and loss adjustment expenses incurred related to the increase in premium estimates on certain contracts was accompanied by a $5.2 million increase in acquisition costs, for a total of $14.8 million increase in loss and loss adjustment expenses incurred and acquisition costs. The related increase in earned premium related to the increase in premium estimates was $14.8 million, resulting in minimal impact in net underwriting loss for the nine months ended September 30, 2016.


•	In total, the change in net underwriting loss for prior periods due to loss reserve development and adjustments to premium estimates was an increase in net underwriting loss of $12.5 million for the nine months ended September 30, 2016.

8. Management, performance and founders fees

Third Point Re, Third Point Re BDA, TPRUSA and Third Point Re USA are parties to Joint Venture and Investment Management Agreements (the “Investment Agreements”) with Third Point LLC and Third Point Advisors LLC (“TP GP”) under which Third Point LLC manages certain jointly held assets.

Pursuant to the Investment Agreements, TP GP receives a performance fee allocation equal to 20% of the net investment income of the applicable company’s share of the investment assets managed by Third Point LLC. The performance fee accrued on net investment income is included in liabilities as a performance fee payable to related party during the period, unless funds are redeemed from the Joint Venture accounts, in which case, the proportionate share of performance fee, as described in Note 16, associated with the redemption is earned and allocated to noncontrolling interests in related party. At the end of each year, the remaining portion of the performance fee payable that has not been included in noncontrolling interests in related party through redemptions is earned and then allocated to TP GP’s capital account in accordance with the Investment Agreements.

The performance fee is subject to a loss carryforward provision pursuant to which TP GP is required to maintain a loss recovery account, which represents the sum of all prior period net loss amounts, not offset by prior year net profit amounts, and that is allocated to future profit amounts until the loss recovery account has returned to a positive balance. Until such time, no performance fees are payable under the Investment Agreements.

Additionally, Third Point LLC is entitled to receive management fees, which are paid monthly. Pursuant to the Investment Agreements, a total management fee of 1.5% (2.0% up to December 22, 2016), of net investments managed by Third Point LLC was paid to Third Point LLC and certain founding investors.

For the three and nine months ended September 30, 2017 and 2016, management and performance fees to related parties are as follows:



	Three months ended				Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
	($ in thousands)
Management fees - Third Point LLC	$	9,507	$	1,638	$	26,751	$	4,741
Management fees - Founders (1)	—		9,322		—		26,905
Performance fees - Third Point Advisors LLC	21,041		21,892		76,428		24,846
	$	30,548	$	32,852	$	103,179	$	56,492

(1) KEP TP Bermuda Ltd., KIA TP Bermuda Ltd., Pine Brook LVR, L.P., P RE Opportunities Ltd. and Dowling Capital Partners I, L.P., collectively the “Founders”, received a share of the management fees in proportion to their initial investments in Third Point Re until December 22, 2016.

As of September 30, 2017, $73.2 million related to performance fees due under the Investment Agreements was included in performance fee payable to related party in the condensed consolidated balance sheets. As of December 31, 2016, $17.3 million related to performance fees earned by TP GP were included in noncontrolling interests in related party.

9. Deposit accounted contracts

The following table represents activity for the deposit contracts for the nine months ended September 30, 2017 and year ended December 31, 2016:



	September 30, 2017			December 31, 2016
	($ in thousands)
Balance, beginning of period	$	104,905		$	83,955
Consideration received	9,143			22,463
Consideration receivable	13,520			—
Net investment expense (income) allocation and change in fair value of embedded derivatives	1,472			(164		)
Payments	(2,763		)	(915		)
Foreign currency translation	214			(434		)
Balance, end of period	$	126,491		$	104,905

10. Senior Notes payable and letter of credit facilities

Senior Notes payable

As of September 30, 2017, TPRUSA had outstanding debt obligations consisting of an aggregate principal amount of $115.0 million of senior unsecured notes (the “Notes”) due February 13, 2025. The Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year. The Notes are fully and unconditionally guaranteed by Third Point Re, and, in certain circumstances specified in the indenture governing the Notes, certain existing or future subsidiaries of the Company may be required to guarantee the Notes. As of September 30, 2017, the Company had capitalized $1.3 million of costs associated with the Notes, which are presented as a direct deduction from the principal amount of the Notes on the condensed consolidated balance sheets. As of September 30, 2017, the Notes had an estimated fair value of $121.3 million (December 31, 2016 - $103.4 million). The fair value measurements were based on observable inputs and therefore were considered to be Level 2. The Company was in compliance with all debt covenants as of September 30, 2017 and December 31, 2016.

Letters of credit

As of September 30, 2017, the Company had entered into the following letter of credit facilities:



	Facility (1)		Utilized		Collateral
September 30, 2017	($ in thousands)
Citibank	$	300,000	$	139,020	$	139,020
Lloyds Bank	125,000		70,474		70,474
	$	425,000	$	209,494	$	209,494


(1)	On August 22, 2017, the J.P. Morgan facility of $50.0 million with Third Point Re BDA was not renewed.

The Company’s letter of credit facilities are bilateral agreements that generally renew on an annual basis. The letters of credit issued under the letter of credit facilities are fully collateralized. See Note 3 for additional information.

11. Net investment income

Net investment income for the three and nine months ended September 30, 2017 and 2016 consisted of the following:



	Three months ended						Nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net investment income by type	($ in thousands)
Net realized gains on investments and investment derivatives	$	25,877		$	20,688		$	180,382		$	62,642
Net unrealized gains on investments and investment derivatives	75,666			90,709			203,461			89,470
Net gains (losses) on foreign currencies	7,572			(1,191		)	5,419			(2,158		)
Dividend and interest income	17,355			15,238			57,062			56,262
Dividends paid on securities sold, not yet purchased	(1,537		)	(324		)	(3,205		)	(1,284		)
Other expenses	(4,883		)	(4,508		)	(15,063		)	(14,926		)
Net gain (loss) on investment in Kiskadee Fund	(534		)	596			(74		)	1,078
Net investment income before management and performance fees to related parties	119,516			121,208			427,982			191,084
Management and performance fees to related parties	(30,548		)	(32,852		)	(103,179		)	(56,492		)
	$	88,968		$	88,356		$	324,803		$	134,592

The following table provides an additional breakdown of our net investment income by asset and liability type for the three and nine months ended September 30, 2017 and 2016:



	Three months ended						Nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net investment income (loss) by asset type	($ in thousands)
Equity securities	$	81,778		$	89,979		$	343,605		$	111,485
Private common equity securities	(65		)	203			(26		)	(1,034		)
Private preferred equity securities	1,439			2,949			3,066			(2,398		)
Total equities	83,152			93,131			346,645			108,053
Asset-backed securities	6,532			11,431			11,665			3,367
Bank debt	1,277			3,582			7,491			3,933
Corporate bonds	999			33,160			6,707			96,375
U.S. Treasury securities	806			(447		)	3,171			6,759
Sovereign debt	9,835			11,181			21,683			33,329
Other debt securities	2,417			—			2,417			—
Total debt securities	21,866			58,907			53,134			143,763
Options	(9,343		)	(12,440		)	(26,409		)	(26,934		)
Rights and warrants	(16		)	(15		)	22			(298		)
Real estate	398			—			398			—
Trade claims	(716		)	(295		)	(497		)	140
Total other investments	(9,677		)	(12,750		)	(26,486		)	(27,092		)
Net investment income in funds valued at NAV	2,216			1,117			8,939			1,895
Total net investment income from invested assets	97,557			140,405			382,232			226,619
Net investment income (loss) by liability type
Equity securities	(6,144		)	(15,503		)	(13,611		)	(8,228		)
Sovereign debt	—			(1		)	2			(383		)
Corporate bonds	350			333			(1,819		)	(4,720		)
Options	4,593			4,488			8,175			8,818
Total net investment loss from securities sold, not yet purchased	(1,201		)	(10,683		)	(7,253		)	(4,513		)
Other investment income (losses) and other expenses not presented above
Other investment expenses	(1,477		)	(1,436		)	(400		)	(4,231		)
Net investment income (loss) on derivative contracts	17,683			(4,403		)	48,087			(21,870		)
Net investment income (loss) on cash, including foreign exchange gain (loss)	5,738			(3,279		)	(255		)	(7,638		)
Net investment losses on securities purchased under an agreement to sell and securities sold under and agreement to repurchase	—			(370		)	(39		)	(1,937		)
Withholding taxes reclassified to income tax expense	1,216			974			5,610			4,654
Total other investment income (losses) and other expenses	23,160			(8,514		)	53,003			(31,022		)
Net investment income before management and performance fees to related parties	119,516			121,208			427,982			191,084
Management and performance fees to related parties	(30,548		)	(32,852		)	(103,179		)	(56,492		)
Net investment income	$	88,968		$	88,356		$	324,803		$	134,592

12. Other expenses

Other expenses for the three and nine months ended September 30, 2017 and 2016 consisted of the following:



	Three months ended					Nine months ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
	($ in thousands)
Deposit liabilities investment expense (income)	$	1,160	$	(1,838	)	$	1,472	$	(507	)
Reinsurance contracts investment expense	2,686		2,224			7,292		6,861
Change in fair value of embedded derivatives in deposit and reinsurance contracts	—		(39		)	88		(128		)
	$	3,846	$	347		$	8,852	$	6,226

13. Income taxes

The Company provides for income tax expense or benefit based upon pre-tax income or loss reported in the condensed consolidated statements of income and the provisions of currently enacted tax laws. The Company and its Bermuda subsidiaries are incorporated under the laws of Bermuda and are subject to Bermuda law with respect to taxation. Under current Bermuda law, the Company and its Bermuda subsidiaries are not subject to any income or capital gains taxes in Bermuda. In the event that such taxes are imposed, the Company and its Bermuda subsidiaries would be exempted from any such taxes until March 2035 under the Tax Assurance Certificates issued to such entities pursuant to the Bermuda Exempted Undertakings Tax Protection Act of 1966, as amended.

The Company has an operating subsidiary incorporated in Bermuda, Third Point Re USA, which made an election to pay tax in the United States of America under Section 953(d) of the U.S. Internal Revenue Code of 1986, as amended. The operations of Third Point Re USA will be subject to U.S. federal income taxes generally at a rate of 35%. Our non-U.S. subsidiaries would become subject to U.S. federal income tax only to the extent that they derive income from activity that is deemed to be the conduct of a trade or business within the United States. As of September 30, 2017, the Company has income tax returns open for examination in the United States for the tax years 2015 and 2016.

The Company also has subsidiaries in the United Kingdom, TPRUK and Third Point Re UK, which are subject to applicable taxes in that jurisdiction.

The Company is subject to withholding taxes on income sourced in the United States and in other countries, subject to each countries’ specific tax regulations. Income subject to withholding taxes includes, but is not limited to, dividends, capital gains and interest on certain investments.

The Company has recorded uncertain tax positions related to investment transactions in certain foreign jurisdictions. As of September 30, 2017, the Company has accrued $1.9 million (December 31, 2016 - $1.6 million) for uncertain tax positions.

For the three and nine months ended September 30, 2017 and 2016, the Company recorded income tax expense, as follows:



	Three months ended				Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
	($ in thousands)
Income tax expense related to U.S. and U.K. subsidiaries (1)	$	2,219	$	1,372	$	8,246	$	1,053
Change in uncertain tax positions	40		138		224		158
Withholding taxes on certain investment transactions	1,216		974		5,610		4,654
	$	3,475	$	2,484	$	14,080	$	5,865


(1)	As of September 30, 2017, the Company no longer has net deferred tax assets (December 31, 2016 - $7.9 million). Deferred tax assets as of December 31, 2016 are included in other assets in the condensed consolidated balance sheets.

14. Share capital

The following tables present a summary of the common shares issued and outstanding and shares repurchased held as treasury shares as of and for the nine months ended September 30, 2017 and 2016:



Common shares	2017	2016
Balance, beginning of period	106,501,299	105,479,341
Options exercised	150,802	388,152
Restricted shares granted, net of forfeitures	36,418	47,712
Performance restricted shares granted, net of forfeitures	694,886	468,723
Balance, end of period	107,383,405	106,383,928



Treasury shares	2017	2016
Balance, beginning of period	644,768	—
Repurchase of common shares	3,300,152	644,768
Balance, end of period	3,944,920	644,768

Authorized and issued

The Company’s authorized share capital of $33.0 million is comprised of 300,000,000 common shares with a par value of $0.10 each and 30,000,000 preference shares with a par value of $0.10 each. No preference shares have been issued to date.

Share repurchases

On May 4, 2016, the Company’s Board of Directors authorized a common share repurchase program for up to an aggregate of $100.0 million of the Company’s outstanding common shares. Under the common share repurchase program, the Company may repurchase shares from time to time in privately negotiated transactions or in open-market purchases in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

During the three months ended September 30, 2017, the Company did not repurchase any of its common shares.

During the nine months ended September 30, 2017, the Company repurchased 3,300,152 of its common shares in the open market for $40.9 million at a weighted average cost, including commissions, of $12.38 per share. Common shares repurchased by the Company were not canceled and are classified as treasury shares.

As of September 30, 2017, the Company is authorized to repurchase up to an aggregate of $51.7 million of additional common shares under its share repurchase program.

15. Share-based compensation

The following table provides the total share-based compensation expense included in general and administrative expenses during the three and nine months ended September 30, 2017 and 2016:



	Three months ended					Nine months ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
	($ in thousands)
Management and director options	$	94	$	1,660		$	553	$	4,769
Restricted shares with service condition	196		387			474		979
Restricted shares with service and performance condition	350		(153		)	2,987		848
	$	640	$	1,894		$	4,014	$	6,596

As of September 30, 2017, the Company had $7.3 million (December 31, 2016 - $4.6 million) of unamortized share compensation expense, which is expected to be amortized over a weighted average period of 1.6 years (December 31, 2016 - 1.4 years).

Management and director options

The management and director options activity for the nine months ended September 30, 2017 and year ended December 31, 2016 were as follows:



	Number of options		Weighted average exercise price
Balances as of January 1, 2016	10,250,586		$	13.52
Forfeited	(139,534	)	18.00
Exercised	(514,059	)	10.00
Balances as of January 1, 2017	9,596,993		13.64
Forfeited	(558,138	)	18.00
Exercised	(150,802	)	10.00
Balances as of September 30, 2017	8,888,053		$	13.43

As of September 30, 2017, the weighted average remaining contractual term for options outstanding was 4.4 years (December 31, 2016 - 4.9 years).

The following table summarizes information about the Company’s management and director share options outstanding as of September 30, 2017:



	Options outstanding				Options exercisable
Range of exercise prices	Number of options	Weighted average exercise price		Remaining contractual life	Number of options	Weighted average exercise price
$10.00 - $10.89	5,123,532	$	10.04	4.3 years	5,081,671	$	10.03
$15.05 - $16.89	1,917,145	15.93		4.5 years	1,819,471	15.96
$20.00 - $25.05	1,847,376	20.26		4.5 years	1,777,610	20.17
	8,888,053	$	13.43	4.4 years	8,678,752	$	13.35

Restricted shares with service condition

Restricted share award activity for the nine months ended September 30, 2017 and year ended December 31, 2016 was as follows:



	Number of non- vested restricted shares		Weighted average grant date fair value
Balance as of January 1, 2016	301,043		$	11.12
Granted	47,712		11.37
Vested	(47,712	)	11.37
Balance as of January 1, 2017	301,043		11.12
Granted	36,418		12.15
Vested	(238,719	)	10.30
Balance as of September 30, 2017	98,742		$	11.25

Restricted shares with service condition vest either ratably or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment or service and transferability.

Restricted shares with service and performance condition

Restricted share award activity for the restricted shares with a service and performance condition for the nine months ended September 30, 2017 and year ended December 31, 2016 were as follows:



	Number of non- vested restricted shares		Number of non- vested restricted shares probable of vesting		Weighted average grant date fair value of shares probable of vesting
Balance as of January 1, 2016	921,553		536,234		$	14.24
Granted	653,958		435,974		11.40
Forfeited	(193,771	)	(119,009	)	13.16
Change in estimated restricted shares considered probable of vesting	n/a		(275,713	)	13.06
Balance as of January 1, 2017	1,381,740		577,486		12.91
Granted	935,825		623,882		12.17
Forfeited	(240,939	)	—		14.60
Vested	(136,618	)	(136,618	)	14.60
Change in estimated restricted shares considered probable of vesting	n/a		(102,080	)	12.31
Balance as of September 30, 2017	1,940,008		962,670		$	12.25

16. Noncontrolling interests in related party

Noncontrolling interests in related party represents the portion of equity in consolidated subsidiaries not attributable, directly or indirectly, to the Company. The joint ventures created through the Investment Agreements (Note 8) have been considered variable interest entities and have been consolidated in accordance with ASC 810, Consolidation (ASC 810). Since the Company was deemed to be the primary beneficiary, the Company has consolidated the joint ventures and has recorded TP GP’s minority interests as redeemable noncontrolling interests in related party and noncontrolling interests in related party in the condensed consolidated balance sheets.

A portion of the noncontrolling interest in investment affiliates is subject to contractual withdrawal rights of TP GP, whereas TP GP, at its sole discretion, can withdraw the capital over the minimum capital required to be maintained in its capital accounts. This excess capital is therefore recorded on the Company’s consolidated balance sheets as

redeemable noncontrolling interest in related party whereas the required minimum capital is recorded as noncontrolling interests in related party within shareholders’ equity on the Company’s consolidated balance sheet since it does not have withdrawal rights.

The following table is a reconciliation of the beginning and ending carrying amounts of redeemable noncontrolling interests in related party, noncontrolling interests in related party and total noncontrolling interests in related party for the nine months ended September 30, 2017 and 2016 (See Note 2 for additional information on changes in the presentation of noncontrolling interests):



	Redeemable noncontrolling interests in related party				Noncontrolling interests in related party					Total noncontrolling interests in related party
	September 30, 2017		September 30, 2016		September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016
	($ in thousands)
Balance, beginning of period	$	—	$	—	$	35,674		$	16,157	$	35,674		$	16,157
Changes in capital account allocation	16,813		—		(30,433		)	2,473		(13,620		)	2,473
Balance, end of period	$	16,813	$	—	$	5,241		$	18,630	$	22,054		$	18,630

In addition, the following table is a reconciliation of beginning and ending carrying amount of total noncontrolling interests in related party resulting from the consolidation of the Company’s joint venture in Third Point Re BDA and Third Point Re USA:



	Third Point Re BDA					Third Point Re USA					Total
	September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016
	($ in thousands)
Balance, beginning of period	$	30,358		$	14,152	$	5,316		$	2,005	$	35,674		$	16,157
Net income attributable to total noncontrolling interests in related party	2,503			1,263		657			210		3,160			1,473
Contributions (1)	2,865			—		354			1,000		3,219			1,000
Redemptions	(17,999		)	—		(2,000		)	—		(19,999		)	—
Balance, end of period	$	17,727		$	15,415	$	4,327		$	3,215	$	22,054		$	18,630

(1) Contributions include performance fees earned associated with redemptions made in the period. See Note 8 for additional information.

The following variable interest entities were not consolidated as per ASC 810:

TP Lux Holdco LP

The Company is a limited partner in TP Lux Holdco LP (the “Cayman HoldCo”), which is an affiliate of the Investment Manager. The Cayman HoldCo was formed as a limited partnership under the laws of the Cayman Islands and invests and holds debt and equity interests in TP Lux HoldCo S.a.r.l, a Luxembourg private limited liability company (the “LuxCo”) established under the laws of the Grand-Duchy of Luxembourg, which is also an affiliate of the Investment Manager.

LuxCo’s principal objective is to act as a collective investment vehicle to purchase Euro debt and equity investments. The Company invests in the Cayman HoldCo alongside other investment funds managed by the Investment Manager. As of September 30, 2017, Third Point Re BDA held a 15.6% (December 31, 2016 - 13.8%) interest in the Cayman Holdco. The Company accounts for its investment in the limited partnership under the variable interest model, in which the Company is not the primary beneficiary, at fair value in the condensed consolidated balance sheets. The Company has elected the fair value option for this investment and records changes in fair value in the condensed consolidated statements of income.

As of September 30, 2017, the estimated fair value of the investment in the limited partnership was $0.6 million (December 31, 2016 - $37.6 million). The Company received net distributions of $39.6 million from the Cayman HoldCo during the nine months ended September 30, 2017 due to the disposition of underlying investments (2016 - $2.0 million). The valuation policy with respect to this investment in a limited partnership is further described in Note 4. The Company’s maximum exposure to loss as a result of its involvement with this investment is limited to the carrying value of the investment.

Third Point Hellenic Recovery US Feeder Fund, L.P.

Third Point Re BDA is a limited partner in Third Point Hellenic Recovery US Feeder Fund, L.P. (the “Hellenic Fund”), which is an affiliate of the Investment Manager. The Hellenic Fund was formed as a limited partnership under the laws of the Cayman Islands on April 12, 2013 and invests and holds debt and equity interests.

Third Point Re BDA has committed to invest $10.9 million (December 31, 2016 - $10.6 million) in the Hellenic Fund. Capital distributions of $1.3 million were made during the nine months ended September 30, 2017. No capital distributions or calls were made during the nine months ended September 30, 2016.

As of September 30, 2017, the estimated fair value of Third Point Re BDA’s investment in the Hellenic Fund was $5.2 million (December 31, 2016 - $5.5 million), representing a 2.9% interest (December 31, 2016 - 2.8%). Third Point Re BDA accounts for its investment in the limited partnership under the variable interest model, in which Third Point Re BDA is not the primary beneficiary, at fair value in the condensed consolidated balance sheets. The Company has elected the fair value option for this investment and records the change in the fair value in the condensed consolidated statements of income.

The valuation policy with respect to this investment in a limited partnership is further described in Note 4. Third Point Re BDA’s maximum exposure to loss as a result of its involvement with this investment is limited to the carrying value of the investment.

TP DR Holdings LLC

The Company holds an equity and debt investment in TP DR Holdings LLC (“TP DR”), which is an affiliate of the Investment Manager. In December 2016, TP DR was formed as a limited liability company under the laws of the Cayman Islands to invest and own 100% equity interest in DCA Holdings Six Ltd. and its wholly owned subsidiary group. TP DR’s principal objective is to own, develop and manage properties in the Dominican Republic.

The Company invests in TP DR alongside other investment funds managed by the Investment Manager and third-party investors. As of September 30, 2017, Third Point Re BDA held a 6.8% equity (December 31, 2016 - 7.2%) and 13.1% debt interest (December 31, 2016 - 13.7%) in TP DR. The Company has elected the fair value option for its investments in TP DR and records changes in fair value in the condensed consolidated statements of income. The Company accounts for its equity investment in TP DR under the variable interest model, in which the Company is not the primary beneficiary, at fair value in the condensed consolidated balance sheets.

As of September 30, 2017, the estimated fair value of the investment was $11.7 million (December 31, 2016 - $9.5 million), corresponding to $2.9 million of equity (December 31, 2016 - $0.9 million) and $8.8 million of debt interest (December 31, 2016 - $8.6 million). During the nine months ended September 30, 2017, the Company contributed cash of $1.4 million (2016 - $nil) to TP DR. The Company has no further commitments or guarantees with respect to TP DR. The valuation policy with respect to this investment in investment funds is further described in Note 4. The Company’s maximum exposure to loss as a result of its involvement with this investment is limited to the carrying value of the investment.

Cloudbreak II Cayman Ltd and TP Trading II LLC

The Company holds an equity interest in Cloudbreak II Cayman Ltd, Cloudbreak II US LLC (collectively, the “Cloudbreak entities”) and TP Trading II LLC which are affiliates of the Investment Manager. The Company invests in the Cloudbreak entities and TP Trading II LLC alongside other investment funds managed by the Investment Manager. These entities’ are invested in a structure whose primary purpose is to purchase consumer loans for securitization and warrants from a marketplace lending platform.

As of September 30, 2017, the Cloudbreak entities held $5.5 million of the Company’s asset-backed security investments, which are included in investments in securities in the condensed consolidated balance sheet. The Company’s pro rata interest in the underlying investments is registered in the name of Cloudbreak II US LLC and the related income and expense are reflected in the condensed consolidated balance sheets and the condensed consolidated statements of income.

As of September 30, 2017, Third Point Re BDA held a 8.5% interest in TP Trading II LLC. The Company has elected the fair value option for its investment TP Trading II LLC and records changes in fair value in the condensed consolidated statements of income. The Company accounts for its equity investment in TP Trading II LLC under the variable interest model, in which the Company is not the primary beneficiary, at fair value in the condensed consolidated balance sheets. As of September 30, 2017, the estimated fair value of the investment was $4.7 million. The valuation policy with respect to this investment is further described in Note 4.

17. Earnings per share available to Third Point Re common shareholders

The following sets forth the computation of basic and diluted earnings per share available to Third Point Re common shareholders for the three and nine months ended September 30, 2017 and 2016:



		Three months ended						Nine months ended
		September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Weighted-average number of common shares outstanding:		($ in thousands, except share and per share amounts)
	Basic number of common shares outstanding, net of treasury shares	101,391,145			103,780,196			102,553,346			104,055,946
	Dilutive effect of options	1,536,419			940,627			1,162,851			570,580
	Dilutive effect of warrants	1,416,696			912,286			1,067,832			682,594
	Dilutive effect of restricted shares with service and performance condition	335,314			162,204			256,222			281,548
	Diluted number of common shares outstanding	104,679,574			105,795,313			105,040,251			105,590,668
Basic earnings per common share:
	Net income available to Third Point Re common shareholders	$	54,685		$	72,081		$	233,449		$	74,328
	Net income allocated to Third Point Re participating common shareholders	(55		)	(241		)	(256		)	(233		)
	Net income allocated to Third Point Re common shareholders	$	54,630		$	71,840		$	233,193		$	74,095
	Basic earnings per share available to Third Point Re common shareholders	$	0.54		$	0.69		$	2.27		$	0.71
Diluted earnings per common share:
	Net income available to Third Point Re common shareholders	$	54,685		$	72,081		$	233,449		$	74,328
	Net income allocated to Third Point Re participating common shareholders	(53		)	(237		)	(250		)	(229		)
	Net income allocated to Third Point Re common shareholders	$	54,632		$	71,844		$	233,199		$	74,099
	Diluted earnings per share available to Third Point Re common shareholders	$	0.52		$	0.68		$	2.22		$	0.70

For the three months ended September 30, 2017 and 2016, anti-dilutive options of 3,825,188 and 4,322,659, respectively, were excluded from the computation of diluted earnings per share. For the nine months ended September 30, 2017 and 2016, anti-dilutive options of 4,155,013 and 4,384,788, respectively, were excluded from the computation of diluted earnings per share.

18. Related party transactions

In addition to the transactions disclosed in Notes 4, 8 and 16 to these condensed consolidated financial statements, the following transaction is classified as a related party transaction, as the counterparties have either a direct or indirect shareholding in the Company or the Company has an investment in such counterparty.

Third Point Loan L.L.C. (“Loan LLC”) and Third Point Ventures LLC (“Ventures LLC” and, together with Loan LLC, “Nominees”) serve as nominees of the Company and other affiliated investment management clients of the Investment Manager for certain investments. The Nominees have appointed the Investment Manager as its true and lawful agent and attorney. As of September 30, 2017, Loan LLC held $128.4 million (December 31, 2016 - $124.1 million) and Ventures LLC held $27.3 million (December 31, 2016 - $22.6 million) of the Company’s investments, which are included in investments in securities and derivative contracts in the condensed consolidated balance sheets. The Company’s pro rata interest in the underlying investments registered in the name of the Nominees and the related income and expense are reflected in the condensed consolidated balance sheets and the condensed consolidated statements of income.

19. Financial instruments with off-balance sheet risk or concentrations of credit risk

Off-balance sheet risk

In the normal course of business, the Company trades various financial instruments and engages in various investment activities with off-balance sheet risk. These financial instruments include securities sold, not yet purchased, forwards, futures, options, swaptions, swaps and contracts for differences. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at specified future dates. Each of these financial instruments contains varying degrees of off-balance sheet risk whereby changes in the fair values of the securities underlying the financial instruments or fluctuations in interest rates and index values may exceed the amounts recognized in the condensed consolidated balance sheets.

Securities sold, not yet purchased are recorded as liabilities in the condensed consolidated balance sheets and have market risk to the extent that the Company, in satisfying its obligations, may be required to purchase securities at a higher value than that recorded in the condensed consolidated balance sheets. The Company’s investments in securities and commodities and amounts due from brokers are partially restricted until the Company satisfies the obligation to deliver securities sold, not yet purchased.

Forward and futures contracts are a commitment to purchase or sell financial instruments, currencies or commodities at a future date at a negotiated rate. Forward and futures contracts expose the Company to market risks to the extent that adverse changes occur to the underlying financial instruments such as currency rates or equity index fluctuations.

Option contracts give the purchaser the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price. The premium received by the Company upon writing an option contract is recorded as a liability, marked to market on a daily basis and is included in securities sold, not yet purchased in the condensed consolidated balance sheets. In writing an option, the Company bears the market risk of an unfavorable change in the financial instrument underlying the written option. Exercise of an option written by the Company could result in the Company selling or buying a financial instrument at a price different from the current fair value.

In the normal course of trading activities in its investment portfolio, the Company trades and holds certain derivative contracts, such as written options, which constitute guarantees. The maximum payout for written put options is limited to the number of contracts written and the related strike prices and the maximum payout for written call options is dependent upon the market price of the underlying security at the date of a payout event. As of September 30, 2017, the investment portfolio had a maximum payout amount of approximately $346.9 million (December 31, 2016 - $87.5 million) relating to written put option contracts with expiration ranging from two months to three months from the balance sheet date. The maximum payout amount could be offset by the subsequent sale, if any, of assets obtained via the settlement of a payout event. The fair value of these written put options as of September 30, 2017 was $1.4 million (December 31, 2016 - $1.3 million) and is included in securities sold, not yet purchased in the condensed consolidated balance sheets.

Swaption contracts give the Company the right, but not the obligation, to enter into a specified interest-rate swap within a specified period of time. The Company’s market and counterparty credit risk is limited to the premium paid to enter into the swaption contract and net unrealized gains.

Total return swaps, contracts for differences, index swaps, and interest rate swaps that involve the exchange of cash flows between the Company and counterparties are based on the change in the fair value of a particular equity, index, or interest rate on a specified notional holding. The use of these contracts exposes the Company to market risks equivalent to actually holding securities of the notional value but typically involve little capital commitment relative to the exposure achieved. The gains or losses of the Company may therefore be magnified on the capital commitment.

Credit derivatives

Credit default swaps protect the buyer against the loss of principal on one or more underlying bonds, loans, or mortgages in the event the issuer suffers a credit event. Typical credit events include failure to pay or restructuring of obligations, bankruptcy, dissolution or insolvency of the underlying issuer. The buyer of the protection pays an initial and/or a periodic premium to the seller and receives protection for the period of the contract. If there is not a credit event, as defined in the contract, the buyer receives no payments from the seller. If there is a credit event, the buyer receives a payment from the seller of protection as calculated by the contract between the two parties.

The Company may also enter into index and/or basket credit default swaps where the credit derivative may reference a basket of single-name credit default swaps or a broad-based index. Generally, in the event of a default on one of the underlying names, the buyer will receive a pro-rata portion of the total notional amount of the credit default index or basket contract from the seller. When the Company purchases single-name, index and basket credit default swaps, the Company is exposed to counterparty nonperformance.

Upon selling credit default swap protection, the Company may expose itself to the risk of loss from related credit events specified in the contract. Credit spreads of the underlying positions together with the period of expiration is indicative of the likelihood of a credit event under the credit default swap contract and the Company’s risk of loss. Higher credit spreads and shorter expiration dates are indicative of a higher likelihood of a credit event resulting in the Company’s payment to the buyer of protection. Lower credit spreads and longer expiration dates would indicate the opposite and lowers the likelihood the Company needs to pay the buyer of protection. As of September 30, 2017, there was no cash collateral received specifically related to written credit default swaps as collateral is based on the net exposure associated with all derivative instruments subject to applicable netting agreements with counterparties and may not be specific to any individual derivative contract.

The following table sets forth certain information related to the Company’s written credit derivatives as of September 30, 2017 and December 31, 2016:



September 30, 2017	Maximum Payout/ Notional Amount (by period of expiration)						Fair Value of Written Credit Derivatives (2)
Credit Spreads on underlying (basis points)	0-5 years		5 years or Greater Expiring Through 2047		Total Written Credit Default Swaps (1)		Asset		Liability		Net Asset/(Liability)
	($ in thousands)
Single name (0 - 250)	$	3,320	$	2,393	$	5,713	$	—	$	2,760	$	(2,760	)
Single name (251 - 500)	1,318		—		1,318		—		68		(68		)
	$	4,638	$	2,393	$	7,031	$	—	$	2,828	$	(2,828	)

December 31, 2016	Maximum Payout/ Notional Amount (by period of expiration)						Fair Value of Written Credit Derivatives (2)
Credit Spreads on underlying (basis points)	0-5 years		5 years or Greater Expiring Through 2047		Total Written Credit Default Swaps (1)		Asset		Liability		Net Asset/(Liability)
	($ in thousands)
Single name (0 - 250)	$	—	$	3,943	$	3,943	$	—	$	1,952	$	(1,952	)


(1)	As of September 30, 2017 and December 31, 2016, the Company did not hold any offsetting buy protection credit derivatives with the same underlying reference obligation.


(2)	Fair value amounts of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting.

Concentrations of credit risk

Investments

In addition to off-balance sheet risks related to specific financial instruments, the Company may be subject to concentrations of credit risk with certain counterparties. Substantially all securities transactions and individual counterparty concentrations are with major securities firms, such as prime brokers or their affiliates. However, the Company reduces its credit risk with counterparties by entering into master netting agreements. Therefore, assets represent the Company’s greater unrealized gains less unrealized losses for derivative contracts in which the Company has master netting agreements. Similarly, liabilities represent the Company’s greater unrealized losses less unrealized gains for derivative contracts in which the Joint Ventures have master netting agreements. Furthermore, the Company obtains collateral from counterparties to reduce its exposure to counterparty credit risk.

The Company’s maximum exposure to credit risk associated with counterparty nonperformance on derivative contracts is limited to the net unrealized gains by counterparties inherent in such contracts which are recognized in the condensed consolidated balance sheets. As of September 30, 2017, the Company’s maximum counterparty credit risk exposure was $78.8 million (December 31, 2016 - $28.1 million).

Underwriting

The Company is exposed to credit risk in several reinsurance contracts with companies that write credit risk insurance, which primarily consists of mortgage insurance credit risk. Loss experience in these lines of business is cyclical and is affected by the state of the general economic environment. The Company provides its clients in these lines of business with reinsurance protection against credit deterioration, defaults or other types of financial non-performance. The Company mitigates the risks associated with these credit-sensitive lines of business through the use of risk management techniques such as risk diversification and monitoring of risk aggregations.

The Company has exposure to credit risk as it relates to its business written through brokers, if any of the Company’s brokers are unable to fulfill their contractual obligations with respect to payments to the Company. In addition, in some jurisdictions, if the broker fails to make payments to the insured under the Company’s policy, the Company may remain liable to the insured for the deficiency. The Company’s exposure to such credit risk is somewhat mitigated in certain jurisdictions by contractual terms.

The Company has exposure to credit risk related to balances receivable under our reinsurance contracts, including funds withheld and premiums receivable, and the possibility that counterparties may default on their obligations to the Company. The risk of counterparty default is partially mitigated by the fact that any amount owed from a reinsurance counterparty would be netted against any losses or acquisition costs the Company would pay in the future. The Company monitors the collectability of these balances on a regular basis.

20. Commitments and Contingencies

Investments

Loan and other participation interests purchased by the Company, such as bank debt, may include revolving credit arrangements or other financing commitments obligating the Company to advance additional amounts on demand. As of September 30, 2017, the Company had one unfunded capital commitment of $3.3 million related to its investment in the Hellenic Fund (see Note 16 for additional information).

In the normal course of business, the Company, as part of its investment strategy, enters into contracts that contain a variety of indemnifications and warranties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. Thus, no amounts have been accrued related to such indemnifications. The Company also indemnifies TP GP, Third Point LLC and its employees from and against any loss or expense, including, without limitation any judgment, settlement, legal fees and other costs. Any expenses related to this indemnification are reflected in net investment income in the condensed consolidated statements of income.

Financing

In February 2015, TPRUSA issued $115.0 million of Notes due February 13, 2025. The Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year. The Notes are fully and unconditionally guaranteed by Third Point Re, and, in certain circumstances specified in the indenture governing the Notes, certain existing or future subsidiaries of the Company may be required to guarantee the Notes.

Litigation

From time to time in the normal course of business, the Company may be involved in formal and informal dispute resolution procedures, which may include arbitration or litigation, the outcomes of which determine the rights and obligations under the Company’s reinsurance contracts and other contractual agreements. In some disputes, the Company may seek to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company may resist attempts by others to collect funds or enforce alleged rights. While the final outcome of legal disputes that may arise cannot be predicted with certainty, the Company is not currently involved in any material formal or informal dispute resolution procedures.

21. Segment reporting

The determination of the Company’s business segments is based on the manner in which management monitors the performance of its operations. The Company reports one operating segment, Property and Casualty Reinsurance. The Company has also identified a corporate function that includes the Company’s investment income on capital, certain general and administrative expenses related to corporate activities, interest expense, foreign exchange (gains) losses and income tax expense.

The following is a summary of the Company’s operating segment results for the three and nine months ended September 30, 2017 and 2016:



	Three months ended September 30, 2017
	Property and Casualty Reinsurance			Corporate			Total
Revenues	($ in thousands)
Gross premiums written	$	174,539		$	—		$	174,539
Gross premiums ceded	—			—			—
Net premiums written	174,539			—			174,539
Change in net unearned premium reserves	(68,564		)	—			(68,564		)
Net premiums earned	105,975			—			105,975
Expenses
Loss and loss adjustment expenses incurred, net	77,275			—			77,275
Acquisition costs, net	33,974			—			33,974
General and administrative expenses	7,291			5,927			13,218
Total expenses	118,540			5,927			124,467
Net underwriting loss	(12,565		)	n/a			n/a

Net investment income	26,531			62,437			88,968
Other expenses	(3,846		)	—			(3,846		)
Interest expense	—			(2,074		)	(2,074		)
Foreign exchange losses	—			(5,437		)	(5,437		)
Income tax expense	—			(3,475		)	(3,475		)
Net income attributable to noncontrolling interests in related party	—			(959		)	(959		)
Segment income	$	10,120		$	44,565
Net income available to Third Point Re common shareholders							$	54,685

Property and Casualty Reinsurance - Underwriting Ratios (1):
Loss ratio	72.9		%
Acquisition cost ratio	32.1		%
Composite ratio	105.0		%
General and administrative expense ratio	6.9		%
Combined ratio	111.9		%
(1) Underwriting ratios are calculated by dividing the related expense by net premiums earned.



	Nine months ended September 30, 2017
	Property and Casualty Reinsurance			Corporate			Total
Revenues	($ in thousands)
Gross premiums written	$	477,457		$	—		$	477,457
Gross premiums ceded	(2,550		)	—			(2,550		)
Net premiums written	474,907			—			474,907
Change in net unearned premium reserves	(57,365		)	—			(57,365		)
Net premiums earned	417,542			—			417,542
Expenses
Loss and loss adjustment expenses incurred, net	270,549			—			270,549
Acquisition costs, net	157,067			—			157,067
General and administrative expenses	23,252			15,552			38,804
Total expenses	450,868			15,552			466,420
Net underwriting loss	(33,326		)	n/a			n/a

Net investment income	93,857			230,946			324,803
Other expenses	(8,852		)	—			(8,852		)
Interest expense	—			(6,151		)	(6,151		)
Foreign exchange losses	—			(10,233		)	(10,233		)
Income tax expense	—			(14,080		)	(14,080		)
Net income attributable to noncontrolling interests in related party	—			(3,160		)	(3,160		)
Segment income	$	51,679		$	181,770
Net income available to Third Point Re common shareholders							$	233,449

Property and Casualty Reinsurance - Underwriting Ratios (1):
Loss ratio	64.8		%
Acquisition cost ratio	37.6		%
Composite ratio	102.4		%
General and administrative expense ratio	5.6		%
Combined ratio	108.0		%
(1) Underwriting ratios are calculated by dividing the related expense by net premiums earned.



	Three months ended September 30, 2016
	Property and Casualty Reinsurance			Corporate			Total
Revenues	($ in thousands)
Gross premiums written	$	142,573		$	—		$	142,573
Gross premiums ceded	(927		)	—			(927		)
Net premiums written	141,646			—			141,646
Change in net unearned premium reserves	(13,463		)	—			(13,463		)
Net premiums earned	128,183			—			128,183
Expenses
Loss and loss adjustment expenses incurred, net	85,015			—			85,015
Acquisition costs, net	45,127			—			45,127
General and administrative expenses	6,380			5,974			12,354
Total expenses	136,522			5,974			142,496
Net underwriting loss	(8,339		)	n/a			n/a

Net investment income	22,031			66,325			88,356
Other expenses	(347		)	—			(347		)
Interest expense	—			(2,069		)	(2,069		)
Foreign exchange gains	—			3,905			3,905
Income tax expense	—			(2,484		)	(2,484		)
Net income attributable to noncontrolling interests in related party	—			(967		)	(967		)
Segment income	$	13,345		$	58,736
Net income available to Third Point Re common shareholders							$	72,081

Property and Casualty Reinsurance - Underwriting Ratios (1):
Loss ratio	66.3		%
Acquisition cost ratio	35.2		%
Composite ratio	101.5		%
General and administrative expense ratio	5.0		%
Combined ratio	106.5		%
(1) Underwriting ratios are calculated by dividing the related expense by net premiums earned.



	Nine months ended September 30, 2016
	Property and Casualty Reinsurance			Corporate			Total
Revenues	($ in thousands)
Gross premiums written	$	536,595		$	—		$	536,595
Gross premiums ceded	(2,352		)	—			(2,352		)
Net premiums written	534,243			—			534,243
Change in net unearned premium reserves	(136,136		)	—			(136,136		)
Net premiums earned	398,107			—			398,107
Expenses
Loss and loss adjustment expenses incurred, net	273,822			—			273,822
Acquisition costs, net	145,296			—			145,296
General and administrative expenses	19,527			14,358			33,885
Total expenses	438,645			14,358			453,003
Net underwriting loss	(40,538		)	n/a			n/a

Net investment income	32,868			101,724			134,592
Other expenses	(6,226		)	—			(6,226		)
Interest expense	—			(6,163		)	(6,163		)
Foreign exchange gains	—			14,359			14,359
Income tax expense	—			(5,865		)	(5,865		)
Net income attributable to noncontrolling interests in related party	—			(1,473		)	(1,473		)
Segment income (loss)	$	(13,896	)	$	88,224
Net income available to Third Point Re common shareholders							$	74,328

Property and Casualty Reinsurance - Underwriting Ratios (1):
Loss ratio	68.8		%
Acquisition cost ratio	36.5		%
Composite ratio	105.3		%
General and administrative expense ratio	4.9		%
Combined ratio	110.2		%
(1) Underwriting ratios are calculated by dividing the related expense by net premiums earned.

The following table lists the number of contracts that individually contributed more than 10% of total gross premiums written for the three and nine months ended September 30, 2017 and 2016 as a percentage of total gross premiums written in the relevant period:



	Three months ended				Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Largest contract	51.1	%	42.4	%	21.6	%	20.9	%
Second largest contract	14.9	%	26.8	%	18.7	%	11.3	%
Third largest contract	n/a		10.1	%	12.2	%	n/a
Total for contracts contributing greater than 10% each	66.0	%	79.3	%	52.5	%	32.2	%
Total for contracts contributing less than 10% each	34.0	%	20.7	%	47.5	%	67.8	%
	100.0	%	100.0	%	100.0	%	100.0	%

The following table provides a breakdown of the Company’s gross premiums written by line of business for the three and nine months ended September 30, 2017 and 2016:



	Three months ended									Nine months ended
	September 30, 2017					September 30, 2016				September 30, 2017					September 30, 2016
	($ in thousands)
Property	$	(3	)	—	%	$	56,632	39.7	%	$	(8,818	)	(1.9	)%	$	63,714	11.9	%
Casualty	161,110			92.3	%	26,640		18.7	%	366,455			76.8	%	187,146		34.9	%
Specialty	13,432			7.7	%	59,301		41.6	%	119,820			25.1	%	285,735		53.2	%
	$	174,539		100.0	%	$	142,573	100.0	%	$	477,457		100.0	%	$	536,595	100.0	%

The following table provides a breakdown of the Company’s gross premiums written by prospective and retroactive reinsurance contracts for the three and nine months ended September 30, 2017 and 2016:



	Three months ended								Nine months ended
	September 30, 2017				September 30, 2016				September 30, 2017				September 30, 2016
	($ in thousands)
Prospective	$	172,856	99.0	%	$	142,573	100.0	%	$	391,897	82.1	%	$	536,595	100.0	%
Retroactive (1)	1,683		1.0	%	—		—	%	85,560		17.9	%	—		—	%
	$	174,539	100.0	%	$	142,573	100.0	%	$	477,457	100.0	%	$	536,595	100.0	%


(1)	Includes all retroactive exposure in reinsurance contracts.

The Company records the gross premium written and earned at the inception of the contract for retroactive exposures in reinsurance contracts.

Substantially all of the Company’s business is sourced through reinsurance brokers. The following table sets forth the Company’s premiums written by source that individually contributed more than 10% of total gross premiums written for the three and nine months ended September 30, 2017 and 2016:



	Three months ended								Nine months ended
	September 30, 2017				September 30, 2016				September 30, 2017				September 30, 2016
	($ in thousands)
Largest broker	$	90,341	51.8	%	$	95,073	66.7	%	$	134,324	28.1	%	$	186,737	34.8	%
Second largest broker	44,676		25.6	%	27,461		19.3	%	118,618		24.9	%	180,631		33.7	%
Third largest broker	n/a		n/a		n/a		n/a		107,612		22.5	%	89,756		16.7	%
Other	39,522		22.6	%	20,039		14.0	%	116,903		24.5	%	79,471		14.8	%
	$	174,539	100.0	%	$	142,573	100.0	%	$	477,457	100.0	%	$	536,595	100.0	%

The following table provides a breakdown of the Company’s gross premiums written by domicile of the ceding companies for the three and nine months ended September 30, 2017 and 2016:



	Three months ended								Nine months ended
	September 30, 2017				September 30, 2016				September 30, 2017				September 30, 2016
	($ in thousands)
United States	$	145,313	83.3	%	$	123,233	86.4	%	$	189,082	39.6	%	$	290,971	54.2	%
Bermuda	8,278		4.7	%	18,538		13.0	%	62,353		13.1	%	65,078		12.1	%
United Kingdom	948		0.5	%	802		0.6	%	201,542		42.2	%	180,546		33.7	%
Other	20,000		11.5	%	—		—	%	24,480		5.1	%	—		—	%
	$	174,539	100.0	%	$	142,573	100.0	%	$	477,457	100.0	%	$	536,595	100.0	%

22. Supplemental guarantor information

Third Point Re fully and unconditionally guarantees the $115.0 million of Notes issued by TPRUSA, a wholly owned subsidiary.

The following information sets forth condensed consolidating balance sheets as of September 30, 2017 and December 31, 2016, condensed consolidating statements of income and condensed consolidating statements of cash flows for the three and nine months ended September 30, 2017 and 2016 for Third Point Re, TPRUSA and the non-guarantor subsidiaries of Third Point Re. Investments in subsidiaries are accounted for on the equity method; accordingly, entries necessary to consolidate the parent guarantor, TPRUSA and all other subsidiaries are reflected in the eliminations column.



CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2017
(expressed in thousands of U.S. dollars)

	Third Point Re			TPRUSA			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Equity securities	$	—		$	—		$	2,017,463	$	—		$	2,017,463
Debt securities	—			—			656,118		—			656,118
Other investments	—			—			30,932		—			30,932
Total investments in securities	—			—			2,704,513		—			2,704,513
Cash and cash equivalents	—			200			6,234		—			6,434
Restricted cash and cash equivalents	—			—			477,362		—			477,362
Investment in subsidiaries	1,613,968			276,251			165,913		(2,056,132		)	—
Due from brokers	—			—			387,786		—			387,786
Derivative assets, at fair value	—			—			75,781		—			75,781
Interest and dividends receivable	—			—			4,210		—			4,210
Reinsurance balances receivable	—			—			478,206		—			478,206
Deferred acquisition costs, net	—			—			223,091		—			223,091
Amounts due from (to) affiliates	(1,493		)	(3,588		)	5,081		—			—
Other assets	734			—			10,730		—			11,464
Total assets	$	1,613,209		$	272,863		$	4,538,907	$	(2,056,132	)	$	4,368,847
Liabilities
Accounts payable and accrued expenses (1)	$	1,055		$	(7,920	)	$	31,445	$	—		$	24,580
Reinsurance balances payable	—			—			54,654		—			54,654
Deposit liabilities	—			—			126,491		—			126,491
Unearned premium reserves	—			—			615,375		—			615,375
Loss and loss adjustment expense reserves	—			—			699,369		—			699,369
Securities sold, not yet purchased, at fair value	—			—			405,845		—			405,845
Due to brokers	—			—			602,230		—			602,230
Derivative liabilities, at fair value	—			—			17,280		—			17,280
Performance fee payable to related party	—			—			73,210		—			73,210
Interest and dividends payable	—			1,026			891		—			1,917
Senior notes payable, net of deferred costs	—			113,688			—		—			113,688
Total liabilities	1,055			106,794			2,626,790		—			2,734,639
Redeemable noncontrolling interests in related party	—			—			16,813		—			16,813
Shareholders’ equity
Common shares	10,738			—			1,250		(1,250		)	10,738
Treasury shares	(48,253		)	—			—		—			(48,253		)
Additional paid-in capital	1,099,998			166,080			1,533,281		(1,699,361		)	1,099,998
Retained earnings (deficit)	549,671			(11		)	355,532		(355,521		)	549,671
Shareholders’ equity attributable to Third Point Re common shareholders	1,612,154			166,069			1,890,063		(2,056,132		)	1,612,154
Noncontrolling interests in related party	—			—			5,241		—			5,241
Total shareholders’ equity	1,612,154			166,069			1,895,304		(2,056,132		)	1,617,395
Total liabilities, noncontrolling interests and shareholders’ equity	$	1,613,209		$	272,863		$	4,538,907	$	(2,056,132	)	$	4,368,847

(1) Negative balance of $7.9 million represents net deferred tax assets that are offset by net deferred tax liabilities in Third Point Re USA of $8.0 million, resulting in a net liability position as of September 30, 2017.



CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2016
(expressed in thousands of U.S. dollars)

	Third Point Re			TPRUSA			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Equity securities	$	—		$	—		$	1,506,854	$	—		$	1,506,854
Debt securities	—			—			1,057,957		—			1,057,957
Other investments	—			—			82,701		—			82,701
Total investments in securities	—			—			2,647,512		—			2,647,512
Cash and cash equivalents	1,629			79			8,243		—			9,951
Restricted cash and cash equivalents	—			—			298,940		—			298,940
Investment in subsidiaries	1,413,078			269,622			165,324		(1,848,024		)	—
Due from brokers	—			—			284,591		—			284,591
Derivative assets, at fair value	—			—			27,432		—			27,432
Interest and dividends receivable	—			—			6,505		—			6,505
Reinsurance balances receivable	—			—			381,951		—			381,951
Deferred acquisition costs, net	—			—			221,618		—			221,618
Amounts due from (to) affiliates	(142		)	(8,394		)	8,536		—			—
Other assets	637			5,507			11,000		—			17,144
Total assets	$	1,415,202		$	266,814		$	4,061,652	$	(1,848,024	)	$	3,895,644
Liabilities
Accounts payable and accrued expenses	$	1,151		$	40		$	9,130	$	—		$	10,321
Reinsurance balances payable	—			—			43,171		—			43,171
Deposit liabilities	—			—			104,905		—			104,905
Unearned premium reserves	—			—			557,076		—			557,076
Loss and loss adjustment expense reserves	—			—			605,129		—			605,129
Securities sold, not yet purchased, at fair value	—			—			92,668		—			92,668
Due to brokers	—			—			899,601		—			899,601
Derivative liabilities, at fair value	—			—			16,050		—			16,050
Interest and dividends payable	—			3,057			386		—			3,443
Senior notes payable, net of deferred costs	—			113,555			—		—			113,555
Total liabilities	1,151			116,652			2,328,116		—			2,445,919
Shareholders’ equity
Common shares	10,650			—			1,250		(1,250		)	10,650
Treasury shares	(7,389		)	—			—		—			(7,389		)
Additional paid-in capital	1,094,568			165,456			1,528,827		(1,694,283		)	1,094,568
Retained earnings (deficit)	316,222			(15,294		)	167,785		(152,491		)	316,222
Shareholders' equity attributable to Third Point Re common shareholders	1,414,051			150,162			1,697,862		(1,848,024		)	1,414,051
Noncontrolling interests in related party	—			—			35,674		—			35,674
Total shareholders' equity	1,414,051			150,162			1,733,536		(1,848,024		)	1,449,725
Total liabilities, noncontrolling interests and shareholders’ equity	$	1,415,202		$	266,814		$	4,061,652	$	(1,848,024	)	$	3,895,644



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(expressed in thousands of U.S. dollars)

Three months ended September 30, 2017	Third Point Re		TPRUSA		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Gross premiums written	$	—	$	—	$	174,539		$	—		$	174,539
Gross premiums ceded	—		—		—			—			—
Net premiums written	—		—		174,539			—			174,539
Change in net unearned premium reserves	—		—		(68,564		)	—			(68,564		)
Net premiums earned	—		—		105,975			—			105,975
Net investment income	—		—		88,968			—			88,968
Equity in earnings (losses) of subsidiaries	55,847		5,473		(30		)	(61,290		)	—
Total revenues	55,847		5,473		194,913			(61,290		)	194,943
Expenses
Loss and loss adjustment expenses incurred, net	—		—		77,275			—			77,275
Acquisition costs, net	—		—		33,974			—			33,974
General and administrative expenses	1,162		17		12,039			—			13,218
Other expenses	—		—		3,846			—			3,846
Interest expense	—		2,074		—			—			2,074
Foreign exchange losses	—		—		5,437			—			5,437
Total expenses	1,162		2,091		132,571			—			135,824
Income before income tax expense	54,685		3,382		62,342			(61,290		)	59,119
Income tax (expense) benefit	—		732		(4,207		)	—			(3,475		)
Net income	54,685		4,114		58,135			(61,290		)	55,644
Net income attributable to noncontrolling interests in related party	—		—		(959		)	—			(959		)
Net income available to Third Point Re common shareholders	$	54,685	$	4,114	$	57,176		$	(61,290	)	$	54,685

Nine months ended September 30, 2017	Third Point Re		TPRUSA		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Gross premiums written	$	—	$	—	$	477,457		$	—		$	477,457
Gross premiums ceded	—		—		(2,550		)	—			(2,550		)
Net premiums written	—		—		474,907			—			474,907
Change in net unearned premium reserves	—		—		(57,365		)	—			(57,365		)
Net premiums earned	—		—		417,542			—			417,542
Net investment income	—		—		324,803			—			324,803
Equity in earnings (losses) of subsidiaries	237,060		19,305		(35		)	(256,330		)	—
Total revenues	237,060		19,305		742,310			(256,330		)	742,345
Expenses
Loss and loss adjustment expenses incurred, net	—		—		270,549			—			270,549
Acquisition costs, net	—		—		157,067			—			157,067
General and administrative expenses	3,611		37		35,156			—			38,804
Other expenses	—		—		8,852			—			8,852
Interest expense	—		6,151		—			—			6,151
Foreign exchange losses	—		—		10,233			—			10,233
Total expenses	3,611		6,188		481,857			—			491,656
Income before income tax expense	233,449		13,117		260,453			(256,330		)	250,689
Income tax (expense) benefit	—		2,166		(16,246		)	—			(14,080		)
Net income	233,449		15,283		244,207			(256,330		)	236,609
Net income attributable to noncontrolling interests in related party	—		—		(3,160		)	—			(3,160		)
Net income available to Third Point Re common shareholders	$	233,449	$	15,283	$	241,047		$	(256,330	)	$	233,449



CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(expressed in thousands of U.S. dollars)

Three months ended September 30, 2016	Third Point Re		TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Gross premiums written	$	—	$	—		$	142,573		$	—		$	142,573
Gross premiums ceded	—		—			(927		)	—			(927		)
Net premiums written	—		—			141,646			—			141,646
Change in net unearned premium reserves	—		—			(13,463		)	—			(13,463		)
Net premiums earned	—		—			128,183			—			128,183
Net investment income	—		—			88,356			—			88,356
Equity in earnings (losses) of subsidiaries	73,268		3,916			(35		)	(77,149		)	—
Total revenues	73,268		3,916			216,504			(77,149		)	216,539
Expenses
Loss and loss adjustment expenses incurred, net	—		—			85,015			—			85,015
Acquisition costs, net	—		—			45,127			—			45,127
General and administrative expenses	1,187		11			11,156			—			12,354
Other expenses	—		—			347			—			347
Interest expense	—		2,069			—			—			2,069
Foreign exchange gains	—		—			(3,905		)	—			(3,905		)
Total expenses	1,187		2,080			137,740			—			141,007
Income before income tax expense	72,081		1,836			78,764			(77,149		)	75,532
Income tax (expense) benefit	—		728			(3,212		)	—			(2,484		)
Net income	72,081		2,564			75,552			(77,149		)	73,048
Net income attributable to noncontrolling interests in related party	—		—			(967		)	—			(967		)
Net income available to Third Point Re common shareholders	$	72,081	$	2,564		$	74,585		$	(77,149	)	$	72,081

Nine months ended September 30, 2016	Third Point Re		TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues
Gross premiums written	$	—	$	—		$	536,595		$	—		$	536,595
Gross premiums ceded	—		—			(2,352		)	—			(2,352		)
Net premiums written	—		—			534,243			—			534,243
Change in net unearned premium reserves	—		—			(136,136		)	—			(136,136		)
Net premiums earned	—		—			398,107			—			398,107
Net investment income	—		—			134,592			—			134,592
Equity in earnings (losses) of subsidiaries	77,829		6,015			(78		)	(83,766		)	—
Total revenues	77,829		6,015			532,621			(83,766		)	532,699
Expenses
Loss and loss adjustment expenses incurred, net	—		—			273,822			—			273,822
Acquisition costs, net	—		—			145,296			—			145,296
General and administrative expenses	3,501		41			30,343			—			33,885
Other expenses	—		—			6,226			—			6,226
Interest expense	—		6,163			—			—			6,163
Foreign exchange gains	—		—			(14,359		)	—			(14,359		)
Total expenses	3,501		6,204			441,328			—			451,033
Income (loss) before income tax (expense) benefit	74,328		(189		)	91,293			(83,766		)	81,666
Income tax (expense) benefit	—		2,171			(8,036		)	—			(5,865		)
Net income	74,328		1,982			83,257			(83,766		)	75,801
Net income attributable to noncontrolling interests in related party	—		—			(1,473		)	—			(1,473		)
Net income available to Third Point Re common shareholders	$	74,328	$	1,982		$	81,784		$	(83,766	)	$	74,328



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2017
(expressed in thousands of U.S. dollars)

	Third Point Re			TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income	$	233,449		$	15,283		$	244,207		$	(256,330	)	$	236,609
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in (earnings) losses of subsidiaries	(237,060		)	(19,305		)	35			256,330			—
Share compensation expense	184			—			3,830			—			4,014
Net interest expense on deposit liabilities	—			—			1,472			—			1,472
Net unrealized gain on investments and derivatives	—			—			(203,299		)	—			(203,299		)
Net realized gain on investments and derivatives	—			—			(180,382		)	—			(180,382		)
Net foreign exchange losses	—			—			10,233			—			10,233
Amortization of premium and accretion of discount, net	—			133			(585		)	—			(452		)
Changes in assets and liabilities:
Reinsurance balances receivable	—			—			(77,444		)	—			(77,444		)
Deferred acquisition costs, net	—			—			(1,473		)	—			(1,473		)
Other assets	(97		)	5,507			288			—			5,698
Interest and dividends receivable, net	—			(2,031		)	2,800			—			769
Unearned premium reserves	—			—			58,299			—			58,299
Loss and loss adjustment expense reserves	—			—			78,931			—			78,931
Accounts payable and accrued expenses	(96		)	(7,960		)	22,229			—			14,173
Reinsurance balances payable	—			—			11,462			—			11,462
Performance fees payable to related party	—			—			73,210			—			73,210
Amounts due from (to) affiliates	1,351			(4,806		)	3,455			—			—
Net cash provided by (used in) operating activities	(2,269		)	(13,179		)	47,268			—			31,820
Investing activities
Purchases of investments	—			—			(2,238,167		)	—			(2,238,167		)
Proceeds from sales of investments	—			—			2,536,688			—			2,536,688
Purchases of investments to cover short sales	—			—			(440,242		)	—			(440,242		)
Proceeds from short sales of investments	—			—			735,132			—			735,132
Change in due to/from brokers, net	—			—			(400,566		)	—			(400,566		)
Change in restricted cash and cash equivalents	—			—			(178,422		)	—			(178,422		)
Net cash provided by investing activities	—			—			14,423			—			14,423
Financing activities
Proceeds from issuance of Third Point Re common shares, net of costs	1,504			—			—			—			1,504
Purchases of Third Point Re common shares under share repurchase program	(40,864		)	—			—			—			(40,864		)
Decrease in deposit liabilities, net	—			—			6,380			—			6,380
Change in total noncontrolling interests in related party, net	—			—			(16,780		)	—			(16,780		)
Dividend received by (paid to) parent	40,000			13,300			(53,300		)	—			—
Net cash provided by (used in) financing activities	640			13,300			(63,700		)	—			(49,760		)
Net increase (decrease) in cash and cash equivalents	(1,629		)	121			(2,009		)	—			(3,517		)
Cash and cash equivalents at beginning of period	1,629			79			8,243			—			9,951
Cash and cash equivalents at end of period	$	—		$	200		$	6,234		$	—		$	6,434



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine months ended September 30, 2016
(expressed in thousands of U.S. dollars)

	Third Point Re			TPRUSA			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income	$	74,328		$	1,982		$	83,257		$	(83,766	)	$	75,801
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in (earnings) losses of subsidiaries	(77,829		)	(6,015		)	78			83,766			—
Share compensation expense	362			—			6,234			—			6,596
Net interest income on deposit liabilities	—			—			(507		)	—			(507		)
Net unrealized loss on investments and derivatives	—			—			(90,675		)	—			(90,675		)
Net realized gain on investments and derivatives	—			—			(62,316		)	—			(62,316		)
Net foreign exchange gains	—			—			(14,359		)	—			(14,359		)
Amortization of premium and accretion of discount, net	—			133			4,821			—			4,954
Changes in assets and liabilities:
Reinsurance balances receivable	—			—			(145,593		)	—			(145,593		)
Deferred acquisition costs, net	—			—			(58,286		)	—			(58,286		)
Other assets	(187		)	(2,171		)	(2,602		)	—			(4,960		)
Interest and dividends receivable, net	—			(2,021		)	(1,676		)	—			(3,697		)
Unearned premium reserves	—			—			137,270			—			137,270
Loss and loss adjustment expense reserves	—			—			111,014			—			111,014
Accounts payable and accrued expenses	(1,561		)	20			3,059			—			1,518
Reinsurance balances payable	—			—			24,013			—			24,013
Performance fees payable to related party	—			—			24,846			—			24,846
Amounts due from (to) affiliates	(345		)	8,067			(7,722		)	—			—
Net cash provided by (used in) operating activities	(5,232		)	(5		)	10,856			—			5,619
Investing activities
Purchases of investments	—			—			(2,803,862		)	—			(2,803,862		)
Proceeds from sales of investments	—			—			2,533,656			—			2,533,656
Purchases of investments to cover short sales	—			—			(978,039		)	—			(978,039		)
Proceeds from short sales of investments	—			—			854,689			—			854,689
Change in due to/from brokers, net	—			—			362,695			—			362,695
Increase in securities sold under an agreement to repurchase	—			—			46,936			—			46,936
Change in restricted cash and cash equivalents	—			—			(34,536		)	—			(34,536		)
Contributed capital to subsidiaries	(5,000		)	5,000			—			—			—
Contributed capital from parent and/or subsidiaries	—			(5,000		)	5,000			—			—
Net cash used in investing activities	(5,000		)	—			(13,461		)	—			(18,461		)
Financing activities
Proceeds from issuance of Third Point Re common shares, net of costs	3,878			—			—			—			3,878
Purchases of Third Point Re common shares under share repurchase program	(7,389		)	—			—			—			(7,389		)
Increase in deposit liabilities, net	—			—			15,928			—			15,928
Change in total noncontrolling interests in related party, net	—			—			1,000			—			1,000
Dividend received by (paid to) parent	15,000			—			(15,000		)	—			—
Net cash provided by financing activities	11,489			—			1,928			—			13,417
Net decrease in cash and cash equivalents	1,257			(5		)	(677		)	—			575
Cash and cash equivalents at beginning of period	308			5			20,094			—			20,407
Cash and cash equivalents at end of period	$	1,565		$	—		$	19,417		$	—		$	20,982

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our unaudited condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report on Form 10-Q.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and ”Special Note Regarding Forward-Looking Statements”. Our actual results may differ materially from those contained in or implied by any forward looking statements.

Special Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, international expansion, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward-looking statements in this Quarterly Report on Form 10-Q.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:


•	fluctuation in results of operations;


•	more established competitors;


•	losses exceeding reserves;


•	downgrades or withdrawal of ratings by rating agencies;


•	dependence on key executives;


•	dependence on letter of credit facilities that may not be available on commercially acceptable terms;


•	dependence on financing available through our investment accounts to secure letters of credit and collateral for reinsurance contracts;


•	potential inability to pay dividends;


•	inability to service our indebtedness;


•	limited cash flow and liquidity due to our indebtedness;


•	unavailability of capital in the future;


•	fluctuations in market price of our common shares;


•	dependence on clients’ evaluations of risks associated with such clients’ insurance underwriting;


•	suspension or revocation of our reinsurance licenses;


•	potentially being deemed an investment company under U.S. federal securities law;


•	potential characterization of Third Point Re and/or Third Point Re BDA as a passive foreign investment company;


•	future strategic transactions such as acquisitions, dispositions, merger or joint ventures;


•	dependence on Third Point LLC to implement our investment strategy;


•	termination by Third Point LLC of our investment management agreements;


•	risks associated with our investment strategy being greater than those faced by competitors;


•	increased regulation or scrutiny of alternative investment advisers affecting our reputation;


•	Third Point Re and/or Third Point Re BDA potentially becoming subject to U.S. federal income taxation, including as a result of the bill currently proposed in the U.S House of Representatives;


•	potentially becoming subject to U.S. withholding and information reporting requirements under the Foreign Account Tax Compliance Act;


•	changes in Bermuda or other law and regulation that may have an adverse impact on our operations; and


•	other risks and factors listed under “Risk Factors” in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Any one of these factors or a combination of these factors could materially affect our financial condition or future results of operations and could influence whether any forward-looking statements contained in this report ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and you should not place undue reliance on them. All forward-looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, while we do, from time to time, communicate with security analysts, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, shareholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.

Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” and the “Company,” as used in this report, refer to Third Point Reinsurance Ltd. (“Third Point Re”) and its directly and indirectly owned subsidiaries, including Third Point Reinsurance Company Ltd. (“Third Point Re BDA”) and Third Point Reinsurance (USA) Ltd. (“Third Point Re USA”), as a combined entity, except where otherwise stated or where it is clear that the terms mean only Third Point Re exclusive of its subsidiaries.

Overview

We are a holding company domiciled in Bermuda. Through our reinsurance subsidiaries, we provide specialty property and casualty reinsurance products to insurance and reinsurance companies on a worldwide basis. Our goal is to deliver attractive equity returns to our shareholders by combining profitable reinsurance underwriting with superior investment management provided by Third Point LLC, our investment manager. We believe that our reinsurance and investment strategy differentiates us from our competitors.

We manage our business on the basis of one operating segment, Property and Casualty Reinsurance. We also have a corporate function that includes our investment income on capital, certain general and administrative expenses related to corporate activities, interest expense, foreign exchange gains (losses) and income tax expense.

Property and Casualty Reinsurance

We provide reinsurance products to insurance and reinsurance companies, government entities, and other risk bearing vehicles. Contracts can be written on an excess of loss basis or quota share basis, although the majority of contracts written to date have been on a quota share basis. In addition, we write contracts on both a prospective basis and a

retroactive basis. Prospective reinsurance contracts cover losses incurred as a result of future insurable events. Retroactive reinsurance contracts cover the potential for changes in estimates of loss and loss adjustment expense reserves related to loss events that have occurred in the past. Retroactive reinsurance contracts can be an attractive type of contract for us as they can generate an underwriting profit should the ultimate loss and loss adjustment expenses settle for less than the initial estimate of reserves and the premiums received at the inception of the contract generate insurance float. The product lines that we currently underwrite for this operating segment are: property, casualty and specialty. We assume a minimal amount of property catastrophe risk and we anticipate that our property catastrophe exposures will consistently remain low when compared to many other reinsurers with whom we compete.

Insurance float is an important aspect of our property and casualty reinsurance operation. In an insurance or reinsurance operation, float arises because premiums from reinsurance contracts and consideration received for deposit accounted contracts are collected before losses are paid on reinsurance contracts and payments are made on deposit accounted contracts. In some instances, the interval between cash receipts and payments can extend over many years. During this time interval, we invest the cash received and seek to generate investment returns. Float is not a concept defined by U.S. GAAP and therefore, there are no comparable U.S. GAAP measures. As a result, net investment income on float, is considered to be a non-GAAP measure.

We believe that over time, our property and casualty reinsurance segment will contribute to our results by both generating underwriting income as well as generating float. In addition, we expect that float will grow over time as our reinsurance operations expand.

Investment Management

Our investment strategy is implemented by our investment manager, Third Point LLC, under two long-term investment management contracts. We directly own the investments that are held in two separate accounts and managed by Third Point LLC on substantially the same basis as Third Point LLC’s main hedge funds.

Non-GAAP Financial Measures and Other Financial Metrics

We have included certain financial measures that are not calculated under standards or rules that comprise GAAP. Such measures, including net investment income on float, book value per share, diluted book value per share, change in diluted book value per share and return on beginning shareholders’ equity, are referred to as non-GAAP financial measures. These non-GAAP financial measures may be defined or calculated differently by other companies. We believe these measures allow for a more complete understanding of our underlying business. These measures are used by management to monitor our results and should not be viewed as a substitute for those determined in accordance with GAAP. Reconciliations of non-GAAP measures to the most comparable GAAP figures are included below.

In addition, we refer to certain financial metrics such as net investment return on investments managed by Third Point LLC, which is an important metric to measure the performance of our investment manager, Third Point LLC. A more detailed description of this financial metric is included below.

Key Performance Indicators

We believe that by combining a disciplined and opportunistic approach to reinsurance underwriting with investment results from the active management of our investment portfolio, we will be able to generate attractive returns for our shareholders.

The table below shows the key performance indicators that we believe are most meaningful in analyzing our consolidated business for the three and nine months ended September 30, 2017 and 2016:



	Three months ended						Nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Key underwriting metrics for Property and Casualty Reinsurance segment:	($ in thousands, except for per share data and ratios)
Net underwriting loss (1)	$	(12,565	)	$	(8,339	)	$	(33,326	)	$	(40,538	)
Combined ratio (1)	111.9		%	106.5		%	108.0		%	110.2		%
Key investment return metrics:
Net investment income	$	88,968		$	88,356		$	324,803		$	134,592
Net investment return on investments managed by Third Point LLC	3.6		%	4.0		%	14.6		%	6.0		%
Key shareholders’ value creation metrics:
Book value per share (2) (3)	$	15.90		$	13.57		$	15.90		$	13.57
Diluted book value per share (2) (3)	$	15.24		$	13.16		$	15.24		$	13.16
Change in diluted book value per share (2)	3.4		%	5.2		%	15.8		%	5.4		%
Return on beginning shareholders’ equity (2)	3.5		%	5.2		%	16.8		%	5.4		%
Invested asset leverage (3)	1.57			1.55			1.57			1.55


(1)	See Note 21 to the accompanying condensed consolidated financial statements for a calculation of net underwriting loss and combined ratio.


(2)	Book value per share, diluted book value per share, change in diluted book value per share and return on beginning shareholders’ equity are non-GAAP financial measures. There are no comparable GAAP measures. See reconciliations below.


(3)	Prior year comparatives represent amounts as of December 31, 2016.

Net Underwriting Income (Loss) for Property and Casualty Reinsurance Segment

One way that we evaluate the performance of our property and casualty reinsurance results is by measuring net underwriting income (loss). We do not measure performance based on the amount of gross premiums written. Net underwriting income or loss is calculated from net premiums earned, less net loss and loss adjustment expenses, acquisition costs and general and administrative expenses related to underwriting activities. See additional information in Note 21 to our condensed consolidated financial statements.

Combined Ratio for Property and Casualty Reinsurance Segment

Combined ratio is calculated by dividing the sum of loss and loss adjustment expenses incurred, net, acquisition costs, net and general and administrative expenses related to underwriting activities by net premiums earned. This ratio is a key indicator of a reinsurance company’s underwriting profitability. A combined ratio of greater than 100% means that loss and loss adjustment expenses, acquisition costs and general and administrative expenses related to underwriting activities exceeded net premiums earned. See additional information in Note 21 to our condensed consolidated financial statements.

Net Investment Income

Net investment income is an important measure that affects overall profitability. Net investment income is primarily affected by the performance of Third Point LLC as our exclusive investment manager and the amount of investable cash, or float, generated by our reinsurance operations. Pursuant to our investment management agreements, Third Point LLC is required to manage our investment portfolio on substantially the same basis as its main hedge funds, subject to certain conditions set forth in our investment guidelines. These conditions include limitations on investing in private securities, a limitation on portfolio leverage, and a limitation on portfolio concentration in individual securities. Our investment management agreements allow us to withdraw cash from our investment accounts with Third Point LLC at any time with three days’ notice to pay claims and with five days’ notice to pay expenses. Net investment income is net of investment fee expenses, which include performance and management fees to related parties.

Net Investment Income on Float

We track cash flows generated by our property and casualty reinsurance operations, or float, in separate accounts that allow us to also track the net investment income generated on the float. We believe that net investment income on float is an important consideration because it assists our management and investors in evaluating the overall contribution of our property and casualty reinsurance operations to our consolidated results. Net investment income on float as presented is a non-GAAP financial measure. See the table below for a reconciliation of net investment income on float to net investment income.

Net investment income for the three and nine months ended September 30, 2017 and 2016 was comprised of the following:



	Three months ended					Nine months ended
	September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016
	($ in thousands)
Net investment income on float	$	26,531		$	22,031	$	93,857		$	32,868
Net investment income on capital	62,971			65,729		231,020			100,646
Net investment income on investments managed by Third Point LLC	89,502			87,760		324,877			133,514
Net gain (loss) on investment in Kiskadee Fund	(534		)	596		(74		)	1,078
Net investment income	$	88,968		$	88,356	$	324,803		$	134,592

Net Investment Return on Investments Managed by Third Point LLC

Net investment return represents the return on our investments managed by Third Point LLC, net of fees. The net investment return on investments managed by Third Point LLC is the percentage change in value of a dollar invested over the reporting period on our investment assets managed by Third Point LLC, net of total noncontrolling interests. The stated return is net of withholding taxes, which are presented as a component of income tax expense in our condensed consolidated statements of income. Net investment return is the key indicator by which we measure the performance of Third Point LLC, our investment manager.

Book Value Per Share and Diluted Book Value Per Share

Book value per share and diluted book value per share are non-GAAP financial measures and there are no comparable GAAP measures. Book value per share is calculated by dividing shareholders’ equity attributable to Third Point Re common shareholders by the number of issued and outstanding shares at period end, net of treasury shares. Diluted book value per share represents book value per share combined with the impact from dilution of all in-the-money share options issued, warrants and unvested restricted shares outstanding as of any period end. For unvested restricted shares with a performance condition, we include the unvested restricted shares for which we consider vesting to be probable. Change in book value per share is calculated by taking the change in book value per share divided by the beginning of period book value per share. Change in diluted book value per share is calculated by taking the change in diluted book value per share divided by the beginning of period diluted book value per share. We believe that long-term growth in diluted book value per share is the most important measure of our financial performance because it allows our management and investors to track over time the value created by the retention of earnings. In addition, we believe this metric is used by investors because it provides a basis for comparison with other companies in our industry that also report a similar measure.

As of September 30, 2017, book value per share was $15.90, representing an increase of $0.54 per share, or 3.5%, from $15.36 per share as of June 30, 2017. As of September 30, 2017, diluted book value per share was $15.24, representing an increase of $0.50 per share, or 3.4%, from $14.74 per share as of June 30, 2017. The increases were primarily due to net income in the period.

As of September 30, 2017, book value per share was $15.90, representing an increase of $2.33 per share, or 17.2%, from $13.57 per share as of December 31, 2016. As of September 30, 2017, diluted book value per share was $15.24,

representing an increase of $2.08 per share, or 15.8%, from $13.16 per share as of December 31, 2016. The increases were primarily due to net income in the period.

The changes in book value per share and diluted book value per share were also impacted by share activity including share repurchases and the issuance of performance restricted shares.

The following table sets forth the computation of basic and diluted book value per share as of September 30, 2017 and December 31, 2016:



	September 30, 2017		December 31, 2016
Basic and diluted book value per share numerator:	($ in thousands, except share and per share amounts)
Shareholders' equity attributable to Third Point Re common shareholders	$	1,612,154	$	1,414,051
Effect of dilutive warrants issued to founders and an advisor	46,512		46,512
Effect of dilutive stock options issued to directors and employees	54,572		52,930
Diluted book value per share numerator:	$	1,713,238	$	1,513,493
Basic and diluted book value per share denominator:
Issued and outstanding shares, net of treasury shares	101,399,735		104,173,748
Effect of dilutive warrants issued to founders and an advisor	4,651,163		4,651,163
Effect of dilutive stock options issued to directors and employees	5,332,833		5,274,333
Effect of dilutive restricted shares issued to directors and employees (1)	1,061,412		878,529
Diluted book value per share denominator:	112,445,143		114,977,773

Basic book value per share	$	15.90	$	13.57
Diluted book value per share	$	15.24	$	13.16


(1)	As of September 30, 2017, the effect of dilutive restricted shares issued to directors and employees was comprised of 98,742 restricted shares with a service condition only and 962,670 restricted shares with a service and performance condition that were considered probable of vesting.

Return on Beginning Shareholders’ Equity Attributable to Third Point Re Common Shareholders

Return on beginning shareholders’ equity attributable to Third Point Re common shareholders as presented is a non-GAAP financial measure. Return on beginning shareholders’ equity attributable to Third Point Re common shareholders is calculated by dividing net income available to Third Point Re common shareholders by the beginning shareholders’ equity attributable to Third Point Re common shareholders. We believe that return on beginning shareholders’ equity attributable to Third Point Re common shareholders is an important measure because it assists our management and investors in evaluating the Company’s profitability. For the nine months ended September 30, 2017, we have also adjusted the beginning shareholders’ equity attributable to Third Point Re common shareholders for the impact of the shares repurchased on a weighted average basis. This adjustment increased the stated returns on beginning shareholders’ equity attributable to Third Point Re common shareholders.

Return on beginning shareholders’ equity for the three and nine months ended September 30, 2017 and 2016 was calculated as follows:



	Three months ended						Nine months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	($ in thousands)
Net income available to Third Point Re common shareholders	$	54,685		$	72,081		$	233,449		$	74,328
Shareholders’ equity attributable to Third Point Re common shareholders - beginning of period	1,556,323			1,380,332			1,414,051			1,379,726
Impact of weighting related to shareholders’ equity from shares repurchased	—			—			(25,023		)	(3,348		)
Adjusted shareholders’ equity attributable to Third Point Re common shareholders - beginning of period	$	1,556,323		$	1,380,332		$	1,389,028		$	1,376,378
Return on beginning shareholders’ equity attributable to Third Point Re common shareholders	3.5		%	5.2		%	16.8		%	5.4		%

Invested asset leverage

Invested asset leverage is a ratio calculated by dividing our net investments managed by Third Point LLC by shareholders’ equity attributable to Third Point Re common shareholders and is a key metric in assessing the amount of insurance float generated by our reinsurance operation that has been invested by our investment manager, Third Point LLC. Given the sensitivity of our return on beginning shareholders’ equity to our net investment return on investments managed by Third Point LLC, invested asset leverage is an important metric that management monitors. It is also an important metric by which we evaluate our capital adequacy for rating agency and regulatory purposes. Maintaining an appropriate invested asset leverage in order to optimize the return potential of the Company, while maintaining sufficient rating agency and regulatory capital is an important aspect of how we manage the Company.

Revenues

We derive our revenues from two principal sources:


•	premiums from property and casualty reinsurance business assumed; and


•	income from investments.

Premiums from our property and casualty reinsurance business assumed are directly related to the number, type and pricing of contracts we write. Premiums are earned over the contract period based on the exposure period of the underlying contracts of the ceding company.

Income from our investments is primarily comprised of interest income, dividends, and net realized and unrealized gains on investment securities included in our investment portfolio.

Expenses

Our expenses consist primarily of the following:


•	loss and loss adjustment expenses;


•	acquisition costs;


•	investment-related expenses;


•	general and administrative expenses;


•	other expenses;


•	interest expense;


•	foreign exchange; and


•	income taxes.

Loss and loss adjustment expenses are a function of the amount and type of reinsurance contracts we write and loss experience of the underlying coverage. Loss and loss adjustment expenses are based on an actuarial analysis of the

estimated losses, including losses incurred during the period and changes in estimates from prior periods. Depending on the nature of the contract, loss and loss adjustment expenses may be paid over a number of years.

Acquisition costs consist primarily of brokerage fees, ceding commissions, premium taxes and other direct expenses that relate to writing reinsurance contracts and are presented net of commissions ceded under reinsurance contracts. We amortize deferred acquisition costs in the same proportion that the premiums are earned.

Investment-related expenses primarily consist of management fees we pay to our investment manager, Third Point LLC, and performance fees we pay to TP GP. A 1.5% management fee calculated on net investment assets under management is paid monthly to Third Point LLC. In addition, a performance fee equal to 20% of the net investment income is paid annually to TP GP. See Note 8 to our condensed consolidated financial statements for additional information on our Founders and management, performance and founders fees. The performance fee is subject to a loss carryforward provision pursuant to which TP GP is required to maintain a loss recovery account, which represents the sum of all prior period net loss amounts, not offset by prior year net profit amounts, and that is allocated to future profit amounts until the loss recovery account has returned to a positive balance. Until such time, no performance fees are payable under the Investment Agreements.

General and administrative expenses consist primarily of salaries, benefits and related payroll costs, including costs associated with our incentive compensation plan, share compensation expense, legal and accounting fees, travel and client entertainment, fees relating to our letter of credit facilities, information technology, occupancy and other general operating expenses.

Other expenses consist of investment credit expenses on deposit and reinsurance contracts and changes in the fair value of embedded derivatives in our deposit and reinsurance contracts.

Interest expense consists of interest expense incurred on TPRUSA’s $115.0 million senior unsecured notes (the “Notes”) issued in February 2015. The Notes bear interest at 7.0% and interest is payable semi-annually on February 13 and August 13 of each year. Also included in interest expense is the amortization of certain costs incurred in issuing the Notes. These costs are amortized over the term of the debt and are included in interest expense.

Foreign exchange gains (losses) consist of the revaluation of monetary assets and liabilities denominated in foreign currencies to U.S. dollar, our functional currency.

Income taxes consist primarily of taxes incurred in the U.S. as a result of our U.S. operations and withholding taxes and uncertain tax positions on certain investment transactions in the U.S. and in certain foreign jurisdictions.

Business Outlook

The reinsurance markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by the availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more favorable for insurers and reinsurers. Historically, underwriting capacity has been affected by several factors, including industry losses, the impact of catastrophes, changes in legal and regulatory guidelines, new entrants and investment results including interest rate levels and the credit ratings and financial strength of competitors.

For the past several years, there has been significant underwriting capacity available and market conditions have been challenging. We believe this excess capacity was primarily due to strong retained earnings in the reinsurance industry as a result of historically low catastrophe losses, an influx of capacity from collateralized reinsurance and other insurance-linked securities vehicles and increased competition from new entrants. While we do not participate in the property catastrophe excess of loss reinsurance segment, we believe that traditional reinsurers facing extreme price pressure in this segment were more aggressively pursuing our targeted lines of business. During the third quarter of 2017, the insurance industry was impacted by significant catastrophe losses, including losses caused by hurricanes Harvey, Irma and Maria and two earthquakes in Mexico. Considering the third quarter catastrophe losses, other smaller catastrophe losses incurred earlier in the year and subsequent to the third quarter, AIR Worldwide, Risk Management Solutions, Inc., and other industry experts believe that the amount of insured catastrophe losses for 2017 will exceed $100 billion.

It is uncertain at this point what impact that these significant catastrophe losses will have on the property catastrophe and the broader reinsurance markets.

We focus on segments and clients where we believe we benefit from relatively more attractive pricing opportunities due to the strength of our relationships, the tailored nature of our reinsurance solutions, an acute need for reinsurance capital as a result of market dislocation, a client’s growth or historically poor performance. We expect to see increased demand for our products as companies that sustained significant catastrophe losses look for ways to bolster their capital positions but it is unclear how the supply of capacity to unaffected lines of business will be impacted.

We believe that we are well positioned to benefit from any improvement in terms and conditions and/or increased demand given our modest losses from the recent catastrophe events and strong balance sheet position as well as our focus on customized reinsurance solutions for our clients to support their capital needs. Most of our senior management team have spent decades within the reinsurance market and have strong relationships with intermediaries and reinsurance buyers from which we are receiving a strong flow of submissions in the lines and types of reinsurance we target. Although we are typically presented by brokers with proposed structures on syndicated deals, we often seek to customize the proposed solution for the client while improving our risk and return profile and establishing our position as the lead reinsurer in the transaction. We also look for non-syndicated opportunities where a highly customized solution is needed. These solutions may take the form of aggregate stop loss covers, loss portfolio transfers or other forms of reserve covers where clients seek capital relief and enhanced investment returns on the assets that back their loss and unearned premium reserves.

During our first four years of operation through 2015, we had significant premium growth and float generation and reached a premium level that supports our fixed expense base and an invested asset leverage that appropriately utilizes our capital. As a result of challenging market conditions, it has been more difficult to originate reinsurance opportunities that meet our underwriting standards and therefore gross written premium in 2016 was slightly lower than 2015. Given our focus on improving underwriting results, it is possible that our premiums written for 2017 may decline further. However, we believe that the recent catastrophe events will help to expose the industry’s underpricing of risk in many areas and could lead to an improvement in market conditions going forward.

Consolidated Results of Operations—Three and nine months ended September 30, 2017 and 2016:

The following table sets forth the key items discussed in the consolidated results of operations section, and the period over period change, for the three and nine months ended September 30, 2017 and 2016:



	Three months ended									Nine months ended
	September 30, 2017			September 30, 2016			Change			September 30, 2017			September 30, 2016			Change
	($ in thousands)
Net underwriting income (loss)	$	(12,565	)	$	(8,339	)	$	(4,226	)	$	(33,326	)	$	(40,538	)	$	7,212
Net investment income	88,968			88,356			612			324,803			134,592			190,211
Net investment return on investments managed by Third Point LLC	3.6		%	4.0		%	(0.4		)%	14.6		%	6.0		%	8.6		%
General and administrative expenses (1)	(5,927		)	(5,974		)	47			(15,552		)	(14,358		)	(1,194		)
Other expenses	(3,846		)	(347		)	(3,499		)	(8,852		)	(6,226		)	(2,626		)
Foreign exchange gains (losses)	(5,437		)	3,905			(9,342		)	(10,233		)	14,359			(24,592		)
Income tax expense	(3,475		)	(2,484		)	(991		)	(14,080		)	(5,865		)	(8,215		)
Net income available to Third Point Re common shareholders	$	54,685		$	72,081		$	(17,396	)	$	233,449		$	74,328		$	159,121

(1) Corporate function only.

A key driver of our consolidated results of operations is the performance of our investments managed by Third Point LLC. Given the nature of the underlying investment strategies, we expect volatility in our investment returns and

therefore in our consolidated net income. See additional information regarding investment performance in “Investment Results” section below.

The other key changes in net income for the three and nine months ended September 30, 2017 compared to the prior year periods were primarily due to the following:

Changes in net underwriting results:

•

The increase in net underwriting loss for the three months ended September 30, 2017 compared to three months ended September 30, 2016 was primarily due to $5.3 million of net underwriting losses as a result of third quarter catastrophes, compared to no catastrophe losses in the prior year period, and an increase in general and administrative expense. See “Segment Results” below for additional details.

•

The decrease in net underwriting loss for the nine months ended September 30, 2017 compared to nine months ended September 30, 2016 was primarily due to adverse development on certain contracts in the prior year period, partially offset by $5.3 million of net underwriting losses as a result of third quarter catastrophes and an increase in general and administrative expenses. See “Segment Results” below for additional details.

Other key variances:

•

The increase in general and administrative expense in our corporate function for the nine months ended September 30, 2017 was primarily due to an increase in our annual incentive plan compensation expense, partially offset by lower stock compensation expense in the current year period and separation costs in the prior year period. Our annual incentive plan is based on the Company’s return on average equity and we increased our accrual to reflect the performance of the Company year-to-date.

•

The change in foreign exchange gains (losses) was primarily due to the revaluation of foreign currency loss and loss adjustment expense reserves denominated in British pounds into the United States dollar, which had strengthened during the prior year period compared to the current year period. For these contracts, non-U.S. dollar reinsurance assets, or balances held in trust accounts securing reinsurance liabilities generally offset reinsurance liabilities in the same non-U.S. dollar currencies resulting in minimal net exposure. As a result, the foreign exchange losses on loss and loss adjustment expense reserves in the period are offset by corresponding foreign exchange gains included in net investment income resulting from the revaluation of foreign currency reinsurance collateral held in trust accounts.


•	The increase in other expenses for the three and nine months ended September 30, 2017 was primarily due to revised estimates of underlying assumptions on our deposit liability contracts in the three months ended September 30, 2016 that resulted in a decrease in other expenses in the prior year periods.


•	The increase in income tax expense for the nine months ended September 30, 2017 was primarily the result of an increase in taxable income generated by our U.S. subsidiaries.

Segment Results—Three and nine months ended September 30, 2017 and 2016.

The determination of our reportable segments is based on the manner in which management monitors the performance of our operations. For the periods presented, our business comprises one operating segment, Property and Casualty Reinsurance. We have also identified a corporate function that includes investment results, certain general and administrative expenses related to corporate activities, interest expense, foreign exchange (gains) losses and income tax expense.

Property and Casualty Reinsurance

The following table sets forth net underwriting results and ratios, and the period over period changes for the Property and Casualty Reinsurance segment for the three and nine months ended September 30, 2017 and 2016:



	Three months ended									Nine months ended
	September 30, 2017			September 30, 2016			Change			September 30, 2017			September 30, 2016			Change
	($ in thousands)
Gross premiums written	$	174,539		$	142,573		$	31,966		$	477,457		$	536,595		$	(59,138	)
Net premiums earned	105,975			128,183			(22,208		)	417,542			398,107			19,435
Loss and loss adjustment expenses incurred, net	77,275			85,015			(7,740		)	270,549			273,822			(3,273		)
Acquisition costs, net	33,974			45,127			(11,153		)	157,067			145,296			11,771
General and administrative expenses	7,291			6,380			911			23,252			19,527			3,725
Net underwriting income (loss )	(12,565		)	(8,339		)	(4,226		)	(33,326		)	(40,538		)	7,212
Net investment income on float	26,531			22,031			4,500			93,857			32,868			60,989
Other expenses	(3,846		)	(347		)	(3,499		)	(8,852		)	(6,226		)	(2,626		)
Segment income (loss)	$	10,120		$	13,345		$	(3,225	)	$	51,679		$	(13,896	)	$	65,575
Underwriting ratios (1):
Loss ratio	72.9		%	66.3		%	6.6		%	64.8		%	68.8		%	(4.0		)%
Acquisition cost ratio	32.1		%	35.2		%	(3.1		)%	37.6		%	36.5		%	1.1		%
Composite ratio	105.0		%	101.5		%	3.5		%	102.4		%	105.3		%	(2.9		)%
General and administrative expense ratio	6.9		%	5.0		%	1.9		%	5.6		%	4.9		%	0.7		%
Combined ratio	111.9		%	106.5		%	5.4		%	108.0		%	110.2		%	(2.2		)%


(1)	Underwriting ratios are calculated by dividing the related expense by net premiums earned.

Gross Premiums Written

The amount of gross premiums written and earned that we recognize can vary significantly from period to period due to several reasons, which include:


•	We write a small number of large contracts; therefore individual renewals or new business can have a significant impact on premiums recognized in a period;


•	We offer customized solutions to our clients, including reserve covers, on which we will not have a regular renewal opportunity;


•	We record gross premiums written and earned for reserve covers, which are considered retroactive reinsurance contracts, at the inception of the contract;


•	We write multi-year contracts that will not necessarily renew in a comparable period;


•	We may extend and/or amend contracts resulting in premium that will not necessarily renew in a comparable period;


•	Our reinsurance contracts often contain commutation and/or cancellation provisions; and


•	Our quota share reinsurance contracts are subject to significant judgment in the amount of premiums that we expect to recognize and changes in premium estimates are recorded in the period they are determined.

As a result of these factors, we may experience volatility in the amount of gross premiums written and net premiums earned and period to period comparisons may not be meaningful.

The following table provides a breakdown of our Property and Casualty Reinsurance segment’s gross premiums written by line of business for the three and nine months ended September 30, 2017 and 2016:



	Three months ended									Nine months ended
	September 30, 2017					September 30, 2016				September 30, 2017					September 30, 2016
	($ in thousands)
Property	$	(3	)	—	%	$	56,632	39.7	%	$	(8,818	)	(1.9	)%	$	63,714	11.9	%
Casualty	161,110			92.3	%	26,640		18.7	%	366,455			76.8	%	187,146		34.9	%
Specialty	13,432			7.7	%	59,301		41.6	%	119,820			25.1	%	285,735		53.2	%
	$	174,539		100.0	%	$	142,573	100.0	%	$	477,457		100.0	%	$	536,595	100.0	%

The increase in gross premiums written of $32.0 million, or 22.4%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was driven by:

Factor resulting in an increase:


•	For the three months ended September 30, 2017, we wrote $154.0 million of new premium, of which $141.5 million was casualty business and $12.5 million was specialty business.

Factors resulting in decreases:


•	We recognized premium of $109.1 million for the three months ended September 30, 2016 related to the net impact of contract extensions, cancellations and contracts written with no comparable premium in the current year period.

•

We recorded net increases in premium estimates relating to prior periods of $9.2 million and $18.6 million for the three months ended September 30, 2017 and 2016, respectively. The increases in premium estimates for the three months ended September 30, 2017 and 2016 were due to several contracts for which clients provided updated projections indicating that they expected to write more business than initially estimated.


•	Changes in renewal premiums for the three months ended September 30, 2017 resulted in a net decrease in premiums of $3.5 million. Premiums can change on renewals of contracts due to a number of factors, including changes in our line size or participation, changes in the underlying premium volume and pricing trends of the client’s program as well as other contractual terms and conditions.

The decrease in gross premiums written of $59.1 million, or 11.0%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was driven by:

Factors resulting in decreases:


•	We recognized $164.9 million of premium in the nine months ended September 30, 2016 related to contracts that we did not renew in the nine months ended September 30, 2017 as a result of underlying terms and conditions.


•	We recognized a net increase in premium of $83.0 million in the nine months ended September 30, 2017 compared to a net increase of $221.9 million in the nine months ended September 30, 2016 related to the net impact of contract extensions, cancellations and contracts renewed with no premium in the comparable period.

•

We recorded net increases in premium estimates relating to prior periods of $21.4 million and $52.8 million for the nine months ended September 30, 2017 and 2016, respectively. The increases in premium estimates for the nine months ended September 30, 2017 and 2016 were due to several contracts for which clients provided updated projections indicating that they expected to write more business than initially estimated.


•	Changes in renewal premiums for the nine months ended September 30, 2017 resulted in a net decrease in premiums of $7.6 million. Premiums can change on renewals of contracts due to a number of factors, including: changes in our line size or participation, changes in the underlying premium volume and pricing trends of the client’s program as well as other contractual terms and conditions.

Factor resulting in an increase:


•	For the nine months ended September 30, 2017, we wrote $283.7 million of new premium, of which $265.0 million was casualty business and $18.7 million was specialty business.

Net Premiums Earned

The decrease in net premiums earned in the three months ended September 30, 2017 compared to the three months ended September 30, 2016 was primarily due to a lower in-force underwriting portfolio.

The increase in net premiums earned in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily due to the addition of $85.6 million of new retroactive exposures in reinsurance contracts in the current year period, which was fully earned when written, partially offset by a lower in-force underwriting portfolio. We did not write any retroactive reinsurance contracts in the three and nine months ended September 30, 2016.

Net Loss and Loss Adjustment Expenses

The reinsurance contracts we write have a wide range of initial loss ratio estimates. As a result, our net loss and loss expense ratio can vary significantly from period to period depending on the mix of business. The change in our net loss and loss adjustment expenses and related ratio was primarily affected by changes in mix of business, prior years’ reserve development and catastrophe losses in 2017.

For the three and nine months ended September 30, 2017, we incurred $5.3 million of net loss and loss adjustment expenses as a result of third quarter catastrophe losses compared to no catastrophe losses in the prior year periods.

The following is a summary of the net impact from reserve development for the three and nine months ended September 30, 2017 and 2016:

For the three months ended September 30, 2017, we incurred $0.8 million of net adverse prior years’ reserve development, offset by net decreases of $0.8 million in acquisition costs, resulting in minimal impact in net underwriting loss. The net underwriting loss impact of the adverse loss development was primarily due to the following factors:


•	$8.8 million of net adverse loss development as a result of worse than expected loss experience on one retroactive reinsurance contract.


•	$9.2 million of net favorable loss development relating to casualty contracts where cedants reported better than expected loss experience.

The contracts that contributed to the loss reserve development above each had profit commission terms such that the loss reserve development associated with these contracts was offset by similar changes in acquisition costs, resulting in minimal impact in net underwriting loss.

For the three months ended September 30, 2016, we incurred $0.5 million of net adverse prior years’ reserve development, offset by net decreases of $0.5 million in acquisition costs, resulting in minimal impact in net underwriting loss. The net underwriting loss impact of the adverse loss development was primarily due to the following factors:

•$1.4 million of net favorable underwriting loss development across several lines of business; and


•	$1.3 million of net adverse underwriting loss development relating to non-standard auto contracts.

For the nine months ended September 30, 2017, we incurred $31.7 million of net favorable prior years’ reserve development. The $31.7 million of net favorable prior years’ reserve development for the nine months ended September 30, 2017 was primarily a result of net favorable loss development on certain retroactive reinsurance contracts. These retroactive reinsurance contracts had profit commission terms such that the net favorable reserve development associated with these contracts was offset by similar increases in acquisition costs, resulting in minimal impact in net underwriting loss.

For the nine months ended September 30, 2016, we incurred $15.0 million of net adverse prior years’ reserve development. The $15.0 million of net adverse prior years’ reserve development for the nine months ended September 30, 2016 was accompanied by net decreases of $2.5 million in acquisition costs, resulting in a net increase of $12.5

million in net underwriting loss, or 3.1 percentage points. The net underwriting loss impact of the adverse loss development was primarily due to:


•	$4.8 million of net adverse underwriting loss development relating to one multi-line contract written since 2014. This contract contains underlying commercial auto physical damage and auto extended warranty exposure. The adverse loss experience is a result of an increase in the number of reported claims and inadequate pricing in certain segments of the underlying business;

•

$3.5 million of net adverse underwriting loss development relating to our Florida homeowners’ reinsurance contracts primarily as a result of higher than anticipated water damage claims and an increase in the practice of assignment of benefits whereby homeowners assign their rights for filing and settling claims to attorneys and public adjusters, which we believe has led to increases in the frequency of claims reported as well as the severity of losses and loss adjustment expenses. Contracts for which we experienced this adverse loss development have not been renewed;


•	$3.3 million of net adverse underwriting loss development relating to a workers’ compensation contract written in 2012, 2013, and 2014 under which we have been experiencing claims developing with higher than anticipated severity, which led to an increase in our previous loss assumptions on this contract; and


•	$3.1 million of net adverse underwriting loss development relating to non-standard auto contracts, primarily due to the inability of cedents to promptly react to increasing frequency and severity trends, resulting in underpriced business and adverse selection.

Acquisition Costs

Acquisition costs include commissions, brokerage and excise taxes. Acquisition costs are presented net of commissions on reinsurance ceded. The reinsurance contracts we write have a wide range of acquisition cost ratios. As a result, our acquisition cost ratio can vary significantly from period to period depending on the mix of business. Furthermore, a number of our contracts have a sliding scale commission or profit commission feature that will vary depending on the expected loss expense for the contract. As a result, changes in estimates of loss and loss adjustment expenses on a contract can result in changes in the sliding scale commissions or profit commissions and a contract’s overall acquisition cost ratio.

Most of our contracts have similar expected composite ratios (combined ratio before general and administrative expenses); therefore, contracts with higher initial loss ratio estimates have lower acquisition cost ratios and contracts with lower initial loss ratios have higher acquisition cost ratios.

The decrease in acquisition costs, net, and the related acquisition cost ratio for the three months ended September 30, 2017 was primarily due to a change in mix of business and lower earned premiums in the current year period resulting in a lower acquisition cost expense amount.

The increase in acquisition costs, net, and the related acquisition cost ratio for the nine months ended September 30, 2017 was primarily due to net favorable development on retroactive reinsurance contracts which have profit commission terms such that the favorable development associated with these contracts was offset by similar increases in acquisition costs, partially offset by a change in business mix. See additional information in Net Loss and Loss Adjustment Expenses section above.

Net Investment Income

Net investment income allocated to the Property and Casualty Reinsurance segment consists of net investment income on float. The increase in net investment income on float for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was primarily due to the increase in investment returns compared to the prior year periods. See the discussion of net investment income under “Corporate Function” below for explanations of the investment returns on investments managed by Third Point LLC and total net investment income for the years presented.

General and Administrative Expenses

The increase in general and administrative expenses and the related general and administrative expenses ratio for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was primarily due to an increase in our annual incentive plan compensation expense, partially offset by lower stock compensation expense as a result of most stock options granted to certain employees being fully vested. Our annual incentive plan is based on the Company’s return on average equity and we increased our accrual to reflect the performance of the Company year-to-date.

Other expenses

The increase in other expenses for the three and nine months ended September 30, 2017 was primarily due to revised estimates of underlying assumptions on our deposit liability contracts in the three months ended September 30, 2016 that resulted in a decrease in other expenses in the prior year periods.

Corporate Function

The following table sets forth net income and the period over period changes for the Corporate Function for the three and nine months ended September 30, 2017 and 2016:



	Three months ended									Nine months ended
	September 30, 2017			September 30, 2016			Change			September 30, 2017			September 30, 2016			Change
	($ in thousands)
Net investment income on capital	$	62,437		$	66,325		$	(3,888	)	$	230,946		$	101,724		$	129,222
General and administrative expenses	(5,927		)	(5,974		)	47			(15,552		)	(14,358		)	(1,194		)
Interest expense	(2,074		)	(2,069		)	(5		)	(6,151		)	(6,163		)	12
Foreign exchange gains (losses)	(5,437		)	3,905			(9,342		)	(10,233		)	14,359			(24,592		)
Income tax expense	(3,475		)	(2,484		)	(991		)	(14,080		)	(5,865		)	(8,215		)
Segment loss attributable to noncontrolling interests	(959		)	(967		)	8			(3,160		)	(1,473		)	(1,687		)
Segment income	$	44,565		$	58,736		$	(14,171	)	$	181,770		$	88,224		$	93,546

Investment Results

The primary driver of our net investment income is the returns generated by our investment portfolio managed by our investment manager, Third Point LLC. The following is a summary of the net investment return on investments managed by Third Point LLC by investment strategy for the three and nine months ended September 30, 2017 and 2016:



	Three months ended
	September 30, 2017						September 30, 2016
	Long		Short		Net		Long		Short		Net
Equity	3.5	%	(0.9	)%	2.6	%	4.1	%	(2.2	)%	1.9	%
Credit	0.5	%	(0.1	)%	0.4	%	2.1	%	(0.1	)%	2.0	%
Other	0.9	%	(0.3	)%	0.6	%	0.2	%	(0.1	)%	0.1	%
Net investment return on investments managed by Third Point LLC	4.9	%	(1.3	)%	3.6	%	6.4	%	(2.4	)%	4.0	%

S&P 500 Total Return Index					4.5	%					3.9	%

	Nine months ended
	September 30, 2017						September 30, 2016
	Long		Short		Net		Long		Short		Net
Long/short equities	16.8	%	(3.0	)%	13.8	%	3.8	%	(2.5	)%	1.3	%
Credit	0.6	%	(0.5	)%	0.1	%	6.5	%	(0.7	)%	5.8	%
Other	1.9	%	(1.2	)%	0.7	%	0.1	%	(1.2	)%	(1.1	)%
Net investment return on investments managed by Third Point LLC	19.3	%	(4.7	)%	14.6	%	10.4	%	(4.4	)%	6.0	%

S&P 500 Total Return Index					14.2	%					7.8	%

For the three months ended September 30, 2017, the investment portfolio generated positive net returns from each investment strategy with equities remaining the strongest performing strategy for the quarter. Gains generated from long investments in every sector except consumer were partially offset by losses in the short portfolios for most sectors as well as market hedges. Performance was primarily attributable to long activist or long-term growth investments in the industrials, healthcare and technology, media and telecommunications sectors. Within credit, long sovereign investments in Latin America and U.S.-based structured credit positions drove gains. Exposure in the other strategy remains modest and positive returns from long risk arbitrage, currency, private and macroeconomic portfolios were partially offset by losses in the corresponding short portfolios.

For the nine months ended September 30, 2017, the net investment results were primarily attributable to our equity portfolio. Within equities, the investment account saw positive net returns from every sector led by healthcare, industrials, consumer and technology, media and telecommunications. The long portfolio added meaningful returns while the short portfolio generated alpha amidst a strong broader market backdrop. Within credit, gains in each sub-strategy on the long side were partially offset by negative performance by the short performing credit book. Positive returns from risk arbitrage, private and currency investments negated modest detraction from macroeconomic hedges in the other strategy.

For the three months ended September 30, 2016, we generated positive performance in each of our investment strategies. Within equities, we generated positive returns within each long equity sub-sector/strategy, with consumer and technology, media and telecommunications being notable performers. The gains in our long equity portfolio were partially offset by losses in our short equity positions, including equity hedges. Within our credit strategy, performing credit was the primary contributor to the positive returns for the quarter. The macro and other strategy also contributed modestly to returns.

For the nine months ended September 30, 2016, we generated positive results despite a volatile market environment.

Within equities, positive performance within our long equity portfolio was reduced by losses from one long equity

healthcare position. The net gains in our long equity portfolio were partially offset by losses in our short equity positions, including equity hedges. Within credit, our sovereign and performing credit portfolios contributed positive performance with positions traded within the energy sector driving performing credit and one sovereign position contributing significantly to returns for the year to date period. The macro and other category reduced returns for the nine months ended September 30, 2016 primarily due to negative performance from several currency and portfolio macroeconomic hedges.

Refer to “ITEM 3. Quantitative and Qualitative Disclosures about Market Risks” for a list of risks and factors that could adversely impact our investments results.

General and Administrative Expenses

General and administrative expenses allocated to corporate activities include allocations of payroll and related costs for certain executives and non-underwriting staff. We also allocate a portion of overhead and other related costs based on a headcount analysis. The increase in general and administrative expenses related to corporate activities for the nine months ended September 30, 2017 was primarily due to an increase in our annual incentive plan compensation expense, partially offset by lower stock compensation expense in the current year period and separation costs in the prior year period. Our annual incentive plan is based on the Company’s return on average equity and we increased our accrual to reflect the performance of the Company year-to-date.

Interest Expense

In February 2015, TPRUSA issued $115.0 million of senior notes bearing 7.0% interest. As a result, our consolidated results of operations include interest expense.

Foreign Exchange Gains (Losses)

The foreign exchange losses for the three and nine months ended September 30, 2017 compared to the foreign exchange gains for the three and nine months ended September 30, 2016 was primarily due to the revaluation of foreign currency loss and loss adjustment expense reserves denominated in British pounds into the United States dollar, which had strengthened during the prior year period compared to the current year period. For these contracts, non-U.S. dollar reinsurance assets, or balances held in trust accounts securing reinsurance liabilities generally offset reinsurance liabilities in the same non-U.S. dollar currencies resulting in minimal net exposure. As a result, the foreign exchange losses on loss and loss adjustment expense reserves in the period are offset by corresponding foreign exchange gains included in net investment income resulting from the revaluation of foreign currency reinsurance collateral held in trust accounts. Refer to “ITEM 3. Quantitative and Qualitative Disclosures about Market Risks” for further discussion on foreign currency risk related to our reinsurance contracts.

Income Taxes

See Note 13 to our condensed consolidated financial statements for additional information regarding income taxes. The increase in income tax expense for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily due to higher taxable income generated by our U.S. subsidiaries.

Liquidity and Capital Resources

Our investment portfolio is concentrated in tradeable securities and is marked to market each day. Pursuant to our investment guidelines as specified in our two investment management agreements with Third Point LLC, at least 60% of our portfolio must be invested in securities of publicly traded companies and governments of Organization of Economic Co-operation and Development high income countries, asset-backed securities, cash, cash equivalents and gold and other precious metals. We can liquidate all or a portion of our investment portfolio at any time with not less than three days’ notice to pay claims on our reinsurance contracts, and with not less than five days’ notice to pay for expenses, and on not less than three days’ notice in order to satisfy a requirement of A.M. Best. Since we do not write excess of loss property catastrophe contracts or other types of reinsurance contracts that are typically subject to sudden, acute, liquidity demands, we believe the liquidity provided by our investment portfolio will be sufficient to satisfy our liquidity requirements to manage our operations.

As of September 30, 2017, $1,945.2 million, or 71.9% (December 31, 2016 - $1,452.3 million, or 54.9%) of our total investments in securities were classified as Level 1 assets, which are defined as securities valued using quoted prices available in active markets. See Note 4 to our condensed consolidated financial statements for additional information on the framework for measuring fair value established by U.S. GAAP disclosure requirements.

General

Third Point Re is a holding company and has no substantial operations of its own and has moderate cash needs, most of which are related to the payment of corporate expenses. Its assets consist primarily of its investments in subsidiaries. Third Point Re’s ability to pay dividends or return capital to shareholders will depend upon the availability of dividends or other statutorily permissible distributions from those subsidiaries.

We and our Bermuda subsidiaries are subject to Bermuda regulatory constraints that affect our ability to pay dividends. Under the Companies Act, as amended, a Bermuda company may declare or pay a dividend out of distributable reserves only if it has reasonable grounds for believing that it is, or would after the payment, be able to pay its liabilities as they become due and if the realizable value of its assets would thereby not be less than its liabilities. Under the Insurance Act, Third Point Re BDA and Third Point Re USA, as Class 4 insurers, are prohibited from declaring or paying a dividend if they are in breach of their respective minimum solvency margin (“MSM”), enhanced capital requirement (“ECR”) or minimum liquidity ratio or if the declaration or payment of such dividend would cause such a breach. Where either Third Point Re BDA or Third Point Re USA, as Class 4 insurers, fails to meet its MSM or minimum liquidity ratio on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the Bermuda Monetary Authority (“BMA”).

In addition, each of Third Point Re BDA and Third Point Re USA, as Class 4 insurers, is prohibited from declaring or paying in any financial year dividends of more than 25% of its respective total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least seven days before payment of such dividend) with the BMA an affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the insurer’s directors are resident in Bermuda) and the principal representative stating that it will continue to meet its solvency margin and minimum liquidity ratio.

As of December 31, 2016, Third Point Re BDA could pay dividends to Third Point Re of approximately $326.9 million. Third Point Re USA has also entered into a Net Worth Maintenance Agreement that further restricts the amount of capital and surplus it has available for the payment of dividends. In order to remain in compliance with the Net Worth Maintenance Agreement we have entered into with Third Point Re USA (the “Net Worth Maintenance Agreement”), we have committed to ensuring that Third Point Re USA will maintain a minimum level of capital of $250.0 million. Failure of Third Point Re USA to maintain the minimum level of capital required by the Net Worth Maintenance Agreement could limit or prevent Third Point Re USA from paying dividends to us. As a result, Third Point Re USA could pay dividends ultimately to Third Point Re of approximately $19.6 million as of December 31, 2016.

In addition to the regulatory and other contractual constraints to paying dividends, we manage the capital of the group and each of our operating subsidiaries to support our current ratings from A.M. Best. This could further reduce the ability and amount of dividends that could be paid from Third Point Re BDA or Third Point Re USA to Third Point Reinsurance Ltd. After several years of premium growth and float generation from our inception, we have reached a

level that allows us to rationalize our expense base and appropriately utilize our capital. Given difficult market conditions and our focus on improving our underwriting results, we plan to remain selective in our underwriting which may slow the growth rate of our gross written premium.

Liquidity and Cash Flows

Historically, our sources of funds have primarily consisted of premiums written, reinsurance recoveries, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay loss and loss adjustment expenses, reinsurance premiums, acquisition costs, interest expense, taxes, general and administrative expenses and to purchase investments.

Our cash flows from operations generally represent the difference between: (l) premiums collected and investment earnings realized and (2) loss and loss expenses paid, reinsurance purchased, underwriting and other expenses paid. Cash flows from operations may differ substantially from net income and may be volatile from period to period depending on the underwriting opportunities available to us and other factors. Due to the nature of our underwriting portfolio, claim payments can be unpredictable and may need to be made within relatively short periods of time. Claim payments can also be required several months or years after premiums are collected.

Operating, investing and financing cash flows for the nine months ended September 30, 2017 and 2016 were as follows:



	2017			2016
	($ in thousands)
Net cash provided by operating activities	$	31,820		$	5,619
Net cash provided by (used in) investing activities	14,423			(18,461		)
Net cash provided by (used in) financing activities	(49,760		)	13,417
Net increase (decrease) in cash and cash equivalents	(3,517		)	575
Cash and cash equivalents at beginning of period	9,951			20,407
Cash and cash equivalents at end of period	$	6,434		$	20,982

Operating Activities

Cash flows provided by operating activities generally represent net premiums collected less loss and loss adjustment expenses, acquisition costs and general and administrative expenses paid. The increase in cash flows from operating activities in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is primarily due to higher float generated from our reinsurance operations in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Excess cash generated from our operating activities is typically then invested by Third Point LLC.

For the nine months ended September 30, 2017 and 2016, we contributed $41.1 million and $24.1 million, respectively, to our separate accounts managed by Third Point LLC from float generated from our reinsurance operations. These amounts do not correspond to the net cash provided by operating activities as presented in the condensed consolidated statements of cash flows prepared in accordance with U.S. GAAP. The amount of float can vary significantly from period to period depending on the timing, type and size of reinsurance contracts we bind. Refer to “ITEM 2. Management’s Discussion and Analysis - Property and Casualty Reinsurance” for a definition of insurance float.

Investing Activities

Cash flows provided by investing activities primarily reflects investment activities related to our separate accounts managed by Third Point LLC. Cash flows provided by investing activities for the nine months ended September 30, 2017 primarily relates to proceeds from the sale of certain investments to fund cash flows from operations and share repurchases of $40.9 million. Cash flows used in investing activities for the nine months ended September 30, 2016 primarily reflects the investment of float generated from our reinsurance operations, including the proceeds from deposit liability contracts.

Financing Activities

Cash flows used in financing activities for the nine months ended September 30, 2017 consisted of $16.8 million of net withdrawals from total noncontrolling interests and $40.9 million for shares repurchased. Cash flows provided by financing activities for the nine months ended September 30, 2016 consisted of contributions received on deposit liability contracts and proceeds from the exercise of stock options, partially offset by $7.4 million of shares repurchased.

For the period from inception until September 30, 2017, we have had sufficient cash flow from the proceeds of our initial capitalization and IPO, the issuance of Notes in February 2015, and from our operations to meet our liquidity requirements. We expect that projected operating and capital expenditure requirements and debt service requirements for at least the next twelve months will be met by our balance of cash, cash flows generated from operating activities and investment income. We may incur additional indebtedness in the future if we determine that it would be an efficient part of our capital structure.

In addition, we expect that our existing cash and cash flow from operations will provide us with the financial flexibility to execute our strategic objectives. Our ability to generate cash, however, is subject to our performance, general economic conditions, industry trends and other factors. To the extent existing cash and cash equivalents, investment returns and operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing shareholders may occur. If we raise cash through the issuance of additional indebtedness, we may be subject to additional contractual restrictions on our business. There is no assurance that we would be able to raise the additional funds on favorable terms or at all. There are regulatory and contractual restrictions and rating agency considerations that might impact the ability of our reinsurance subsidiaries to pay dividends to their respective parent companies, including for purposes of servicing TPRUSA’s debt obligations.

We do not believe that inflation has had a material effect on our consolidated results of operations to date. The effects of inflation are considered implicitly in pricing our reinsurance contracts. Loss reserves are established to recognize likely loss settlements at the date payment is made. Those reserves inherently recognize the effects of inflation. However, the actual effects of inflation on our results cannot be accurately known until claims are ultimately resolved.

Cash, Restricted Cash and Cash Equivalents and Restricted Investments

Cash and cash equivalents consist of cash held in banks and other short-term, highly liquid investments with original maturity dates of ninety days or less.

See Note 3 to our condensed consolidated financial statements for additional information on restricted cash, cash equivalents and investments.

Restricted cash and cash equivalents and restricted investments increased by $79.1 million, or 10.9%, to $805.4 million as of September 30, 2017 from $726.2 million as of December 31, 2016. The increase was primarily due to an increase in the number of reinsurance contracts that required collateral. In addition, we are now investing a portion of the collateral securing certain reinsurance contracts in U.S. treasury securities and sovereign debt. This portion of the collateral is included in debt securities in the condensed consolidated balance sheets and is disclosed as part of restricted investments.

Letter of Credit Facilities

See Note 10 to our condensed consolidated financial statements for additional information regarding our letter of credit facilities.

As of September 30, 2017, $209.5 million (December 31, 2016 - $231.8 million) of letters of credit, representing 49.3% of the total available facilities of $425.0 million, had been issued (December 31, 2016 - 44.2% (based on total available facilities of $525.0 million)).

Under the letter of credit facilities, we provide collateral that consists of cash and cash equivalents. As of September 30, 2017, total cash and cash equivalents with a fair value of $209.5 million (December 31, 2016 - $231.8 million) was pledged as collateral against the letters of credit issued. Our ability to post collateral securing letters of credit and certain

reinsurance contracts depends in part on our ability to borrow against certain assets in our Investment Accounts through prime brokerage arrangements. See Note 5 to our condensed consolidated financial statements for additional information regarding our prime brokerage arrangements. The loss or reduction in this borrowing capacity could reduce the amount of reinsurance we write or reduce the amount of float that we contribute to our Investment Accounts.The collateral amounts securing letters of credit are included in restricted cash and cash equivalents in the condensed consolidated balance sheets. Each of the facilities contain customary events of default and restrictive covenants, including but not limited to, limitations on liens on collateral, transactions with affiliates, mergers and sales of assets, as well as solvency and maintenance of certain minimum pledged equity requirements and an A.M. Best Company rating of “A-“ or higher. Each restricts issuance of any debt without the consent of the letter of credit provider. Additionally, if an event of default exists, as defined in the letter of credit facilities, we will be prohibited from paying dividends. We were in compliance with all of the covenants under the aforementioned facilities as of September 30, 2017.

Financial Condition

Shareholders’ equity

As of September 30, 2017, total shareholders’ equity was $1,617.4 million, compared to $1,449.7 million as of December 31, 2016. The increase was primarily due to net income of $233.4 million and share compensation expense and proceeds from stock options exercised totaling $5.5 million, partially offset by share repurchases of $40.9 million in the nine months ended September 30, 2017.

Investments

As of September 30, 2017, total cash and net investments managed by Third Point LLC was $2,525.0 million, compared to $2,191.6 million as of December 31, 2016. The increase was primarily due to net investment income on investments managed by Third Point LLC of $324.9 million and net contributions of $17.3 million.

Contractual Obligations

There have been no other material changes to our contractual obligations from our most recent Annual Report on Form 10-K, as filed with the SEC.

Off-Balance Sheet Commitments and Arrangements

We have no obligations, assets or liabilities, other than those derivatives in our investment portfolio and disclosed in the notes to our condensed consolidated financial statements, which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

As of September 30, 2017, we had an unfunded capital commitment of $3.3 million related to our investment in the Hellenic Fund (see Note 16 to our condensed consolidated financial statements for additional information).

Critical Accounting Policies and Estimates

For a summary of our significant accounting and reporting policies, please refer to Note 2, “Significant accounting policies”, included in our 2016 Form 10-K.

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions. We believe that the accounting policies that require the most significant judgments and estimations by management are: (1) premium revenue recognition including evaluation of risk transfer, (2) loss and loss adjustment expense reserves, and (3) fair value measurements related to our investments. If actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material adverse effect on our results of operations and financial condition.

There have been no material changes in our critical accounting estimates for the nine months ended September 30, 2017. Refer to Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2016 Form 10-K.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We believe we are principally exposed to the following types of market risk:


•	equity price risk;


•	foreign currency risk;


•	interest rate risk;


•	commodity price risk;


•	credit risk;


•	liquidity risk; and


•	political risk.

Equity Price Risk

Our investment manager, Third Point LLC, tracks the performance and exposures of our investment portfolio, each strategy and sector, and selective individual securities. A particular focus is placed on “beta” exposure, which is the portion of the portfolio that is directly correlated to risks and movements of the equity market as a whole (usually represented by the S&P 500 index) as opposed to idiosyncratic risks and factors associated with a specific position. Further, the performance of our investment portfolio has historically been compared to several market indices, including the S&P 500, CS/Tremont Event Driven Index, HFRI Event Driven Index, and others.

As of September 30, 2017, our investment portfolio included long and short equity securities, along with certain equity-based derivative instruments, the carrying values of which are primarily based on quoted market prices. Generally, market prices of common equity securities are subject to fluctuation, which could cause the amount to be realized upon the closing of the position to differ significantly from their current reported value. This risk is partly mitigated by the

presence of both long and short equity securities in our investment portfolio. As of September 30, 2017, a 10% decline in the value of all equity and equity-linked derivatives would result in a loss of $172.5 million, or 6.6% of our total net investments managed by Third Point LLC.

Computations of the prospective effects of hypothetical equity price changes are based on numerous assumptions, including the maintenance of the existing level and composition of investment securities and should not be relied on as indicative of future results.

Foreign Currency Risk

Reinsurance Contracts

We have foreign currency exposure related to non-U.S. dollar denominated reinsurance contracts. Of our gross premiums written from inception, $387.8 million, or 13.0%, were written in currencies other than the U.S. dollar. As of September 30, 2017, loss and loss adjustment expense reserves included $161.7 million (December 31, 2016 - $94.5 million) and net reinsurance balances receivable included $14.1 million (December 31, 2016 - $5.1 million) in foreign currencies. These foreign currency liability exposures were generally offset by foreign currencies held in trust accounts of $185.5 million as of September 30, 2017 (December 31, 2016 - $104.2 million). The foreign currency cash and cash equivalents and investments held in reinsurance trust accounts are included in net investments managed by Third Point LLC. The exposure to foreign currency collateral held in trust accounts is excluded from the foreign currency investment exposure table below.

Investments

Third Point LLC continually measures foreign currency exposures in the investment portfolio and compares current exposures to historical movement within the relevant currencies. Within the ordinary course of business, Third Point LLC may decide to hedge foreign currency risk within our investment portfolio by using short-term forward contracts; however, from time to time Third Point LLC may determine not to hedge based on its views of the likely movements of the underlying currency.

We are exposed to foreign currency risk through cash, forwards, options and investments in securities denominated in foreign currencies. Foreign currency exchange rate risk is the potential for adverse changes in the U.S. dollar value of investments (long and short) and foreign currency derivative instruments, which we employ from both a speculative and risk management perspective, due to a change in the exchange rate of the foreign currency in which cash and financial instruments are denominated. As of September 30, 2017, our total net short exposure to foreign denominated securities represented 6.0% (December 31, 2016 - 10.6%) of our investment portfolio including cash and cash equivalents, of $157.9 million (December 31, 2016 - $204.0 million).

The following table summarizes the net impact that a 10% increase and decrease in the value of the U.S. dollar against select foreign currencies would have had on the value of our investment portfolio as of September 30, 2017:



	10% increase in U.S. dollar					10% decrease in U.S. dollar
	Change in fair value			Change in fair value as % of investment portfolio		Change in fair value			Change in fair value as % of investment portfolio
	($ in thousands)
Hong Kong Dollar	$	13,512		0.5	%	$	(13,512	)	(0.5	)%
Saudi Arabian Riyal	11,556			0.4	%	(11,556		)	(0.4	)%
Egyptian Pound	(2,933		)	(0.1	)%	2,933			0.1	%
Brazilian Real	(4,618		)	(0.2	)%	4,618			0.2	%
Other	(1,726		)	(0.1	)%	1,726			0.1	%
Total	$	15,791		0.5	%	$	(15,791	)	(0.5	)%

Interest Rate Risk

Our investment portfolio includes interest rate sensitive securities, such as corporate bonds, U.S. treasury securities, and sovereign debt instruments, asset-backed securities (“ABS”), and interest rate options and derivatives. One key market risk exposure for any debt instrument is interest rate risk. As interest rates rise, the fair value of our long fixed-income portfolio falls, and the opposite is also true as interest rates fall. Additionally, some of our corporate and sovereign debt instruments, ABS and derivative investments may also be credit sensitive and their value may indirectly fluctuate with changes in interest rates.

The effect of interest rate movements have historically not had a material impact on the performance of our investment portfolio as managed by Third Point LLC. However, our investment manager monitors the potential effects of interest rate shifts by performing stress tests against the portfolio composition using a proprietary in-house risk system.

The following table summarizes the impact that a 100 basis point increase or decrease in interest rates would have on the value of our investment portfolio as of September 30, 2017:



	100 basis point increase in interest rates					100 basis point decrease in interest rates
	Change in fair value			Change in fair value as % of investment portfolio		Change in fair value			Change in fair value as % of investment portfolio
	($ in thousands)
Corporate bonds, U.S. treasuries and sovereign debt instruments⁽¹⁾	$	4,704		0.2	%	$	(4,323	)	(0.2	)%
Asset-backed securities⁽²⁾	(2,666		)	(0.1	)%	2,742			0.1	%
Interest rate swaps and derivatives	3,980			0.2	%	(3,980		)	(0.2	)%
Net exposure to interest rate risk	$	6,018		0.3	%	$	(5,561	)	(0.3	)%


(1)	Includes interest rate risk associated with investments held in reinsurance trust accounts.


(2)	Includes instruments for which durations are available on September 30, 2017. Includes a convexity adjustment if convexity is available. Not included are mortgage hedges which would reduce the impact of interest rate changes.

For the purposes of the above table, the hypothetical impact of changes in interest rates on debt instruments, ABS, and interest rate options was determined based on the interest rates and credit spreads applicable to each instrument individually. We and our investment manager periodically monitor our net exposure to interest rate risk and generally do not expect changes in interest rates to have a materially adverse impact on our operations.

Commodity Price Risk

In managing our investment portfolio, Third Point LLC periodically monitors and actively trades to take advantage of, and/or seeks to minimize any losses from, fluctuations in commodity prices. As our investment manager, Third Point LLC may choose to opportunistically make a long or short investment in a commodity or in a security directly affected by the price of a commodity as a response to market developments. From time to time, we invest in commodities or commodities exposures in the form of derivative contracts from both a speculative and risk management perspective. Generally, market prices of commodities are subject to fluctuation.

As of September 30, 2017, our investment portfolio had de minimis (December 31, 2016 - de minimis) commodity exposure.

We and our investment manager periodically monitor our exposure to commodity price fluctuations and generally do not expect changes in commodity prices to have a material adverse impact on our operations.

Credit Risk

Reinsurance Contracts

We have exposure to credit risk in several reinsurance contracts with companies that write credit risk insurance, which primarily consists of mortgage insurance credit risk. Loss experience in these lines of business is cyclical and is affected by the state of the general economic environment. We provide our clients in these lines of business with reinsurance protection against credit deterioration, defaults or other types of financial non-performance. We mitigate the risks associated with these credit-sensitive lines of business through the use of risk management techniques such as risk diversification and monitoring of risk aggregations. We have written $253.2 million, or 8.5%, of credit and financial lines premium since inception, of which $24.8 million was written in the nine months ended September 30, 2017. The majority of the mortgage insurance premium has been written as quota shares of private mortgage insurers, primarily in the United States. We also wrote a financial lines retrocessional cover that includes mortgage risk.

We have exposure to credit risk as it relates to its business written through brokers, if any of our brokers are unable to fulfill their contractual obligations with respect to payments to us. In addition, in some jurisdictions, if the broker fails to make payments to the insured under our policy, we may remain liable to the insured for the deficiency. Our exposure to such credit risk is somewhat mitigated in certain jurisdictions by contractual terms.

We are exposed to credit risk relating to balances receivable under our reinsurance contracts, including premiums receivable, and the possibility that counterparties may default on their obligations to us. The risk of counterparty default is partially mitigated by the fact that any amount owed to us from a reinsurance counterparty would be netted against any losses we would pay in the future. We monitor the collectability of these balances on a regular basis.

Investments

We are also exposed to credit risk through our investment activities related to our separate accounts managed by Third Point LLC. Third Point LLC typically performs intensive fundamental analysis on the broader markets, credit spreads, security-specific information, and the underlying issuers of debt securities that are contained in our investment portfolio.

In addition, the securities and cash in our investment portfolio are held with several prime brokers, subjecting us to the related credit risk from the possibility that one or more of them may default on their obligations to us. Our investment manager closely and regularly monitors the concentration of credit risk with each broker and if necessary, transfers cash or securities among brokers to diversify and mitigate our credit risk.

As of September 30, 2017 and December 31, 2016, the Company’s holdings in non-investment grade securities, those having a rating lower than BBB- as determined by Standard & Poor's or Fitch Ratings, Baa3 by Moody's Investor Services and securities not rated by any rating agency, were as follows:



	September 30, 2017		December 31, 2016
	($ in thousands)
Assets:
Asset backed securities	$	196,405	$	254,852
Bank debt	20,279		56,896
Corporate bonds	51,713		189,059
Other debt securities	11,882		—
Sovereign debt	47,671		100,620
Trade claims	7,246		9,022
	$	335,196	$	610,449
Liabilities:
Corporate bonds	$	6,335	$	17,683
	$	6,335	$	17,683

As of September 30, 2017 and December 31, 2016, all of our ABS holdings were private-label issued, non-investment grade securities, and none of these securities were guaranteed by a government sponsored entity. As of September 30, 2017 and December 31, 2016, the largest concentration of our asset-backed securities (“ABS”) holdings were as follows:



	September 30, 2017				December 31, 2016
	($ in thousands)
Reperforming loans	$	123,813	63.0	%	$	44,359	17.4	%
Subprime RMBS	—		—	%	117,152		46.0	%
Market place loans	54,403		27.7	%	44,143		17.3	%
Other (1)	18,189		9.3	%	49,198		19.3	%
	$	196,405	100.0	%	$	254,852	100.0	%


(1)	Other includes: U.S. Alt-A positions, collateralized debt obligations, commercial mortgage-backed securities, non-U.S. RMBS and student loans ABS.

The Company may also be exposed to non-investment grade securities held within certain investments in limited partnerships and derivatives. As a result of its investment in this type of ABS and certain other non-investment grade securities, our investment portfolio is exposed to credit risk of underlying borrowers, which may not be able to make timely payments on loans or which may default on their loans. All of these classes of ABS and certain other non-investment grade securities are sensitive to changes in interest rates and any resulting change in the rate at which borrowers sell their properties (in the case of mortgage backed securities), refinance or otherwise pre-pay loans. As an investor in these classes of ABS and certain other non-investment grade securities, we may be exposed to the credit risk of underlying borrowers not being able to make timely payments on loans or the likelihood of borrowers defaulting on their loans. In addition, we may be exposed to significant market and liquidity risks.

Liquidity Risk

Certain of our investments may become illiquid. Disruptions in the credit markets may materially affect the liquidity of certain investments, including ABS, which represent 7.3% (December 31, 2016 - 9.7%) of total cash and investments as of September 30, 2017. If we require significant amounts of cash on short notice in excess of normal cash requirements, which could include the payment of claims expenses or to satisfy a requirement of A.M. Best, in a period of market illiquidity, certain investments may be difficult to sell in a timely manner and may have to be disposed of for less than what may otherwise have been possible under normal conditions. As of September 30, 2017, we had $1,945.2 million (December 31, 2016 - $1,452.3 million) of unrestricted, liquid investment assets, defined as unrestricted cash and investments and securities with quoted prices available in active markets/exchanges.

Political Risk

Investments

We are exposed to political risk to the extent our investment manager trades securities that are listed on various U.S. and foreign exchanges and markets. The governments in any of these jurisdictions could impose restrictions, regulations or other measures, which may have a material impact on our investment strategy and underwriting operations.

In managing our investment portfolio, Third Point LLC routinely monitors and assesses relative levels of risk associated with local political and market conditions and focuses its investments primarily in countries in which it believes the rule of law is respected and followed, thereby affording more predictable outcomes of investments in that country.

Reinsurance Contracts

We also have limited political risk exposure in several reinsurance contracts with companies that write political risk insurance.

Recent Accounting Pronouncements

Refer to Note 2 to our condensed consolidated financial statements for the nine months ended September 30, 2017 included in Item 1 of this Quarterly Report on Form 10-Q for details of recently issued accounting standards.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2017. Based upon this evaluation, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2017.

Changes in Internal Control over Financial Reporting

There have been no material changes to our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - Other Information

ITEM 1. Legal Proceedings

We anticipate that, similar to the rest of the reinsurance industry, we will be subject to litigation and arbitration from time to time in the ordinary course of business.

If we are subject to disputes in the ordinary course of our business, we anticipate engaging in discussions with the parties to the applicable contract to seek to resolve the matter. If such discussions are unsuccessful, we anticipate invoking the dispute resolution provisions of the relevant contract, which typically provide for the parties to submit to arbitration or litigation, as applicable, to resolve the dispute.

There are currently no material legal proceedings to which we or our subsidiaries are a party.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in our Form 10-K filed with the Securities and Exchange Commission on February 24, 2017, other than modifications to the following risk factors.

We may be subject to United States federal income taxation.

We are incorporated under the laws of Bermuda and we believe that our activities, as currently conducted (including through our U.S.-based subsidiary, Third Point Re USA) and as contemplated, will not cause us to be treated as engaging in a United States trade or business and will not cause us to be subject to current United States federal income taxation on our net income, except with respect to Third Point Re USA, which is treated as a domestic corporation for U.S. federal income tax purposes. However, because there are no definitive standards provided by the Internal Revenue Code of 1986 as amended or the Code, regulations or court decisions as to the specific activities that constitute being engaged in the conduct of a trade or business within the United States, and as any such determination is essentially factual in nature and must be made annually, we cannot assure you that the United States Internal Revenue Service, or the IRS, will not successfully assert that we are engaged in a trade or business in the United States or, if applicable under the income tax treaty between the U.S. and Bermuda (the “Bermuda Treaty”), engaged in a trade or business in the United States through a permanent establishment, and thus are subject to current United States federal income taxation. If we were deemed to be engaged in a trade or business in the United States (and, if applicable under the Bermuda Treaty, were deemed to be so engaged through a permanent establishment), Third Point Re generally would become subject to United States federal income tax on its income “effectively connected” (or treated as effectively connected) with the U.S. trade or business, and would become subject to the “branch profits” tax on its earnings and profits that are both effectively connected with the U.S. trade or business and deemed repatriated out of the United States. Any such federal tax liability could materially and adversely affect our operations and financial condition.

United States persons who own our shares may be subject to United States federal income taxation on our undistributed earnings and may recognize ordinary income upon disposition of shares.

Passive Foreign Investment Company (“PFIC”). Significant potential adverse U.S. federal income tax consequences generally apply to any United States person who owns shares in a PFIC. In general, either we and/or Third Point Re would be a PFIC for a taxable year if 75% or more of its income constitutes “passive income” or 50% or more of its assets were held to produce “passive income.” Passive income generally includes interest, dividends and other investment income but does not include income derived in the active conduct of an insurance business by a corporation predominantly engaged in an insurance business. This exception for insurance companies is intended to ensure that a bona fide insurance company’s income is not treated as passive income, except to the extent such income is attributable to financial reserves in excess of the reasonable needs of the insurance business. However, there is very little authority as to what constitutes the active conduct of an insurance business for purposes of the PFIC rules. The IRS has notified taxpayers in IRS Notice 2003-34 that it intends to scrutinize the activities of certain insurance companies located outside of the United States, including reinsurance companies that invest a significant portion of their assets in alternative investment strategies, to determine whether such companies qualify for the active insurance company exception in the PFIC rules. The IRS recently proposed regulations concerning the active insurance company exception. The proposed regulations provide that the active conduct of an insurance business must include the performance of substantial managerial and operational services by an insurance company’s own employees and officers. The activities of independent contractors and employees of affiliates are not sufficient to satisfy this requirement. The proposed regulations also clarify that income from investment assets held by an insurance company to meet its obligations under insurance and annuity contracts will not be treated as passive income for PFIC purposes. However, the IRS did not propose a specific method for determining the portion of an insurance company’s assets that are held to meet obligations under insurance and annuity contracts, and solicited comments on appropriate approaches. At this time it is unclear whether final regulations will include a specific methodology and how any such methodology would apply to us. The proposed regulations will be effective when issued in final form.

We believe that our financial reserves are consistent with industry standards and are not in excess of the reasonable needs of our insurance business, that we are actively engaged in insurance activities that involve sufficient transfer of risk, and that our employees and officers provide substantial managerial and operational services. However, we cannot assure you the IRS will agree with our position and will not successfully assert that we do not qualify for the insurance exception. Moreover, our expectation with respect to any taxable year is based on the amount of risk that we expect to underwrite during that year. If we are unable to underwrite a sufficient amount of risk for any taxable year, we and/or Third Point Re might be treated as a PFIC. Furthermore, in certain circumstances, we may seek to manage the volatility

of our reinsurance results by writing policies that contain certain contractual terms and conditions (such as loss ratio caps), which may cause the IRS to assert that such policies lack sufficient risk transfer to constitute insurance for United States federal income tax purposes, increasing the risk that we and/or Third Point Re may be treated as a PFIC. Counsel to the Company and its subsidiaries (the “Group”) have never provided an opinion regarding the Group’s PFIC status due to the absence of applicable authority regarding the active insurance company exception and the dependence of the Group’s PFIC status on the actual operational results and other relevant facts for each taxable year. Readers are urged to consult their own tax advisors to assess their tolerance of this risk.

The proposed “Tax Cuts and Jobs Act” (H.R. 1), released by the U.S. House of Representatives on November 2, 2017 (the “House Tax Bill”) would modify the insurance exception to apply to a company only if (i) the company would be taxed as an insurance company were it a U.S. corporation and (ii) either (A) loss and loss adjustment expenses and certain reserves constitute more than 25% of the company’s gross assets for the relevant year or (B) loss and loss adjustments expenses and certain reserves constitute more than 10% of the company’s gross assets for the relevant year and, based on the applicable facts and circumstances, the company is predominantly engaged in an insurance business and the failure of the company to satisfy the preceding 25% test is due solely to run-off related or rating-related circumstances involving the insurance business. If such legislation were enacted in its current form, no assurance can be given that we would be able to operate in a manner to satisfy these requirements in any given year. No assurance can be given as to whether such legislation will be adopted and if so, in what form. Moreover, as discussed above, there can be no assurance as to what methodologies the proposed regulations will adopt for determining the portion of an insurance company’s assets that are held to meet obligations under insurance and annuity contracts, or whether the proposed regulations will be enacted in their current form.

If a “United States person” holds our shares as “capital assets” within the meaning of section 1221 of the Code during any taxable year in which we and/or Third Point Re are treated as PFICs, such shares will generally be treated as stock in a PFIC for all subsequent years. Certain elections designed to mitigate the adverse consequences of owning shares in a PFIC, including a “Protective QEF Election,” may be available. If you are a United States person, we advise you to consult your own tax advisor concerning the potential tax consequences to you under the PFIC rules, the advisability of making one of these elections and to assess your tolerance of this risk.

Controlled Foreign Corporations (“CFC”). United States persons who, directly or indirectly or through attribution rules, own 10% or more of the voting power of our shares, which we refer to as United States 10% shareholders, may be subject to the CFC rules. Under the CFC rules, each United States 10% shareholder must annually include its pro rata share of the CFC’s “subpart F income,” even if no distributions are made. In general (subject to the special rules applicable to “related person insurance income” described below), a foreign insurance company will be treated as a CFC only if United States 10% shareholders collectively own more than 25% of the total combined voting power or total value of the company’s shares for an uninterrupted period of 30 days or more during any year. We believe that the restrictions placed on the voting power of our shares should generally prevent shareholders who acquire shares from being treated as United States 10% shareholders of a CFC. We cannot assure you, however, that these rules will not apply to you. If you are a United States person we strongly urge you to consult your own tax advisor concerning the controlled foreign corporation rules.

Related Person Insurance Income. If (a) our gross income attributable to insurance or reinsurance policies pursuant to which the direct or indirect insureds are our direct or indirect United States shareholders or persons related to such United States shareholders equals or exceeds 20% of our gross insurance income in any taxable year; and (b) direct or indirect insureds and persons related to such insureds own directly or indirectly 20% or more of the voting power or value of our shares, a United States person who owns any shares directly or indirectly on the last day of the taxable year would most likely be required to include its allocable share of our related person insurance income for the taxable year in its income, even if no distributions are made. We do not expect that it is likely that either or both of the 20% gross insurance income threshold or the 20% direct or indirect ownership threshold will be met. However, we cannot assure you that this will be the case. Consequently, we cannot assure you that a person who is a direct or indirect United States shareholder will not be required to include amounts in its income in respect of related person insurance income in any taxable year.

Dispositions of Our Shares. If a United States shareholder is treated as disposing of shares in a CFC of which it is a United States 10% shareholder, or of shares in a foreign insurance corporation that has related person insurance income and in which United States persons collectively own 25% or more of the voting power or value of the company’s share capital, any gain from the disposition will generally be treated as a dividend to the extent of the United States shareholder’s portion of the corporation’s undistributed earnings and profits, as the case may be, that were accumulated during the period that the U.S. shareholder owned the shares. In addition, the shareholder will be required to comply with certain reporting requirements, regardless of the amount of shares owned by the direct or indirect United States shareholder. Although not free from doubt, we believe it would be reasonable for a United States person to take the position that these rules should not apply to dispositions of our shares because we should not have any United States 10% shareholders and will not be directly engaged in the insurance business. We cannot assure you, however, that the IRS will interpret the proposed regulations potentially applicable to such dispositions in this manner or that the proposed regulations will not be promulgated in final form in a manner that would cause these rules to apply to dispositions of our shares.

Change in United States tax laws may be retroactive and could subject us to increased taxes and/or United States persons who own our shares to United States income taxation on our undistributed earnings and could adversely affect our operations and financial condition.

New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted that could result in increased tax expenditures in the future. The House Tax Bill would impose a 20% excise tax on certain payments by United States corporations to a related foreign corporation. If enacted in its present form, this could impose material incremental taxes on reinsurance transactions between Third Point Re USA and Third Point Re BDA and as a result materially and adversely affect our operations and financial condition. No assurance can be given as to whether such legislation will be adopted and if so, in what form.

The tax laws and interpretations thereof regarding whether a company is engaged in a United States trade or business, is a CFC, has related party insurance income or is a PFIC are subject to change, possibly on a retroactive basis. The regulations regarding the application of the passive foreign investment company rules to an insurance company and regarding related party insurance income are in proposed form. New regulations or pronouncements interpreting or clarifying such rules may be forthcoming from the IRS. We are not able to predict if, when or in what form such guidance will be provided and whether such guidance will have a retroactive effect.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not make any repurchases of common shares during the three months ended September 30, 2017.

On May 4, 2016, our Board of Directors authorized a common share repurchase program for up to an aggregate of $100.0 million of our outstanding common shares. As of September 30, 2017, a maximum value of approximately $51.7 million of common shares may yet be purchased under the program.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits



10.32.4	Amendment No. 4 to Employment Agreement between Third Point Reinsurance Ltd. and Manoj K. Gupta, entered into as of August 3, 2017
10.4.3	Amendment No. 3 to Employment Agreement between Third Point Reinsurance Ltd. and Daniel Victor Malloy III, entered into on March 17, 2017, effective as of March 1, 2017
10.4.4	Amendment No. 4 to Employment Agreement between Third Point Reinsurance Ltd. and Daniel Victor Malloy III, entered into as of August 3, 2017.
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Third Point Reinsurance Ltd.
Date: November 9, 2017
	/s/ J. Robert Bredahl
	J. Robert Bredahl
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Christopher S. Coleman
	Christopher S. Coleman
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

SiriusPoint - 10-Q quarterly report FY2017 Q3

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