Investments

6 Months Ended

Jun. 30, 2013

Investments [Abstract]

Investments

4. INVESTMENTS

a) Trading Securities

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

		June 30, 2013				December 31, 2012
		Fair Value		Amortized Cost		Fair Value		Amortized Cost
U.S. Government and Government agencies		$	2,049,212	$	2,060,490	$	1,865,913	$	1,854,198
Non-U.S. Government and Government agencies			233,301		242,487		261,627		253,657
States, municipalities and political subdivisions			33,621		33,328		40,444		39,342
Corporate debt:
	Financial institutions		794,552		781,788		866,140		835,587
	Industrials		1,089,904		1,087,425		1,153,909		1,139,706
	Utilities		66,684		66,684		69,153		67,463
Mortgage-backed			1,589,021		1,564,838		1,958,373		1,877,854
Asset-backed			429,483		427,303		410,895		405,622
Total fixed maturity investments		$	6,285,778	$	6,264,343	$	6,626,454	$	6,473,429

	June 30, 2013				December 31, 2012
	Fair Value		Original Cost		Fair Value		Original Cost
Equity securities	$	640,925	$	594,025	$	523,949	$	480,312
Other invested assets		714,391		635,632		655,888		606,521
	$	1,355,316	$	1,229,657	$	1,179,837	$	1,086,833

Other invested assets include investments in private equity funds,hedge funds and a high yield loan fund that are accounted for at fair value, but excludes other private securities described below in Note 4(b) that are accounted for using the equity method of accounting.

b) Other Invested Assets

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 one to three 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 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 carrying value, redemption characteristics and unfunded investment commitments of the other invested assets portfolio as of June 30, 2013 wereas follows:

	Carrying		Investments		Estimated	Investments
	Value as of		with		Remaining	without			Redemption
	June 30,		Redemption		Restriction	Redemption		Redemption	Notice	Unfunded
Fund Type	2013		Restrictions		Period	Restrictions(1)		Frequency(1)	Period(1)	Commitments
Private equity	$	125,950	$	125,950	3 - 10 Years	$	0			$	160,490
Mezzanine debt		55,232		55,232	8 - 10 Years		0				209,623
Distressed		8,890		8,890	4 -5 Years		0				6,174
Total private equity structures		190,072		190,072			0				376,287
Distressed		136,779		112,119	1 - 2 Years		24,660	Quarterly	45 - 65 Days		0
Equity long/short		110,889		0			110,889	Quarterly	30 - 60 Days		0
Multi-strategy		127,107		0			127,107	Quarterly	45 - 90 Days		0
Global macro		19,842		0			19,842	Monthly	3 Days		0
Event driven		22,430		0			22,430	Annual	60 Days		0
Relative value credit		75,109		0			75,109	Quarterly	60 Days		0
Total hedge funds		492,156		112,119			380,037				0
Other private securities		134,709		0			134,709				5,000
High yield loan fund		32,163		0			32,163	Monthly	30 Days		0
Total other invested assets	$	849,100	$	302,191		$	546,909			$	381,287

____________

(1)       The redemption frequency and notice periods only apply to the investments without redemption restrictions. Some or all of these investments may be subject to a gate.

• 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 securities, 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.
• Relative value credit funds:These funds seek to take exposure to credit-sensitive securities, long and/or short, based upon credit analysis of issuers and securities and credit market views.
• Other private securities: These securities include strategic non-controlling minority investments in private asset management companies and other insurance related investments that are accounted for using the equity method of accounting.
• High yield loan fund:A long-only private mutual fund that invests in high yield fixed income securities.

c) Net Investment Income

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Fixed maturity investments	$	32,662	$	37,219	$	65,187	$	84,105
Equity securities		4,409		4,963		7,608		8,495
Other invested assets		3,843		3,681		5,307		4,223
Cash and cash equivalents		529		550		1,017		1,157
Expenses		(3,808)		(3,962)		(8,096)		(8,320)
Net investment income	$	37,635	$	42,451	$	71,023	$	89,660

Net investment income from other invested assets included the distributed and undistributed net income from investments accounted for using the equity method of accounting for the three and six months ended June 30, 2013.

d) Components of Realized Gains and Losses

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2013		2012		2013		2012
Gross realized gains on sale of invested assets		$	58,223	$	52,775	$	102,472	$	91,944
Gross realized losses on sale of invested assets			(35,077)		(14,762)		(42,042)		(36,669)
Net realized and unrealized gains (losses) on derivatives			8,538		(5,914)		7,561		770
Mark-to-market gains (losses):
	Fixed maturity investments, trading		(115,113)		(24,287)		(131,588)		44,203
	Equity securities, trading		(34,330)		(182)		(1,357)		19,603
	Other invested assets, trading		2,561		1,033		29,393		22,393
Net realized investment (losses) gains		$	(115,198)	$	8,663	$	(35,561)	$	142,244
Proceeds from sale of available for sale securities		$	0	$	14,308	$	0	$	213,716

e) Pledged Assets

As of June 30, 2013 and December 31, 2012, $2,226,680 and $2,141,249, 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, insurance laws and other contract provisions.

In addition, as of June 30, 2013 and December 31, 2012, a further $1,135,658 and $1,225,155, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company's letter of credit facilities. See Note 8(d) to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for details on the Company's credit facilities.