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INVESTMENTS
 6 Months Ended
Jun. 30, 2014
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS [Text Block]
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, 2014
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,607,568

 
$
4,761

 
$
(14,009
)
 
$
1,598,320

 
$
—

 
 
Non-U.S. government
1,238,471

 
30,486

 
(21,290
)
 
1,247,667

 
—

 
 
Corporate debt
4,177,454

 
91,862

 
(5,342
)
 
4,263,974

 
—

 
 
Agency RMBS(1)
2,076,932

 
37,725

 
(9,078
)
 
2,105,579

 
—

 
 
CMBS(2)
923,294

 
17,187

 
(787
)
 
939,694

 
—

 
 
Non-Agency RMBS
80,243

 
5,069

 
(366
)
 
84,946

 
(879
)
 
 
ABS(3)
1,309,555

 
5,162

 
(7,792
)
 
1,306,925

 
—

 
 
Municipals(4)
1,014,616

 
39,099

 
(1,923
)
 
1,051,792

 
—

 
 
Total fixed maturities
$
12,428,133

 
$
231,351

 
$
(60,587
)
 
$
12,598,897

 
$
(879
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
307,392

 
$
80,750

 
$
(3,140
)
 
$
385,002

 
 
 
 
Exchange-traded funds
193,582

 
41,790

 
—

 
235,372

 
 
 
 
Non-U.S. bond mutual funds
113,200

 
11,186

 
—

 
124,386

 
 
 
 
Total equity securities
$
614,174

 
$
133,726

 
$
(3,140
)
 
$
744,760

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
1,421,245

 
$
1,405

 
$
(33,952
)
 
$
1,388,698

 
$
—

 
 
Non-U.S. government
1,208,384

 
17,990

 
(49,992
)
 
1,176,382

 
—

 
 
Corporate debt
3,533,585

 
84,881

 
(10,228
)
 
3,608,238

 
—

 
 
Agency RMBS(1)
2,485,139

 
21,979

 
(58,291
)
 
2,448,827

 
—

 
 
CMBS(2)
790,095

 
11,285

 
(3,966
)
 
797,414

 
—

 
 
Non-Agency RMBS
65,590

 
2,375

 
(398
)
 
67,567

 
(868
)
 
 
ABS(3)
955,274

 
6,871

 
(8,694
)
 
953,451

 
—

 
 
Municipals(4)
1,527,834

 
32,432

 
(14,516
)
 
1,545,750

 
—

 
 
Total fixed maturities
$
11,987,146

 
$
179,218

 
$
(180,037
)
 
$
11,986,327

 
$
(868
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
345,759

 
$
98,742

 
$
(6,183
)
 
$
438,318

 
 
 
 
Exchange-traded funds
106,762

 
32,085

 
—

 
138,847

 
 
 
 
Non-U.S. bond mutual funds
113,698

 
11,124

 
—

 
124,822

 
 
 
 
Total equity securities
$
566,219

 
$
141,951

 
$
(6,183
)
 
$
701,987

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 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 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, 2014
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
496,073

 
$
502,045

 
4.0
%
 
 
Due after one year through five years
5,399,655

 
5,503,744

 
43.7
%
 
 
Due after five years through ten years
1,907,336

 
1,913,017

 
15.2
%
 
 
Due after ten years
235,045

 
242,947

 
1.9
%
 
 
 
8,038,109

 
8,161,753

 
64.8
%
 
 
Agency RMBS
2,076,932

 
2,105,579

 
16.7
%
 
 
CMBS
923,294

 
939,694

 
7.5
%
 
 
Non-Agency RMBS
80,243

 
84,946

 
0.7
%
 
 
ABS
1,309,555

 
1,306,925

 
10.3
%
 
 
Total
$
12,428,133

 
$
12,598,897

 
100.0
%
 
 
 
 
 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
 
 
Maturity
 
 
 
 
 
 
 
Due in one year or less
$
710,079

 
$
717,052

 
5.9
%
 
 
Due after one year through five years
5,030,728

 
5,116,060

 
42.7
%
 
 
Due after five years through ten years
1,852,877

 
1,791,835

 
14.9
%
 
 
Due after ten years
97,364

 
94,121

 
0.8
%
 
 
 
7,691,048

 
7,719,068

 
64.3
%
 
 
Agency RMBS
2,485,139

 
2,448,827

 
20.4
%
 
 
CMBS
790,095

 
797,414

 
6.7
%
 
 
Non-Agency RMBS
65,590

 
67,567

 
0.6
%
 
 
ABS
955,274

 
953,451

 
8.0
%
 
 
Total
$
11,987,146

 
$
11,986,327

 
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, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
400,317

 
$
(13,879
)
 
$
242,865

 
$
(130
)
 
$
643,182

 
$
(14,009
)
 
 
Non-U.S. government
186,998

 
(20,060
)
 
133,205

 
(1,230
)
 
320,203

 
(21,290
)
 
 
Corporate debt
62,552

 
(2,713
)
 
539,287

 
(2,629
)
 
601,839

 
(5,342
)
 
 
Agency RMBS
366,449

 
(8,547
)
 
101,488

 
(531
)
 
467,937

 
(9,078
)
 
 
CMBS
82,434

 
(638
)
 
24,935

 
(149
)
 
107,369

 
(787
)
 
 
Non-Agency RMBS
8,884

 
(366
)
 
215

 
—

 
9,099

 
(366
)
 
 
ABS
309,814

 
(5,670
)
 
372,067

 
(2,122
)
 
681,881

 
(7,792
)
 
 
Municipals
95,013

 
(1,717
)
 
48,227

 
(206
)
 
143,240

 
(1,923
)
 
 
Total fixed maturities
$
1,512,461

 
$
(53,590
)
 
$
1,462,289

 
$
(6,997
)
 
$
2,974,750

 
$
(60,587
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
9,909

 
$
(1,339
)
 
$
44,822

 
$
(1,801
)
 
$
54,731

 
$
(3,140
)
 
 
Total equity securities
$
9,909

 
$
(1,339
)
 
$
44,822

 
$
(1,801
)
 
$
54,731

 
$
(3,140
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
—

 
$
—

 
$
982,307

 
$
(33,952
)
 
$
982,307

 
$
(33,952
)
 
 
Non-U.S. government
35,577

 
(3,430
)
 
420,622

 
(46,562
)
 
456,199

 
(49,992
)
 
 
Corporate debt
27,696

 
(802
)
 
606,592

 
(9,426
)
 
634,288

 
(10,228
)
 
 
Agency RMBS
144,468

 
(5,247
)
 
1,478,527

 
(53,044
)
 
1,622,995

 
(58,291
)
 
 
CMBS
13,319

 
(116
)
 
298,863

 
(3,850
)
 
312,182

 
(3,966
)
 
 
Non-Agency RMBS
4,287

 
(315
)
 
5,319

 
(83
)
 
9,606

 
(398
)
 
 
ABS
37,765

 
(2,941
)
 
553,803

 
(5,753
)
 
591,568

 
(8,694
)
 
 
Municipals
8,408

 
(615
)
 
543,474

 
(13,901
)
 
551,882

 
(14,516
)
 
 
Total fixed maturities
$
271,520

 
$
(13,466
)
 
$
4,889,507

 
$
(166,571
)
 
$
5,161,027

 
$
(180,037
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
$
3,499

 
$
(398
)
 
$
48,828

 
$
(5,785
)
 
$
52,327

 
$
(6,183
)
 
 
Total equity securities
$
3,499

 
$
(398
)
 
$
48,828

 
$
(5,785
)
 
$
52,327

 
$
(6,183
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Fixed Maturities

At June 30, 2014, 687 fixed maturities (2013: 1,127) were in an unrealized loss position of $61 million (2013: $180 million), of which $2 million (2013: $2 million) was related to securities below investment grade or not rated.

At June 30, 2014, 317 (2013: 99) securities had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $1,512 million (2013: $272 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 impaired at June 30, 2014, and were expected to recover in value as the securities approach maturity. Further, at June 30, 2014, 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, 2014, 58 securities (2013: 63) were in an unrealized loss position of $3 million (2013: $6 million).

At June 30, 2014, 10 (2013: 9) securities had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $10 million (2013: $3 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, 2014.
 
b) Other Investments

The following table provides a breakdown of our investments in hedge funds, direct lending funds and 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, 2014
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
373,539

 
36
%
 
Quarterly, Semi-annually
 
30-60 days
 
 
Multi-strategy funds
306,215

 
29
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
191,735

 
18
%
 
Quarterly, Annually
 
45-60 days
 
 
Leveraged bank loan funds
48,430

 
5
%
 
Quarterly
 
65 days
 
 
Direct lending funds
33,467

 
3
%
 
n/a
 
n/a
 
 
CLO - Equities
91,106

 
9
%
 
n/a
 
n/a
 
 
Total other investments
$
1,044,492

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2013
 

 
 

 
 
 
 
 
 
Long/short equity funds
$
425,444

 
41
%
 
Monthly, Quarterly, Semi-annually
 
30-60 days
 
 
Multi-strategy funds
285,155

 
27
%
 
Quarterly, Semi-annually
 
60-95 days
 
 
Event-driven funds
190,458

 
18
%
 
Quarterly, Annually
 
45-60 days
 
 
Leveraged bank loan funds
48,753

 
5
%
 
Quarterly
 
65 days
 
 
Direct lending funds
22,134

 
2
%
 
n/a
 
n/a
 
 
CLO - Equities
73,866

 
7
%
 
n/a
 
n/a
 
 
Total other investments
$
1,045,810

 
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.

•
Direct lending funds: Seek to achieve attractive risk-adjusted returns, including current income generation, by investing in funds which provide financing directly to borrowers.

Two common redemption restrictions which may impact our ability to redeem our hedge 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 2014 and 2013, neither of these restrictions impacted our redemption requests. At June 30, 2014, $71 million (2013: $99 million), representing 8% (2013: 10%) of our total hedge funds, relate to holdings where we are still within the lockup period. The expiries of these lockup periods range from September 2014 to April 2016. 

At June 30, 2014, $8 million (2013: $11 million) was invested in hedge funds that are not accepting redemption requests. Of this amount, substantially all relates to a leveraged bank loan fund in a period of planned principal distributions. Based on market conditions and payments made to date, management's current expectation is that the distribution process will be completed in 2014. 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, 2014, we have $77 million (2013: $88 million) of unfunded commitments within our other investments portfolio relating to our future investments in direct lending funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until the completion of the fund's investment term. These funds have investment terms ranging from 5-10 years and the General Partners of certain funds have the option to extend the term by up to three years.
During 2013, we made a $60 million commitment as a limited partner in a multi-strategy hedge fund. Once the full amount of committed capital has been called by the General Partner, the assets will not be fully returned until the completion of the fund's investment term which ends in December, 2018. The General Partner then has the option to extend the term by up to three years. At June 30, 2014, $47 million of our commitment remains unfunded and the current fair value of the funds called to date are included in the multi-strategy funds line of the table above.
During 2013, we made a $60 million commitment as a limited partner in a fund that invests primarily in CLO equities ("CLO fund").  We will not be eligible to redeem our investment until December, 2017 but expect to receive interest distributions on a quarterly basis.  At June 30, 2014, $7 million of our commitment remains unfunded and the current fair value of the funds called to date are included in the CLO - Equities line of the table above.  The CLO - Equities line also includes direct investment in the equity tranches of CLOs.

c) Net Investment Income

Net investment income was derived from the following sources:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities
$
78,523

 
$
74,503

 
$
151,480

 
$
144,185

 
 
Other investments
32,492

 
11,848

 
49,252

 
55,279

 
 
Equity securities
5,301

 
3,134

 
7,587

 
4,548

 
 
Cash and cash equivalents
6,183

 
1,265

 
7,046

 
2,533

 
 
Short-term investments
246

 
397

 
459

 
929

 
 
Gross investment income
122,745

 
91,147

 
215,824

 
207,474

 
 
Investment expenses
(7,878
)
 
(8,035
)
 
(18,214
)
 
(15,455
)
 
 
Net investment income
$
114,867

 
$
83,112

 
$
197,610

 
$
192,019

 
 
 
 
 
 
 
 
 
 
 


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,
 
 
  
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
Gross realized gains
 
 
 
 
 
 
 
 
 
Fixed maturities and short-term investments
$
26,650

 
$
34,355

 
$
60,420

 
$
66,986

 
 
Equities
32,609

 
10,132

 
51,876

 
36,282

 
 
Gross realized gains
59,259

 
44,487

 
112,296

 
103,268

 
 
Gross realized losses
 
 
 
 
 
 
 
 
 
Fixed maturities and short-term investments
(14,392
)
 
(29,538
)
 
(48,096
)
 
(46,812
)
 
 
Equities
(2,546
)
 
(3,715
)
 
(4,984
)
 
(7,010
)
 
 
Gross realized losses
(16,938
)
 
(33,253
)
 
(53,080
)
 
(53,822
)
 
 
Net OTTI recognized in earnings
(1,905
)
 
(5,127
)
 
(2,690
)
 
(6,025
)
 
 
Change in fair value of investment derivatives(1)
(7,155
)
 
10,128

 
(12,644
)
 
17,292

 
 
Net realized investment gains
$
33,261

 
$
16,235

 
$
43,882

 
$
60,713

 
 
 
 
 
 
 
 
 
 
 
(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,
 
 
  
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
Non-U.S. government
$
1,774

 
$
25

 
$
1,812

 
$
25

 
 
Corporate debt
67

 
3,535

 
81

 
3,950

 
 
ABS
—

 
—

 
56

 
129

 
 
 
1,841

 
3,560

 
1,949

 
4,104

 
 
Equity Securities
 
 
 
 
 
 
 
 
 
Common stocks
64

 
1,046

 
741

 
1,400

 
 
Exchange-traded funds
—

 
521

 
—

 
521

 
 
 
64

 
1,567

 
741

 
1,921

 
 
Total OTTI recognized in earnings
$
1,905

 
$
5,127

 
$
2,690

 
$
6,025

 
 
 
 
 
 
 
 
 
 
 


The following table provides a roll forward of the credit losses, before income taxes, for which a portion of the OTTI was recognized in AOCI:
 
  
Three months ended June 30,
 
Six months ended June 30,
 
 
  
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
1,590

 
$
1,712

 
$
1,594

 
$
1,809

 
 
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
—

 
—

 
—

 
—

 
 
Intent to sell of securities previously impaired
—

 
—

 
—

 
—

 
 
Securities sold/redeemed/matured
(9
)
 
(13
)
 
(13
)
 
(110
)
 
 
Balance at end of period
$
1,581

 
$
1,699

 
$
1,581

 
$
1,699

 
 
 
 
 
 
 
 
 
 
 


e) Reverse Repurchase Agreements

At June 30, 2014, we held $55 million (2013: $34 million) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of cash and cash equivalents on our consolidated balance sheet. The required collateral for these loans is either cash or U.S. Treasuries at a minimum rate of 102% of the loan principal. Upon maturity, we receive principal and interest income.