Investments

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

Investments

4. INVESTMENTS

a) Available for Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of the Company's available for sale investments by category are as follows:

		Amortized		Unrealized		Unrealized
		Cost		Gains		Losses		Fair Value
September 30, 2012
U.S. Government and Government agencies		$	26,954	$	2,131	$	0	$	29,085
Total fixed maturity investments, available for sale		$	26,954	$	2,131	$	0	$	29,085
December 31, 2011
U.S. Government and Government agencies		$	31,309	$	2,321	$	0	$	33,630
States, municipalities and political subdivisions			29,128		4,351		0		33,479
Corporate debt:
	Financial institutions		17,431		348		(292)		17,487
	Industrials		73,539		4,268		0		77,807
	Utilities		74,990		6,623		0		81,613
Total fixed maturity investments, available for sale		$	226,397	$	17,911	$	(292)	$	244,016

b) Trading Securities

Securities accounted for at fair value with changes in fair value recognized in the unaudited condensed consolidated statements of operations and comprehensive income (loss) (“consolidated income statements”) by category are as follows:

		September 30, 2012				December 31, 2011
		Fair Value		Amortized Cost		Fair Value		Amortized Cost
U.S. Government and Government agencies		$	1,849,492	$	1,831,521	$	1,278,265	$	1,263,948
Non-U.S. Government and Government agencies			309,471		297,424		256,756		251,784
States, municipalities and political subdivisions			41,542		40,327		133,902		128,633
Corporate debt:
	Financial institutions		1,031,764		997,781		1,161,904		1,174,308
	Industrials		1,145,621		1,128,154		987,006		974,731
	Utilities		59,802		57,622		105,564		103,262
Residential mortgage-backed:
	Non-agency residential		337,662		287,354		302,827		314,077
	Agency residential		1,606,201		1,568,320		1,183,893		1,156,913
Commercial mortgage-backed			308,094		294,901		331,371		326,697
Asset-backed			436,211		431,417		513,198		513,638
Total fixed maturity investments, trading		$	7,125,860	$	6,934,821	$	6,254,686	$	6,207,991

	September 30, 2012				December 31, 2011
	Fair Value		Original Cost		Fair Value		Original Cost
Equity securities	$	490,418	$	436,983	$	367,483	$	356,370
Other invested assets (1)		564,702		520,233		540,409		529,851
	$	1,055,120	$	957,216	$	907,892	$	886,221

______________________

(1)       Within the Company's financial statements and footnotes “other invested assets” include the Company's investments in both hedge funds and private equity funds.

c) Contractual Maturity Dates

The contractual maturity dates of available for sale fixed maturity investments are as follows:

	September 30, 2012
	Amortized Cost		Fair Value
Due within one year	$	6,477	$	6,515
Due after one year through five years		16,408		17,534
Due after five years through ten years		1,073		1,181
Due after ten years		2,996		3,855
	$	26,954	$	29,085

Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

d) Other Invested Assets

Included in other invested assets are the Company's hedge fund and private equity investments. As of the balance sheet date, the Company held interests in 23funds with a total fair value of $564,702, which comprised 6.4% of the total fair value of its investments and cash and cash equivalents. The fair values of these assets have been estimated using the net asset value per share of the funds.

In general, the Company has invested in hedge funds that require at least 30 days' notice of redemption, and may be redeemed on a monthly, quarterly, semi-annual, annual or longer basis, depending on the fund. Certain hedge funds have lock-up periods ranging from 1 to 3 years from initial investment. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem. Funds that provide for periodic redemptions may, depending on the funds' governing documents, have the ability to deny or delay a redemption request, called a “gate.” The fund may implement this restriction because the aggregate amount of redemption requests as of a particular date exceeds a specified level, generally ranging from 15% to 25% of the fund's net assets. The gate is a method for executing an orderly redemption process that allows for redemption requests to be executed in an orderly fashion to reduce the possibility of adversely affecting investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash sometime after the redemption date. Certain funds may impose a redemption fee on early redemptions. Interests in private equity funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

Details regarding the redemption characteristics of the other invested assets portfolio and the Company's unfunded investment commitments as of September 30, 2012 wereas follows:

		Fair Value		Investments		Estimated	Investments
		as of		with		Remaining	without			Redemption
		September 30,		Redemption		Restriction	Redemption		Redemption	Notice	Unfunded
Fund Type		2012		Restrictions		Period	Restrictions		Frequency(1)	Period(1)	Commitments
Private equity (primary and
	secondary)	$	87,241	$	87,241	4 - 10 Years	$	0			$	158,129
Mezzanine debt			27,444		27,444	10 Years		0				89,000
Distressed			9,510		9,510	<6 Years		0				8,800
Total private equity			124,195		124,195			0				255,929
Distressed			42,248		212	<2 Years		42,036	Quarterly	45 - 65 Days		0
Equity long/short			170,023		0			170,023	Quarterly	30 - 60 Days		0
Multi-strategy			140,141		26,956	<2 Years		113,185	Quarterly	45 - 90 Days		0
Global macro			19,246		0			19,246	Monthly	3 Days		0
Event driven			68,849		0			68,849	Annual	45 - 60 Days		0
Total hedge funds			440,507		27,168			413,339				0
Total other invested assets		$	564,702	$	151,363		$	413,339			$	255,929

____________

(1)       The redemption frequency and notice periods only apply to the investments without redemption restrictions.

• Private equity funds: Primary funds may invest in companies and general partnership interests. Secondary funds buy limited partnership interests from existing limited partners of primary private equity funds. As owners of private equity funds seek liquidity, they can sell their existing investments, plus any remaining commitment, to secondary market participants. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.
• Mezzanine debt funds: Mezzanine debt funds primarily focus on providing capital to upper middle market and middle market companies, and private equity sponsors, in connection with leveraged buyouts, mergers and acquisitions, recapitalizations, growth financings and other corporate transactions. The most common position in the capital structure will be between the senior secured debt holder and the equity; however, the funds will utilize a flexible approach when structuring investments, which may include secured debt, subordinated debt, preferred stock and/or private equity. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.
• Distressed funds: In distressed debt investing, managers take positions in the debt of companies experiencing significant financial difficulties, including bankruptcy, or in certain positions of the capital structure of structured securities. The manager relies on the fundamental analysis of these securities, including the claims on the assets and the likely return to bondholders. Certain funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.
• Equity long/short funds: In equity long/short funds, managers take long positions in companies they deem to be undervalued and short positions in companies they deem to be overvalued. Long/short managers may invest in countries, regions or sectors, and vary by their use of leverage and by their targeted net long position.
• Multi-strategy funds: These funds may utilize many strategies employed by specialized funds including distressed investing, equity long/short, merger arbitrage, convertible arbitrage, fixed income arbitrage and macro trading.
• Global macro funds: These fundsfocus on a top-down analysis of global markets as influenced by major political and economic trends or events. Global macro managers develop investment strategies that aim to forecast movements in interest rates, fund flows, political changes and other wide-ranging systematic factors. The portfolios of these funds can include long or short positions in equities, fixed-income, currencies and commodities in the form of cash or derivatives instruments.
• Event driven funds: Event driven strategies seek to deploy capital into specific securities whose returns are affected by a specific event that affects the value of one or more securities of a company. Returns for such securities are linked primarily to the specific outcome of the events and not by the overall direction of the bond or stock markets. Examples could include mergers and acquisitions (arbitrage), corporate restructurings and spin-offs, and capital structure arbitrage.

e) Net Investment Income

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Fixed maturity investments	$	36,778	$	47,877	$	120,883	$	149,471
Equity securities and other invested assets		5,375		3,397		18,093		10,608
Cash and cash equivalents		640		166		1,797		611
Expenses		(3,672)		(3,557)		(11,992)		(10,231)
Net investment income	$	39,121	$	47,883	$	128,781	$	150,459

f) Components of Realized Gains and Losses

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2012		2011		2012		2011
Gross realized gains on sale of invested assets		$	27,210	$	44,674	$	119,154	$	122,842
Gross realized losses on sale of invested assets			(6,686)		(10,634)		(43,355)		(35,896)
Net realized and unrealized losses on derivatives			(962)		(43,285)		(192)		(58,821)
Mark-to-market changes:
	Debt securities, trading		99,821		(46,078)		144,024		(742)
	Equity securities and other invested assets		30,430		(75,486)		72,426		(48,938)
Net realized investment gains (losses)		$	149,813	$	(130,809)	$	292,057	$	(21,555)
Proceeds from sale of available for sale securities		$	1,000	$	60,043	$	214,716	$	606,234

g) Pledged Assets

As of September 30, 2012 and December 31, 2011, $2,076,294 and $2,029,138, respectively, of cash and cash equivalents and investments were deposited, pledged or held in trust accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions and insurance laws.

In addition, as of September 30, 2012 and December 31, 2011, a further $1,047,023 and $1,044,236, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company's letter of credit facility. See Note 11 to these Condensed Consolidated Financial Statements and Note 9 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for details on the credit facility.

h) Analysis of Unrealized Losses

The following table summarizes the market value of those available for sale investments in an unrealized loss position for periods less than and greater than 12 months:

		September 30, 2012				December 31, 2011
		Gross Fair		Unrealized		Gross Fair		Unrealized
		Value		Loss		Value		Loss
Less than 12 months
Corporate debt:
	Financial institutions	$	0	$	0	$	9,440	$	(292)
Total fixed maturity investments, available for sale		$	0	$	0	$	9,440	$	(292)

As of September 30, 2012 and December 31, 2011, there were nil and three securities, respectively, in an unrealized loss position.

i) Other-than-temporary impairment charges

Following the Company's review of the securities in the investment portfolio during the three and nine months ended September 30, 2012 and 2011, no securities were considered to be other-than-temporarily impaired.