DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS [Text Block]

The following table summarizes the balance sheet classification of derivatives recorded at fair values. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of our derivative activities. Notional amounts are not reflective of credit risk.

	June 30, 2014						December 31, 2013
	Derivative Notional Amount		Asset Derivative Fair Value(1)		Liability Derivative Fair Value(1)		Derivative Notional Amount		Asset Derivative Fair Value(1)		Liability Derivative Fair Value(1)
Derivatives not designated as hedging instruments
Relating to investment portfolio:
Foreign exchange forward contracts	$	132,230	$	12	$	2,011	$	254,023	$	1,214	$	1,032
Interest rate swaps	281,250		—		272		281,250		873		—
Relating to underwriting portfolio:
Foreign exchange forward contracts	605,076		5,608		—		390,663		4,737		120
Weather-related contracts	3,000		—		750		24,451		984		815
Commodity contracts	100,850		3,571		—		—		—		—
Total derivatives			$	9,191	$	3,033			$	7,808	$	1,967

(1) Asset and liability derivatives are classified within other assets and other liabilities on the Consolidated Balance Sheets.

Offsetting Assets and Liabilities

Our derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements, which establish terms that apply to all transactions. In the event of a bankruptcy or other stipulated event, master netting agreements provide that individual positions be replaced with a new amount, usually referred to as the termination amount, determined by taking into account market prices and converting into a single currency. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure. The table below presents a reconciliation of our gross derivative assets and liabilities to the net amounts presented in our Consolidated Balance Sheets, with the difference being attributable to the impact of master netting agreements.

	June 30, 2014							December 31, 2013
	Gross Amounts		Gross Amounts Offset			Net Amounts(1)		Gross Amounts		Gross Amounts Offset			Net Amounts(1)
Derivative assets	$	11,985	$	(2,794	)	$	9,191	$	9,796	$	(1,988	)	$	7,808
Derivative liabilities	5,827		(2,794		)	3,033		3,955		(1,988		)	1,967

(1) Net asset and liability derivatives are classified within other assets and other liabilities on the Consolidated Balance Sheets.

Refer to Note 3 - Investments for information on reverse repurchase agreements.

Derivative Instruments not Designated as Hedging Instruments

a) Relating to Investment Portfolio

Foreign Currency Risk

Within our investment portfolio we are exposed to foreign currency risk. Accordingly, the fair values for our investment portfolio are partially influenced by the change in foreign exchange rates. We may enter into foreign exchange forward contracts to manage the effect of this currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes.

In addition, our external equity investment managers have the discretion to hold foreign currency exposures as part of their total return strategy.

The decrease in the notional amount of investment-related derivatives since December 31, 2013 was due to a decrease in sterling and Canadian dollar-denominated fixed maturities being hedged.

Interest Rate Risk

Our investment portfolio contains a large percentage of fixed maturities which exposes us to significant interest rate risk. As part of our overall management of this risk, we may use interest rate swaps. The interest rate swaps held at June 30,2014 convert part of our overall fixed rate exposure to a variable rate exposure which effectively reduces the duration of our overall portfolio.

b) Relating to Underwriting Portfolio

Foreign Currency Risk

Our (re)insurance subsidiaries and branches operate in various foreign countries. Consequently, some of our business is written in currencies other than the U.S. dollar and, therefore, our underwriting portfolio is exposed to significant foreign currency risk. We manage foreign currency risk by seeking to match our foreign-denominated net liabilities under (re)insurance contracts with cash and investments that are denominated in such currencies. We may also use derivative instruments, specifically forward contracts and currency options, to economically hedge foreign currency exposures.

The increase in the notional amount of underwriting related derivatives since December 31, 2013, was primarily due to new business written in the first half of 2014.

Weather Risk

During 2013, we began to write derivative-based risk management products designed to address weather risks with the objective of generating profits on a portfolio basis. The majority of this business consists of receiving a payment at contract inception in exchange for bearing the risk of variations in a quantifiable weather-related phenomenon, such as temperature. Where a client wishes to minimize the upfront payment, these transactions may be structured as swaps or collars. In general, our portfolio of such derivative contracts is of short duration, with contracts being predominantly seasonal in nature. In order to economically hedge a portion of this portfolio, we may also purchase weather derivatives.

Commodity Risk

Within our (re)insurance portfolio we are exposed to commodity price risk. During 2014, we began to hedge this price risk by entering into commodity derivative contracts.

The total unrealized and realized gains (losses) recognized in earnings for derivatives not designated as hedges were as follows:

	Location of Gain (Loss) Recognized in Income on Derivative	Three months ended June 30,						Six months ended June 30,
		2014			2013			2014			2013
Derivatives not designated as hedging instruments
Relating to investment portfolio:
Foreign exchange forward contracts	Net realized investment gains	$	(2,355	)	$	10,128		$	(3,684	)	$	17,292
Interest rate swaps	Net realized investment gains	(4,800		)	—			(8,960		)	—
Relating to underwriting portfolio:
Foreign exchange forward contracts	Foreign exchange losses (gains)	1,058			(4,685		)	13,131			(2,197		)
Weather-related contracts	Other insurance related income	383			—			4,061			—
Commodity contracts	Other insurance related income	1,713			—			1,713			—
Total		$	(4,001	)	$	5,443		$	6,261		$	15,095