Note 11. Derivatives

Interest Rate Cap

Sirius Group entered into an interest rate swap (“Interest Rate Cap”) with two financial institutions where it paid an upfront premium and in return receives a series of quarterly payments based on the 3-month London Interbank Offered Rate (“LIBOR”) at the time of payment. The Interest Rate Cap does not qualify for hedge accounting. Changes in fair value are recognized as unrealized gains or losses and are presented within Other revenue. The fair value of the interest rate cap has been estimated using a single broker quote and, accordingly, has been classified as a Level 3 measurement as of March 31, 2019 and December 31, 2018. Collateral held is recorded within short-term investments with an equal amount recognized as a liability to return collateral. Sirius Group’s liability to return that collateral is based on the amounts provided by the counterparties and investment earnings thereon. The following table summarizes the Interest Rate Cap collateral balances held by Sirius Group and ratings by counterparty:


	March 31, 2019
		Collateral Balances	S & P
(Millions)	Held		Rating(1)
Barclays Bank Plc	$	0.1	A
Nordea Bank Abp		0.1	AA-
Total	$	0.2

⁽¹⁾

Standard & Poor's ratings as detailed above are: "AA-" (Very Strong, which is the fourth highest of twenty-three creditworthiness ratings) and "A" (Strong, which is the sixth highest of twenty-three credit worthiness ratings).

Foreign currency swaps

Sirius Group executes foreign currency swaps to manage foreign currency exposure. The foreign currency swaps have not been designated or accounted for under hedge accounting. Changes in fair value are recognized as unrealized gains or losses and are presented within Net foreign exchange gains (losses). The fair value of the foreign currency swaps has been estimated using a single broker quote and, accordingly, has been classified as a Level 3 measurement as of March 31, 2019 and December 31, 2018. Sirius Group does not provide or hold any collateral associated with the swaps.

Foreign currency forward

Sirius Group executes foreign currency forwards to manage currency exposure against a foreign currency investment. The foreign currency forwards are not designated or accounted for under hedge accounting. Changes in fair value are recognized as unrealized gains or losses and are presented within Net foreign exchange gains (losses). The fair value of the foreign currency forwards are estimated using a single broker quote and accordingly, classified as a Level 3 measurement. Sirius Group did not provide or hold any collateral associated with the forwards.

Weather derivatives

Sirius Group holds assets and assumes liabilities related to weather and weather contingent risk management products. Weather and weather contingent derivative contracts are entered into with the objective of generating profits in normal climatic conditions. Accordingly, Sirius Group’s weather and weather contingent derivatives are not designed to meet the criteria for hedge accounting under GAAP. Sirius Group receives payment of premium at the contract inception in exchange for bearing the risk of variations in a quantifiable weather index. Changes in fair value are recognized as unrealized gains or losses and are presented within Other revenue. The fair value of the weather derivatives was estimated using a broker quote. Because of the significance of the unobservable inputs used to estimate the fair value of Sirius Group’s weather risk contracts, the fair value measurements of the contracts are deemed to be Level 3 measurements in the fair value hierarchy as of March 31, 2019 and December 31, 2018. Sirius Group does not provide or hold any collateral associated with the weather derivatives.

Equity futures contracts

Sirius Group executes trades in equity futures contracts to hedge against long positions in Common equities. The equity futures contracts are not designated or accounted for under hedge accounting. Changes in fair value are presented within Net realized investment gains (losses). The fair value of the equity put options is widely available and have quoted prices in active markets and accordingly, were classified as a Level 1 measurement.

Equity put options

Sirius Group executes trades in equity put options to hedge against long positions in Common equities. The equity put options are not designated or accounted for under hedge accounting. Changes in fair value are presented within Net unrealized investment (losses) gains. The fair value of the equity put options is widely available and have quoted prices in active markets and accordingly, were classified as a Level 1 measurement.

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 March 31, 2019 and December 31, 2018:


(Millions)	March 31, 2019						December 31, 2018
			Asset		Liability				Asset		Liability
			derivative		derivative				derivative		derivative
	Notional		at fair		at fair		Notional		at fair		at fair
Derivatives not designated as hedging instruments	Value		value(1)		value(2)		Value		value(1)		value(2)
Interest rate cap	$	250.0	$	0.1	$	—	$	250.0	$	0.2	$	—
Foreign currency swaps	$	90.0	$	—	$	3.8	$	45.0	$	—	$	4.6
Foreign currency forwards	$	15.0	$	0.2	$	—	$	—	$	—	$	—
Weather derivatives	$	121.6	$	—	$	1.3	$	150.5	$	3.9	$	—
Equity futures contracts	$	(17.0)	$	—	$	0.2	$	—	$	—	$	—
Equity put options	$	10.9	$	0.5	$	—	$	6.2	$	—	$	0.5

⁽¹⁾

Asset derivatives are classified within Other assets within the Company’s Consolidated Balance Sheets at March 31, 2019 and December 31, 2018.

⁽²⁾

Liability derivatives are classified within Other liabilities within the Company’s Consolidated Balance Sheets at March 31, 2019 and December 31, 2018.

The following table summarizes information on the classification and net impact on earnings, recognized in the Company’s Consolidated Statements of (Loss) Income relating to derivatives during the three months ended March 31, 2019 and 2018:


		For the three months ended
(Millions)		March 31,
Derivatives not designated as	Classification of gains
hedging instruments	(losses) recognized
	in earnings	2019		2018
Interest rate cap	Other revenues	$	(0.1)	$	0.3
Foreign currency swaps	Net foreign exchange gains (losses)	$	0.8	$	1.3
Foreign currency forwards	Net foreign exchange gains (losses)	$	0.2	$	—
Weather derivatives	Other revenues	$	(6.0)	$	1.0
Equity futures contracts	Net realized investment gains (losses)	$	(0.6)	$	—
Equity futures contracts	Net unrealized investment gains	$	(0.2)	$	—
Equity put options	Net unrealized investment gains	$	(0.4)	$	—