FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS [Text Block]

6.       FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

Fair value is defined as the price to sell an asset or transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:

• Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
• Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

• Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect our own assumptions about assumptions that market participants might use.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.

Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This may lead us to change the selection of our valuation technique (from market to income approach) or may cause us to use multiple valuation techniques to estimate the fair value of a financial instrument. This circumstance could cause an instrument to be reclassified between levels.

We used the following valuation technique and assumptions in estimating the fair value of our financial instruments as well as the general classification of such financial instruments pursuant to the above fair value hierarchy.

Fixed Maturities

At each valuation date, we use the market approach valuation technique to estimate the fair value of our fixed maturities portfolio, when possible. This market approach includes, but is not limited to, prices obtained from third party pricing services for identical or comparable securities and the use of “pricing matrix models” using observable market inputs such as yield curves, credit risks and spreads, measures of volatility, and prepayment speeds. Pricing from third party pricing services is sourced from multiple vendors, when available, and we maintain a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. When prices are unavailable from pricing services, we obtain non-binding quotes from broker-dealers who are active in the corresponding markets.

The following describes the significant inputs generally used to determine the fair value of our fixed maturities by asset class.

U.S. government and agency

U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. As the fair values of our U.S. Treasury securities are based on unadjusted market prices in active markets, they are classified within Level 1. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.

Non-U.S. government

Non-U.S. government securities comprise bonds issued by non-U.S. governments and their agencies along with supranational organizations (also known as sovereign debt securities). The fair value of these securities is based on prices obtained from international indices or a valuation model that includes the following inputs: interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the sovereign bond in terms of issuer, maturity and seniority. As the significant inputs are observable market inputs, the fair value of non-U.S. government securities are classified within Level 2.

Corporate debt

Corporate debt securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve are observable market inputs, the fair values of our corporate debt securities are classified within Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3 and consisted of private corporate debt securities at December 31, 2011.

MBS

Our portfolio of RMBS and CMBS are originated by both agencies and non-agencies. The fair values of these securities are determined through the use of a pricing model (including Option Adjusted Spread) which uses prepayment speeds and spreads to determine the appropriate average life of the MBS.These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As the significant inputs used to price MBS are observable market inputs, the fair values of the MBS are classified within Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. These securities are classified within Level 3.

ABS

ABS include mostly investment-grade bonds backed by pools of loans with a variety of underlying collateral, including automobile loan receivables, student loans, credit card receivables, and CLO Debtoriginated by a variety of financial institutions. Similarly to MBS, the fair values of ABS are priced through the use of a model which uses prepayment speeds and spreads sourced primarily from the new issue market. As the significant inputs used to price ABS are observable market inputs, the fair values of ABS are classified within Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers or use a discounted cash flow model to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly.

At December 31, 2011, we continue to use our internal cash flow model (income approach) to estimate the fair value of our investment in CLO Debtgiven the lack of observable, relevant market trades. During the third quarter of 2011, we modified our valuation model to place more weighton the current implied credit spreads for similar securities rather than the underlying contractual cash flows of the respective CLO Debt. Thischange did not result in a significant change in the valuation for our CLO Debt for the current year. While the pricing from our valuation modelis significantly driven by the current implied yields for similar debt securities, these yields are based on observable offer prices due to the lack of observable market trades, adjusted for an illiquidity premium. Accordingly, we continue to classify these securities within Level 3 in the fair value hierarchy table below.

Municipals

Our municipal portfolio comprises bonds issued by U.S. domiciled state and municipality entities. The fair value of these securities is determined using spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipals are observable market inputs, municipals are classified within Level 2.

Equity Securities

Equity securities include U.S. and foreign common stocks, exchange-traded funds, and foreign bond mutual funds. For common stocks and exchange-traded funds, we classified these within Level 1 as their fair values are based on quoted market prices in active markets. Our investments in foreign bond mutual funds have daily liquidity, with redemption based on the net asset value (NAV) of the funds. Accordingly, we have classified these investments as Level 2.

Other Investments

As a practical expedient, we estimate fair values for hedge and credit funds using NAVs as advised by external fund managers or third party administrators. For ourhedge and credit fund investments with liquidity terms allowing us to fully redeem our holdings at the applicable NAVin the near term, we have classified these investments as Level 2. Certain investments in hedge and credit funds have redemption restrictions (see Note 5 for further details) that prevent us from redeeming in the near term andtherefore we have classified these investments as Level 3.

At December 31, 2011, and 2010, the CLO – Equities were classified within Level 3 as we estimated the fair value for these securities using an income approach valuation technique (internal cash flow model) due to the lack of observable, relevant trades in thesecondary markets. The following table presents a range of significant inputs used in our valuation model.

	At December 31,	2011	2010
	Default rates	4.0% - 5.0%	3.8% - 5.0%
	Loss severity rate	53.5%	65.0%
	Collateral spreads	2.6% - 4.2%	2.4% - 4.2%
	Estimated maturity dates	2.5 - 5.2 years	1.5 - 10.5 years
The changes made to the above significant inputs in 2011 did not impact significantly the total change in fair value of the CLO - Equities recognized in earnings.

Derivative Instruments

Our foreign currency forward contracts and options are customized to our hedging strategies and trade in the over-the-counter derivative market. We use the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. Accordingly, we classified these derivatives within Level 2.

The table below presents the financial instruments measured at fair value on a recurring basis.
		Quoted Prices in		Significant		Significant
		Active Markets for		Other Observable		Unobservable
		Identical Assets		Inputs		Inputs		Total Fair
		(Level 1)		(Level 2)		(Level 3)		Value
	At December 31, 2011
	Assets
	Fixed maturities
	U.S. government and agency	$	765,519	$	382,748	$	-	$	1,148,267
	Non-U.S. government		-		1,212,451		-		1,212,451
	Corporate debt		-		3,608,041		1,550		3,609,591
	Agency RMBS		-		2,636,634		-		2,636,634
	CMBS		-		312,691		-		312,691
	Non-Agency RMBS		-		165,713		-		165,713
	ABS		-		582,714		49,328		632,042
	Municipals		-		1,222,711		-		1,222,711
			765,519		10,123,703		50,878		10,940,100
	Equity securities		561,436		116,124		-		677,560
	Other investments		-		286,516		412,804		699,320
	Other assets (see Note 7)		-		38,175		-		38,175
	Total	$	1,326,955	$	10,564,518	$	463,682	$	12,355,155
	Liabilities
	Other liabilities (see Note 7)	$	-	$	2,035	$	-	$	2,035
	At December 31, 2010
	Assets
	Fixed maturities
	U.S. government and agency	$	588,281	$	271,839	$	-	$	860,120
	Non-U.S. government		-		772,798		-		772,798
	Corporate debt		-		4,161,358		1,550		4,162,908
	Agency RMBS		-		2,593,582		-		2,593,582
	CMBS		-		474,785		-		474,785
	Non-Agency RMBS		-		224,524		19,678		244,202
	ABS		-		618,665		43,178		661,843
	Municipals		-		712,659		-		712,659
			588,281		9,830,210		64,406		10,482,897
	Equity securities		271,451		77,803		-		349,254
	Other investments		-		-		519,296		519,296
	Other assets (see Note 7)		-		6,641		-		6,641
	Total	$	859,732	$	9,914,654	$	583,702	$	11,358,088
	Liabilities
	Other liabilities (see Note 7)	$	-	$	14,986	$	-	$	14,986
During 2011 and 2010, we had no transfers between Levels 1 and 2.

Level 3 financial instruments
The following tables present changes in Level 3 for financial instruments measured at fair value on a recurring basis for the periods indicated:
			Fixed Maturities
			Corporate				Non-Agency						Other		Total
			Debt		CMBS		RMBS		ABS		Total		Investments		Assets
	Year ended December 31, 2011
	Balance at beginning of period	$	1,550	$	-	$	19,678	$	43,178	$	64,406	$	519,296	$	583,702
	Total net realized and unrealized gains
	included in net income(1)		-		-		-		-		-		74,497		74,497
	Total net realized and unrealized losses
	included in net income(1)		-		-		-		-		-		(43,498)		(43,498)
	Change in net unrealized gains included
	in other comprehensive income		-		-		123		5,289		5,412		-		5,412
	Change in net unrealized losses included
	in other comprehensive income		-		-		(60)		(937)		(997)		-		(997)
	Purchases		-		-		-		-		-		195,000		195,000
	Sales		-		-		-		-		-		(25,268)		(25,268)
	Settlements / distributions		-		-		(2,046)		(93)		(2,139)		(45,720)		(47,859)
	Transfers into Level 3		-		-		-		1,891		1,891		-		1,891
	Transfers out of Level 3		-		-		(17,695)		-		(17,695)		(261,503)		(279,198)
	Balance at end of period	$	1,550	$	-	$	-	$	49,328	$	50,878	$	412,804	$	463,682
	Level 3 gains / losses included in
	earnings attributable to the change
	in unrealized gains /losses relating
	to those assets held at the
	reporting date	$	-	$	-	$	-	$	-	$	-	$	31,855	$	31,855
	Year ended December 31, 2010
	Balance at beginning of period	$	18,130	$	2,409	$	6,639	$	43,585	$	70,763	$	520,188	$	590,951
	Total net realized and unrealized gains
	included in net income(1)		-		-		-		-		-		60,969		60,969
	Total net realized and unrealized losses
	included in net income(1)		(1,550)		(119)		(581)		(1,134)		(3,384)		-		(3,384)
	Change in net unrealized gains included
	in other comprehensive income		2,201		1,273		1,825		3,361		8,660		-		8,660
	Change in net unrealized losses included
	in other comprehensive income		(34)		(238)		(27)		(71)		(370)		-		(370)
	Purchases		-		3,474		20,230		4,000		27,704		65,000		92,704
	Sales		(12)		(206)		(211)		(2,004)		(2,433)		(99,822)		(102,255)
	Settlements / distributions		-		(694)		(1,832)		(369)		(2,895)		(27,039)		(29,934)
	Transfers into Level 3		-		-		781		-		781		-		781
	Transfers out of Level 3		(17,185)		(5,899)		(7,146)		(4,190)		(34,420)		-		(34,420)
	Balance at end of period	$	1,550	$	-	$	19,678	$	43,178	$	64,406	$	519,296	$	583,702
	Level 3 gains / losses included in
	earnings attributable to the change
	in unrealized gains /losses relating
	to those assets held at the
	reporting date	$	(1,550)	$	-	$	-	$	-	$	(1,550)	$	60,969	$	59,419
(1) Realized gains and losses on fixed maturities are included in net realized investment gains (losses). Realized gains and (losses) on other investments are included in net investment income.

The transfers into and out of fair value hierarchy levels reflect the fair value of the securities at the end of the reporting period.

Transfers into Level 3 from Level 2

The transfers to Level 3 from Level 2 made in 2010 and 2011 were due to a reduction in the volume of recently executed transactions or a lack of available quotes from pricing vendors and broker-dealers.None of the transfers were as a result of changes in valuation methodology that we made.

Transfers out of Level 3 into Level 2

During 2011, the transfer of fixed maturities from Level 3 to Level 2 relates to non-agency RMBS for which observable market inputs and multiple quotes from pricing vendors and broker-dealers became available during the year as a result of the return of liquidity in this asset class. We also transferred certain hedge and credit funds (included in “other investments”) from Level 3 to Level 2 during 2011 as we have the ability to liquidate these holdings at the reported NAV in the near term.

During 2010, the transfer relating to corporate debt was in relation to one issuer as a result of entering into an agreement to take delivery of a new corporate debt security, which its fair value measurement was based on observable market inputs. The remaining transfers out of Level 3 into Level 2 madein 2010 were primarily due to the availability of observable market inputs and multiple quotes from pricing vendors and broker-dealers as a result of the return of liquidity in the credit markets.

Fair Values of Financial Instruments

The carrying amount of financial assets and liabilities presented on the Consolidated Balance Sheets as at December 31, 2011, and December 31, 2010 approximated their fair values with the exception of senior notes. At December 31, 2011, the senior notes are recorded at amortized cost with a carrying value of $995 million (2010: $994 million) and a fair value of $1,039 million (2010: $1,018 million).