The balance sheet classifications of derivatives recorded at fair value are shown in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are presented in the table to quantify the volume of the Company's derivative activities. Notional amounts are not reflective of credit risk.

None of the Company's derivative instruments are designated as hedges under current accounting guidance.



	June 30, 2018						December 31, 2017
	Derivative Notional Amount		Derivative Asset Fair Value⁽¹⁾		Derivative Liability Fair Value⁽¹⁾		Derivative Notional Amount		Derivative Asset Fair Value⁽¹⁾		Derivative Liability Fair Value⁽¹⁾

Relating to investment portfolio:
Foreign exchange forward contracts	$	159,226	$	231	$	680	$	137,422	$	10	$	619
Interest rate swaps	166,000		—		975		191,000		448		1,556
Relating to underwriting portfolio:
Foreign exchange forward contracts	963,373		9,860		3,501		698,959		4,667		701
Weather-related contracts	—		—		—		—		—		—
Other underwriting-related contracts	85,000		—		10,589		85,000		—		11,510
Total derivatives			$	10,091	$	15,745			$	5,125	$	14,386


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

Offsetting Assets and Liabilities

The Company's 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. A reconciliation of gross derivative assets and liabilities to the net amounts presented in the Consolidated Balance Sheets, with the difference being attributable to the impact of master netting agreements, is shown in the following table.



	June 30, 2018							December 31, 2017
	Gross Amounts		Gross Amounts Offset			Net Amounts⁽¹⁾		Gross Amounts		Gross Amounts Offset			Net Amounts⁽¹⁾

Derivative assets	$	17,227	$	(7,136	)	$	10,091	$	8,178	$	(3,053	)	$	5,125
Derivative liabilities	$	22,881	$	(7,136	)	$	15,745	$	17,439	$	(3,053	)	$	14,386


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

For information on reverse repurchase agreements see Note 3 'Investments'.

a) Relating to Investment Portfolio

Foreign Currency Risk

The Company's investment portfolio is exposed to foreign currency risk therefore the fair values of its investments are partially influenced by the change in foreign exchange rates. The Company may enter into foreign currency forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes.

Interest Rate Risk

The Company's investment portfolio contains a large percentage of fixed maturities which expose it to significant interest rate risk. As part of overall management of this risk, the Company may use interest rate swaps.

b) Relating to Underwriting Portfolio

Foreign Currency Risk

The Company's (re)insurance subsidiaries and branches operate in various countries. Some of its business is written in currencies other than the U.S. dollar, therefore the underwriting portfolio is exposed to significant foreign currency risk. The Company manages foreign currency risk by seeking to match its foreign-denominated net liabilities under (re)insurance contracts with cash and investments that are denominated in the same currencies. The Company may also use derivative instruments, specifically forward contracts and currency options, to economically hedge foreign currency exposures.

Weather Risk

During 2013, the Company 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, the Company's 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, the Company may also purchase weather derivatives. Effective July 1, 2017, the Company no longer writes derivative-based risk management products which address weather risks.

Other Underwriting-related Risks

The Company enters into insurance and reinsurance contracts that are accounted for as derivatives. These insurance or reinsurance contracts provide indemnification to an insured or cedant as a result of a change in a variable as opposed to an identifiable insurable event. The Company considers these contracts to be part of its underwriting operations.

The total unrealized and realized gains (losses) recognized in net income for derivatives not designated as hedges are shown in the following table:



	Location of Gain (Loss) Recognized in Income on Derivative	Three months ended June 30,						Six months ended June 30,
	Location of Gain (Loss) Recognized in Income on Derivative	2018			2017			2018			2017


Relating to investment portfolio:
Foreign exchange forward contracts	Net investment gains (losses)	$	2,515		$	(2,347	)	$	1,323		$	(4,719	)
Interest rate swaps	Net investment gains (losses)	2,619			(3,620		)	5,833			(3,181		)
Relating to underwriting portfolio:
Foreign exchange forward contracts	Foreign exchange (losses) gains	(7,809		)	16,385			(138		)	13,628
Weather-related contracts	Other insurance related income (losses)	—			(1,697		)	—			(9,629		)
Other underwriting-related contracts	Other insurance related income (losses)	647			338			1,548			338
Total		$	(2,028	)	$	9,059		$	8,566		$	(3,563	)