Derivative instruments


(a)	Derivatives not designated as hedging instruments

The following tables summarize information on the classification and amount of the fair value of derivatives not designated as hedging instruments within the Company’s Consolidated Balance Sheets as at December 31, 2017 and 2016:



	December 31, 2017						December 31, 2016
Derivatives not designated as hedging instruments	Notional Exposure		Asset Derivative at Fair Value ^(a)		Liability Derivative at Fair Value ^(a)		Notional Exposure		Asset Derivative at Fair Value ^(a)		Liability Derivative at Fair Value ^(a)
Foreign currency forward contracts	$	283,765	$	1,147	$	906	$	181,375	$	2,351	$	3,421
Interest rate swap contracts	$	200,000	$	1,589	$	—	$	—	$	—	$	—
Weather derivative contracts	$	4,825	$	853	$	—	$	—	$	—	$	—


(a)	Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s Consolidated Balance Sheets.

The foreign currency forward contracts and interest rate swap contracts are valued on the basis of standard industry valuation models. The inputs to these models are based on observable market inputs, and as such the fair values of these contracts are classified as Level 2. The weather derivative contracts are valued on the basis of modeled and other information provided by Validus’ counterparties. Validus reviews this information, which represents Level 3 inputs, as it is ultimately management’s responsibility to ensure that the fair values reflected in the Company’s financial statements are appropriate.

The following table summarizes information on the classification and net impact on earnings, recognized in the Company’s Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income relating to derivatives that were not designated as hedging instruments during the years ended December 31, 2017, 2016 and 2015:



Derivatives not designated as hedging instruments	Classification of gains (losses) recognized in earnings	Years Ended December 31,
Derivatives not designated as hedging instruments	Classification of gains (losses) recognized in earnings	2017			2016			2015
Foreign currency forward contracts	Foreign exchange (losses) gains	$	(8,571	)	$	(1,667	)	$	(610	)
Foreign currency forward contracts	Other insurance related income and other income	$	(979	)	$	142		$	139
Interest rate swap contracts ^(a)	Net realized gains on investments	$	989		$	8,518		$	—
Weather derivative contracts	Other insurance related income and other income	$	1,299		$	—		$	—


(a)	Net realized gains during the year ended December 31, 2016 relate to net realized gains on two interest rate swap contracts which were entered into and terminated during that year to partially offset the impact of interest rate increases on the Company’s fixed maturity investment portfolio.


(b)	Derivatives designated as hedging instruments

Derivative instruments designated as fair value hedges

Up to September 30, 2015, the Company had designated certain foreign currency derivative instruments as fair value hedges. During the year ended December 31, 2015, the Company incurred losses of $12,279 recognized in income within foreign exchange gains (losses), with an equal and offsetting gain recognized in the same account on the hedged item.

Derivative instruments designated as cash flow hedges

During 2012 and 2013, the Company entered into several swap agreements with third parties in order to convert the floating interest rates associated with its Junior Subordinated Deferrable Debentures into fixed rates. See Note 19, “Debt and financing arrangements,” for further details. The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency-denominated sales or purchases.

The following table summarizes information on the classification and amount of the fair value of derivatives designated as hedging instruments on the Consolidated Balance Sheets as at December 31, 2017 and 2016:



	December 31, 2017						December 31, 2016
Derivatives designated as hedging instruments	Notional Exposure		Asset Derivative at Fair Value ^(a)		Liability Derivative at Fair Value ^(a)		Notional Exposure		Asset Derivative at Fair Value ^(a)		Liability Derivative at Fair Value ^(a)
Interest rate swap contracts	$	552,263	$	9,806	$	18,840	$	552,263	$	20	$	1,479
Foreign currency forward contracts	$	96,293	$	1,891	$	—	$	—	$	—	$	—


(a)	Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s Consolidated Balance Sheets.

The interest rate swap contracts and foreign currency forward contracts are valued on the basis of Level 2 inputs.

The following tables provide the total impact on other comprehensive (loss) income and earnings relating to the derivative instruments formally designated as cash flow hedges for the years ended December 31, 2017, 2016 and 2015:



	Years Ended December 31,
Interest rate swap contracts	2017			2016		2015
Amount of effective portion recognized in other comprehensive (loss)	$	(8,243	)	$	277	$	(841	)
Amount of effective portion reclassified to finance expenses	$	(450	)	$	—	$	—

	Years Ended December 31,
Foreign currency forward contracts	2017			2016		2015
Amount of effective portion recognized in other comprehensive income	$	1,891		$	—	$	—
Amount of effective portion reclassified to general and administrative expenses	$	—		$	—	$	—


(c)	Balance sheet offsetting

There was no balance sheet offsetting activity as at December 31, 2017 or 2016.

The Company provides investments as collateral for interest rate swap contracts and weather derivative contracts. The Company does not provide collateral or financial instruments as security for foreign currency forward contracts. Our derivative instruments are generally traded under International Swaps and Derivatives Association master agreements, which establish terms that apply to all transactions. On a periodic basis, the amounts receivable from or payable to the counterparties are settled in cash.

The Company has not elected to settle multiple transactions with an individual counterparty on a net basis.