Derivative Instruments

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative instruments

DERIVATIVE INSTRUMENTS

As of December 31, 2016 and 2015, 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 consolidated balance sheets:

	December 31, 2016								December 31, 2015
	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	$	103.2	$	10.4	$	4.1	$	0.1	$	41.1	$	0.1	$	244.8	$	3.0
Interest rate swaps	—		—		—		—		—		—		328.2		0.5
Insurance contracts	225.0		7.4		—		—		—		—		—		—
Reinsurance contracts	—		—		110.0		4.0		—		—		—		—
Total derivatives	$	328.2	$	17.8	$	114.1	$	4.1	$	41.1	$	0.1	$	573.0	$	3.5

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 (losses) gains on derivatives not designated as hedges recorded on the consolidated income statements:

	Year Ended December 31,
	2016			2015			2014
Foreign exchange contracts	$	(2.2	)	$	(7.3	)	$	0.9
Total included in foreign exchange (gain) loss	(2.2		)	(7.3		)	0.9
Put options	—			—			0.5
Foreign exchange contracts	(11.9		)	0.2			3.5
Interest rate swaps	(6.8		)	(13.4		)	(45.4		)
Interest rate futures	(0.9		)	(2.2		)	2.4
Total included in net realized investment gains (losses)	(19.6		)	(15.4		)	(39.0		)
Insurance contracts	7.4			—			—
Reinsurance contracts	(3.1		)	—			—
Total included in other income (other expense)	4.3			—			—
Total realized and unrealized (losses) gains on derivatives	$	(17.5	)	$	(22.7	)	$	(38.1	)

The foreign exchange contracts loss recorded during the year ended December 31, 2016 was due to hedging our investment exposure to the Euro and Japanese Yen. The losses related to interest rate swap contracts for the years ended December 31, 2015 and 2014 were the result of selling interest rate swap contracts to reduce the duration of the investment portfolio. Given the decrease in interest rates during those years, the Company recorded a loss related to these interest rate 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 unmatched foreign currency exposures, specifically forward contracts and currency options. For example, during 2014, the Company purchased a forward contract to economically hedge a portion of its foreign currency exposure related to the consideration to be paid for the Hong Kong and Singapore operations of RSA.

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 the Company’s equity portfolio.

The Company also has entered into insurance and reinsurance contracts that are required to be accounted for as derivatives. This will be the case when the insurance or reinsurance contract provides indemnification to the insured or cedent as a result of a change in a variable versus an identifiable insurable event, such as a single-trigger ILW. The Company considers these insurance and reinsurance contracts to be an extension of its overall insurance operations.