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INVESTMENTS
 6 Months Ended
Jun. 30, 2012
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS [Text Block]
3.     INVESTMENTS
a)     Fixed Maturities and Equities

The amortized cost or cost and fair values of our fixed maturities and equities were as follows:
 
 
Amortized
Cost or
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Non-credit
OTTI
in AOCI(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,129,843

 
$
7,117

 
$
(806
)
 
$
1,136,154

 
$
—

 
 
Non-U.S. government
1,251,832

 
23,132

 
(12,421
)
 
1,262,543

 
—

 
 
Corporate debt
3,572,982

 
93,932

 
(23,542
)
 
3,643,372

 
—

 
 
Agency RMBS(1)
2,713,950

 
77,118

 
(911
)
 
2,790,157

 
—

 
 
CMBS(2)
606,935

 
16,703

 
(242
)
 
623,396

 
—

 
 
Non-Agency RMBS
151,906

 
2,116

 
(6,427
)
 
147,595

 
(949
)
 
 
ABS(3)
674,767

 
6,260

 
(11,420
)
 
669,607

 
—

 
 
Municipals(4)
1,178,151

 
53,787

 
(314
)
 
1,231,624

 
—

 
 
Total fixed maturities
$
11,280,366

 
$
280,165

 
$
(56,083
)
 
$
11,504,448

 
$
(949
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
385,871

 
$
40,240

 
$
(17,073
)
 
$
409,038

 
 
 
 
Exchange-traded funds
128,622

 
1,362

 
—

 
129,984

 
 
 
 
Non-U.S. bond mutual funds
95,225

 
—

 
(2,516
)
 
92,709

 
 
 
 
Total equity securities
$
609,718

 
$
41,602

 
$
(19,589
)
 
$
631,731

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,142,732

 
$
5,669

 
$
(134
)
 
$
1,148,267

 
$
—

 
 
Non-U.S. government
1,241,664

 
7,359

 
(36,572
)
 
1,212,451

 
—

 
 
Corporate debt
3,581,320

 
85,766

 
(57,495
)
 
3,609,591

 
—

 
 
Agency RMBS
2,568,053

 
69,073

 
(492
)
 
2,636,634

 
—

 
 
CMBS
298,138

 
14,816

 
(263
)
 
312,691

 
—

 
 
Non-Agency RMBS
177,529

 
1,431

 
(13,247
)
 
165,713

 
(1,120
)
 
 
ABS
639,949

 
7,094

 
(15,001
)
 
632,042

 
—

 
 
Municipals
1,171,953

 
52,438

 
(1,680
)
 
1,222,711

 
—

 
 
Total fixed maturities
$
10,821,338

 
$
243,646

 
$
(124,884
)
 
$
10,940,100

 
$
(1,120
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
341,603

 
$
25,143

 
$
(19,291
)
 
$
347,455

 
 
 
 
Exchange-traded funds
239,411

 
77

 
(25,507
)
 
213,981

 
 
 
 
Non-U.S. bond mutual funds
118,552

 
—

 
(2,428
)
 
116,124

 
 
 
 
Total equity securities
$
699,566

 
$
25,220

 
$
(47,226
)
 
$
677,560

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Residential mortgage-backed securities (RMBS) originated by U.S. agencies.
(2)
Commercial mortgage-backed securities (CMBS).
(3)
Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit cards, and other asset types. This asset class also includes an insignificant position in collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs).
(4)
Municipals include bonds issued by states, municipalities and political subdivisions.
(5)
Represents the non-credit component of the other-than-temporary impairment (OTTI) losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by VIEs. These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we also invest in limited partnerships (hedge and credit funds) and CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 3(b)). For these variable interests, we do not have the power to direct the activities that are most significant to the economic performance of the VIEs and accordingly we are not the primary beneficiary for any of these VIEs. Our maximum exposure to loss on these interests is limited to the amount of our investment. We have not provided financial or other support with respect to these structured securities other than our original investment.

Contractual Maturities

The contractual maturities of fixed maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair Value
 
 
 
 
 
 
 
 
 
 
At June 30, 2012
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
646,351

 
$
647,923

 
5.6
%
 
 
Due after one year through five years
4,777,747

 
4,828,090

 
42.0
%
 
 
Due after five years through ten years
1,611,931

 
1,695,911

 
14.7
%
 
 
Due after ten years
96,779

 
101,769

 
0.9
%
 
 
 
7,132,808

 
7,273,693

 
63.2
%
 
 
Agency RMBS
2,713,950

 
2,790,157

 
24.3
%
 
 
CMBS
606,935

 
623,396

 
5.4
%
 
 
Non-Agency RMBS
151,906

 
147,595

 
1.3
%
 
 
ABS
674,767

 
669,607

 
5.8
%
 
 
Total
$
11,280,366

 
$
11,504,448

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2011
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
543,100

 
$
539,009

 
4.9
%
 
 
Due after one year through five years
4,694,832

 
4,685,866

 
42.8
%
 
 
Due after five years through ten years
1,779,811

 
1,845,054

 
16.9
%
 
 
Due after ten years
119,926

 
123,091

 
1.1
%
 
 
 
7,137,669

 
7,193,020

 
65.7
%
 
 
Agency RMBS
2,568,053

 
2,636,634

 
24.1
%
 
 
CMBS
298,138

 
312,691

 
2.9
%
 
 
Non-Agency RMBS
177,529

 
165,713

 
1.5
%
 
 
ABS
639,949

 
632,042

 
5.8
%
 
 
Total
$
10,821,338

 
$
10,940,100

 
100.0
%
 
 
 
 
 
 
 
 
 


 Gross Unrealized Losses

The following table summarizes fixed maturities and equities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
 
 
  
12 months or greater
 
Less than 12 months
 
Total
 
 
  
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
—

 
$
—

 
$
459,042

 
$
(806
)
 
$
459,042

 
$
(806
)
 
 
Non-U.S. government
4,592

 
(8
)
 
395,264

 
(12,413
)
 
399,856

 
(12,421
)
 
 
Corporate debt
73,199

 
(4,816
)
 
872,609

 
(18,726
)
 
945,808

 
(23,542
)
 
 
Agency RMBS
1,155

 
(6
)
 
119,744

 
(905
)
 
120,899

 
(911
)
 
 
CMBS
2,007

 
(33
)
 
41,116

 
(209
)
 
43,123

 
(242
)
 
 
Non-Agency RMBS
37,885

 
(3,955
)
 
26,941

 
(2,472
)
 
64,826

 
(6,427
)
 
 
ABS
94,176

 
(9,324
)
 
109,031

 
(2,096
)
 
203,207

 
(11,420
)
 
 
Municipals
3,873

 
(136
)
 
47,170

 
(178
)
 
51,043

 
(314
)
 
 
Total fixed maturities
$
216,887

 
$
(18,278
)
 
$
2,070,917

 
$
(37,805
)
 
$
2,287,804

 
$
(56,083
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
16,591

 
$
(3,864
)
 
$
113,505

 
$
(13,209
)
 
$
130,096

 
$
(17,073
)
 
 
Exchange-traded funds
—

 
—

 
—

 
—

 
—

 
—

 
 
Non-U.S. bond mutual funds
—

 
—

 
92,709

 
(2,516
)
 
92,709

 
(2,516
)
 
 
Total equity securities
$
16,591

 
$
(3,864
)
 
$
206,214

 
$
(15,725
)
 
$
222,805

 
$
(19,589
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
—

 
$
—

 
$
233,816

 
$
(134
)
 
$
233,816

 
$
(134
)
 
 
Non-U.S. government
—

 
—

 
786,034

 
(36,572
)
 
786,034

 
(36,572
)
 
 
Corporate debt
54,843

 
(2,437
)
 
1,228,479

 
(55,058
)
 
1,283,322

 
(57,495
)
 
 
Agency RMBS
—

 
—

 
105,059

 
(492
)
 
105,059

 
(492
)
 
 
CMBS
5,155

 
(17
)
 
11,243

 
(246
)
 
16,398

 
(263
)
 
 
Non-Agency RMBS
43,348

 
(8,127
)
 
85,053

 
(5,120
)
 
128,401

 
(13,247
)
 
 
ABS
65,096

 
(9,497
)
 
201,569

 
(5,504
)
 
266,665

 
(15,001
)
 
 
Municipals
8,450

 
(1,467
)
 
38,590

 
(213
)
 
47,040

 
(1,680
)
 
 
Total fixed maturities
$
176,892

 
$
(21,545
)
 
$
2,689,843

 
$
(103,339
)
 
$
2,866,735

 
$
(124,884
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
4,445

 
$
(2,105
)
 
$
124,481

 
$
(17,186
)
 
$
128,926

 
$
(19,291
)
 
 
Exchange-traded funds
—

 
—

 
212,050

 
(25,507
)
 
212,050

 
(25,507
)
 
 
Non-U.S. bond mutual funds
—

 
—

 
116,124

 
(2,428
)
 
116,124

 
(2,428
)
 
 
Total equity securities
$
4,445

 
$
(2,105
)
 
$
452,655

 
$
(45,121
)
 
$
457,100

 
$
(47,226
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Fixed Maturities

At June 30, 2012, 645 fixed maturities (2011: 791) were in an unrealized loss position of $56 million (2011: $125 million) of which $9 million (2011: $18 million) of this balance was related to securities below investment grade or not rated.

At June 30, 2012, 150 (2011: 138) securities have been in continuous unrealized loss position for 12 months or greater and have a fair value of $217 million (2011: $177 million). Following our credit impairment review, we concluded that these securities as well as the remaining securities in an unrealized loss position in the above table were temporarily depressed at June 30, 2012, and are expected to recover in value as the securities approach maturity. Further, at June 30, 2012, we did not intend to sell these securities in an unrealized loss position and it is more likely than not that we will not be required to sell these securities before the anticipated recovery of their amortized costs.

Equity Securities

At June 30, 2012, 140 securities (2011: 128) were in an unrealized loss position of $20 million (2011: $47 million).

At June 30, 2012, 35 (2011: 10) securities have been in a continuous unrealized loss position for 12 months or greater and have a fair value of $17 million (2011: $4 million). Based on our impairment review process and our ability and intent to hold these securities for a reasonable period of time sufficient for a full recovery, we concluded that the above equities in an unrealized loss position were temporarily impaired at June 30, 2012.
 
b) Other Investments

The following table provides a breakdown of our investments in hedge and credit funds and CLO equity tranched securities (CLO Equities), together with additional information relating to the liquidity of each category:
 
 
Fair Value
 
Redemption Frequency
(if currently eligible)
 
  Redemption  
  Notice Period  
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2012
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
294,006

 
37
%
 
Monthly, Quarterly, Semi-annually
 
30-60 days
 
 
Multi-strategy funds
234,633

 
29
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
146,220

 
18
%
 
Quarterly, Annually
 
45-95 days
 
 
Leveraged bank loan funds
61,808

 
8
%
 
Quarterly
 
65 days
 
 
CLO - Equities
61,566

 
8
%
 
n/a
 
n/a
 
 
Total other investments
$
798,233

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2011
 

 
 

 
 
 
 
 
 
Multi-strategy funds
$
230,750

 
33
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Long/short equity funds
214,498

 
31
%
 
Quarterly, Semi-annually
 
30-60 days
 
 
Event-driven funds
118,380

 
17
%
 
Quarterly, Annually
 
45-95 days
 
 
Leveraged bank loan funds
69,132

 
10
%
 
Quarterly
 
65 days
 
 
CLO - Equities
66,560

 
9
%
 
n/a
 
n/a
 
 
Total other investments
$
699,320

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
n/a - not applicable

The investment strategies for the above funds are as follows:

•
Long/short equity funds: Seek to achieve attractive returns by executing an equity trading strategy involving both long and short investments in publicly-traded equities.

•
Multi-strategy funds: Seek to achieve above-market returns by pursuing multiple investment strategies to diversify risks and reduce volatility. This category includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies.

•
Event-driven funds: Seek to achieve attractive returns by exploiting situations where announced or anticipated events create opportunities.

•
Leveraged bank loan funds: Seek to achieve attractive returns by investing primarily in bank loan collateral that has limited interest rate risk exposure.

Two common redemption restrictions which may impact our ability to redeem our hedge and credit funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. During 2012 and 2011, neither of these restrictions impacted our redemption requests. At June 30, 2012, $97 million (2011: $90 million) of our long/short equity funds, representing 12% (2011: 13%) of our total other investments, relate to holdings where we are still within the lockup period. The expiries of these lockup periods range from June, 2012 to September, 2014. No other category contains investments currently subject to lockup.

At June 30, 2012, $34 million (2011: $45 million) of our hedge and credit fund investments were invested in funds that are not accepting redemption requests. Of this amount, 84% relates to a leveraged bank loan fund in a period of planned principal distributions which has a target completion date in late 2013 and, based on current market conditions and payments made to date, management expects this target date to be met. The remainder primarily relates to funds that entered liquidation or had their assets side pocketed as a result of the global financial crisis which began in late 2008. For these funds, management is currently unable to estimate when those funds will be distributed.

At June 30, 2012, we have no unfunded commitments relating to our investments in hedge and credit funds.
 
c) Net Investment Income

Net investment income was derived from the following sources:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
76,544

 
$
89,203

 
$
156,181

 
$
177,784

 
 
Equity securities
5,071

 
4,074

 
6,180

 
4,898

 
 
Other investments
(2,304
)
 
11,797

 
38,116

 
37,108

 
 
Cash and cash equivalents
1,663

 
1,502

 
3,271

 
3,655

 
 
Short-term investments
33

 
472

 
188

 
859

 
 
Gross investment income
81,007

 
107,048

 
203,936

 
224,304

 
 
Investment expenses
(6,558
)
 
(7,030
)
 
(13,464
)
 
(13,631
)
 
 
Net investment income
$
74,449

 
$
100,018

 
$
190,472

 
$
210,673

 
 
 
 
 
 
 
 
 
 
 


 d) Net Realized Investment Gains

The following table provides an analysis of net realized investment gains:

 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
Gross realized gains
$
72,354

 
$
60,592

 
$
140,600

 
$
136,924

 
 
Gross realized losses
(40,466
)
 
(14,227
)
 
(86,377
)
 
(52,640
)
 
 
Net OTTI recognized in earnings
(13,739
)
 
(1,473
)
 
(17,648
)
 
(3,413
)
 
 
Net realized gains on fixed maturities and equity securities
18,149

 
44,892

 
36,575

 
80,871

 
 
Change in fair value of investment derivatives(1)
6,697

 
(4,361
)
 
815

 
(13,461
)
 
 
Fair value hedges(1)
5,559

 
(3,054
)
 
7,506

 
211

 
 
Net realized investment gains
$
30,405

 
$
37,477

 
$
44,896

 
$
67,621

 
 
 
 
 
 
 
 
 
 
 
(1) Refer to Note 5 – Derivative Instruments

The following table summarizes the OTTI recognized in earnings by asset class:
 
  
 
Three months ended June 30,
 
Six months ended June 30,
 
 
  
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
Non-U.S. government
 
$
999

 
$
—

 
$
999

 
$
—

 
 
Corporate debt
 
453

 
—

 
558

 
1,026

 
 
Non-Agency RMBS
 
911

 
—

 
2,119

 
370

 
 
ABS
 
298

 
—

 
478

 
61

 
 
Municipals
 
—

 
—

 
—

 
483

 
 
 
 
2,661

 
—

 
4,154

 
1,940

 
 
Equities
 
 
 
 
 
 
 
 
 
 
Common stocks
 
2,075

 
1,473

 
4,491

 
1,473

 
 
Exchange-traded funds
 
9,003

 
—

 
9,003

 
—

 
 
 
 
11,078

 
1,473

 
13,494

 
1,473

 
 
Total OTTI recognized in earnings
 
$
13,739

 
$
1,473

 
$
17,648

 
$
3,413

 
 
 
 
 
 
 
 
 
 
 
 


The following table provides a roll forward of the credit losses ("credit loss table"), before income taxes, for which a portion of the OTTI was recognized in AOCI:
 
  
 
Three months ended June 30,
 
Six months ended June 30,
 
 
  
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
2,047

 
$
9,375

 
$
2,061

 
$
57,498

 
 
Credit impairments recognized on securities not previously impaired
 
—

 
—

 
—

 
—

 
 
Additional credit impairments recognized on securities previously impaired
 
—

 
—

 
—

 
—

 
 
Change in timing of future cash flows on securities previously impaired
 
—

 
—

 
—

 
(101
)
 
 
Intent to sell of securities previously impaired
 
—

 
—

 
—

 
—

 
 
Securities sold/redeemed/matured
 
(98
)
 
(7,481
)
 
(112
)
 
(55,503
)
 
 
Balance at end of period
 
$
1,949

 
$
1,894

 
$
1,949

 
$
1,894