Derivative Instruments

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

As of September 30, 2014 and December 31, 2013, none of the Company’s derivatives were designated as hedges for accounting purposes. The following table summarizes information on the location and amounts of derivative fair values on the unaudited condensed consolidated balance sheets (“consolidated balance sheets”):

	September 30, 2014								December 31, 2013
	Asset Derivative  Notional Amount		Asset Derivative  Fair Value		Liability Derivative  Notional Amount		Liability Derivative  Fair Value		Asset Derivative  Notional Amount		Asset Derivative  Fair Value		Liability Derivative  Notional Amount		Liability Derivative Fair Value
Foreign exchange contracts	$	38,940	$	814	$	2,355	$	22	$	294,788	$	6,254	$	122,439	$	1,176
Interest rate swaps	565,600		414		—		—		491,400		6,829		40,000		4,214
Total derivatives	$	604,540	$	1,228	$	2,355	$	22	$	786,188	$	13,083	$	162,439	$	5,390

Derivative assets and derivative liabilities are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following table provides the net realized and unrealized gains (losses) on derivatives not designated as hedges recorded on the consolidated income statements:

	Three Months Ended   September 30,					Nine Months Ended   September 30,
	2014		2013			2014			2013
Foreign exchange contracts	$	1,886	$	(2,336	)	$	(580	)	$	(1,091	)
Total included in foreign exchange loss	1,886		(2,336		)	(580		)	(1,091		)
Put options	—		—			—			(3,822		)
Foreign exchange contracts	1,701		(4,164		)	857			1,925
Interest rate futures and swaps	470		(5		)	(25,325		)	5,289
Total included in net realized investment gains (losses)	2,171		(4,169		)	(24,468		)	3,392
Total realized and unrealized gains (losses) on derivatives	$	4,057	$	(6,505	)	$	(25,048	)	$	2,301

The loss related to interest rate future and swap contracts for the nine months ended September 30, 2014 was the result of selling interest rate future and swap contracts to reduce the duration of the investment portfolio. Given the decrease in interest rates during the year, the Company recorded a loss related to these interest rate future and swap contracts.

Derivative Instruments Not Designated as Hedging Instruments

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. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes.

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.

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

The Company also purchases options to actively manage its equity portfolio.