Derivative Instruments

6 Months Ended

Jun. 30, 2011

Derivative Instruments

Derivative Instruments

5. DERIVATIVE INSTRUMENTS

     The following table summarizes information on the location and amounts of derivative fair values on the unaudited condensed consolidated balance sheets ("consolidated balance sheets"):

			June 30, 2011								December 31, 2010
	Asset				Liability				Asset				Liability
	Derivative		Asset		Derivative		Liability		Derivative		Asset		Derivative		Liability
	Notional		Derivative		Notional		Derivative		Notional		Derivative		Notional		Derivative
	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
Derivatives not designated as hedging instruments
Relating to investment portfolio:
Foreign exchange contracts (1)	$	122,311	$	1,487	$	33,873	$	204	$	—	$	—	$	—	$	—
Interest rate futures (1)		1,797,200		4,183		142,300		32		—		—		—		—
	$	1,919,511	$	5,670	$	176,173	$	236	$	—	$	—	$	—	$	—
Relating to operating activities:
Foreign exchange contracts (2)	$	125,528	$	1,378	$	34,830	$	418	$	26,758	$	858	$	51,308	$	1,629
Total derivatives	$	2,045,039	$	7,048	$	211,003	$	654	$	26,758	$	858	$	51,308	$	1,629

(1)	Asset and liability derivatives relating to the investment portfolio are classified within "balances receivable on sale of investments" or "balances due on the purchase of investments" on the consolidated balance sheets.
(2)	Asset and liability derivatives relating to operating activities are classified within "other assets" or "other liabilities" on the consolidated balance sheets.

     The following table provides the total unrealized and realized gains (losses) on derivatives recorded in the consolidated income statement:

	Location of Gain (Loss)	Three Months Ended						Six Months Ended
	Recognized in the Consolidated	June 30,						June 30,
	Income Statements	2011			2010			2011			2010
Derivatives not designated as hedging instruments
Relating to investment portfolio:
Foreign exchange contracts	Net realized investment gains	$	723		$	—		$	723		$	—
Interest rate futures	Net realized investment losses		(10,763	)		—			(16,259	)		—
		$	(10,040	)	$	—		$	(15,536	)	$	—
Relating to operating activities:
Foreign exchange contracts	Foreign exchange gains (losses)	$	1,345		$	(1,361	)	$	2,601		$	(1,412	)
Total derivatives		$	(8,695	)	$	(1,361	)	$	(12,935	)	$	(1,412	)
									~~~~~a

Derivative Instruments not Designated as Hedging Instruments

a) Relating to Investment Portfolio

     The Company is exposed to foreign currency risk in its investment portfolio. Accordingly, the fair values of the Company's investment portfolio are partially influenced by the change in foreign exchange rates. The Company entered into foreign currency forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes.

     The Company also purchases and sells interest rate future contracts to actively manage the duration and yield curve positioning of its fixed income portfolio. Interest rate futures can efficiently increase or decrease the overall duration of the portfolio. Additionally, interest rate future contracts can be utilized to obtain the desired position along the yield curve in order to protect against certain future yield curve shapes.

b) Relating to Operating Activities

     The Company's insurance and reinsurance subsidiaries and branches operate in various foreign countries and consequently the Company's underwriting portfolio is exposed to foreign currency risk. The Company manages foreign currency risk by seeking to match liabilities under the insurance policies and reinsurance contracts that it writes and that are payable in foreign currencies with cash and investments that are denominated in such currencies. When necessary, the Company may also use derivatives to economically hedge un-matched foreign currency exposures, specifically forward contracts and currency options.