DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The balance sheet classifications of derivatives recorded at fair value are shown in the following table:



	September 30, 2019						December 31, 2018
	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	$	152,963	$	517	$	425	$	79,336	$	262	$	531
Interest rate swaps	—		—		—		150,000		—		1,116
Relating to underwriting portfolio:
Foreign exchange forward contracts	531,864		826		7,040		737,419		7,975		2,576
Other underwriting-related contracts	85,000		—		10,136		85,000		—		10,299
Total derivatives			$	1,343	$	17,601			$	8,237	$	14,522


(1)	Asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

The notional amounts of derivative contracts which represent the basis upon which amounts paid or received are calculated and are presented in the above 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.

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:



	September 30, 2019							December 31, 2018
	Gross amounts		Gross amounts offset			Net amounts⁽¹⁾		Gross amounts		Gross amounts offset			Net amounts⁽¹⁾

Derivative assets	$	2,357	$	(1,014	)	$	1,343	$	11,967	$	(3,730	)	$	8,237
Derivative liabilities	$	18,615	$	(1,014	)	$	17,601	$	18,252	$	(3,730	)	$	14,522


(1)	Net asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

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

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 exchange 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 exposes 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 insurance and reinsurance 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 insurance and reinsurance contracts with cash and investments that are denominated in the same currencies. The Company uses derivative instruments, specifically, forward contracts to economically hedge foreign currency exposures.

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 net income	Three months ended September 30,						Nine months ended September 30,
	Location of gain (loss) recognized in net income	2019			2018			2019			2018


Relating to investment portfolio:
Foreign exchange forward contracts	Net investment gains (losses)	$	2,592		$	766		$	3,964		$	2,090
Interest rate swaps	Net investment gains (losses)	—			1,859			(3,677		)	7,692
Relating to underwriting portfolio:
Foreign exchange forward contracts	Foreign exchange gains (losses)	(6,883		)	(3,965		)	(16,598		)	(4,103		)
Other underwriting-related contracts	Other insurance related income (losses)	417			677			1,035			2,225
Total		$	(3,874	)	$	(663	)	$	(15,276	)	$	7,904