Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Disclosures [Text Block]

3. Fair Value Measurements

          Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

          The following tables set forth the Company’s assets and liabilities that were accounted for at fair value at September 30, 2011 and December 31, 2010 by level within the fair value hierarchy (for further information, see Note 2, “Significant Accounting Policies,” herein and Item 8, Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010):

September 30, 2011 (U.S. dollars in thousands) (Unaudited)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance at September 30, 2011
Assets
U.S. Government and Government-Related/Supported	$	—	$	2,108,841	$	—	$	—		$	2,108,841
Corporate (1)		—		10,753,121		4,787		—			10,757,908
Residential mortgage-backed securities – Agency		—		5,579,956		15,183		—			5,595,139
Residential mortgage-backed securities – Non-Agency		—		680,182		2,799		—			682,981
Commercial mortgage-backed securities		—		1,012,492		4,394		—			1,016,886
Collateralized debt obligations		—		7,733		665,842		—			673,575
Other asset-backed securities		—		1,059,713		17,112		—			1,076,825
U.S. States and political subdivisions of the States		—		1,723,554		—		—			1,723,554
Non-U.S. Sovereign Government, Supranational and Government-Related		—		3,369,641		—		—			3,369,641
Total fixed maturities, at fair value	$	—	$	26,295,233	$	710,117	$	—		$	27,005,350
Equity securities, at fair value (2)		229,631		179,532		—		—			409,163
Short-term investments, at fair value (1)(3)		—		366,679		—		—			366,679
Total investments available for sale	$	229,631	$	26,841,444	$	710,117	$			$	27,781,192
Cash equivalents (4)		1,534,055		739,057		—		—			2,273,112
Other investments (5)		—		562,490		114,362		—			676,852
Other assets (6)(7)		—		201,470		104		(56,079	)		145,495
Total assets accounted for at fair value	$	1,763,686	$	28,344,461	$	824,583	$	(56,079	)	$	30,876,651
Liabilities
Financial instruments sold, but not yet purchased (8)	$	—	$	26,363	$	—	$	—		$	26,363
Other liabilities (6)(7)		—		19,558		52,093		(2,050	)		69,601
Total liabilities accounted for at fair value	$	—	$	45,921	$	52,093	$	(2,050	)	$	95,964

December 31, 2010 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance at December 31, 2010
Assets
U.S. Government and Government-Related/Supported	$	—	$	2,565,444	$	—	$	—		$	2,565,444
Corporate (1)		—		10,932,105		36,866		—			10,968,971
Residential mortgage-backed securities – Agency		—		5,173,456		30,255		—			5,203,711
Residential mortgage-backed securities – Non-Agency		—		1,016,859		4,964		—			1,021,823
Commercial mortgage-backed securities		—		1,170,884		1,623		—			1,172,507
Collateralized debt obligations		—		12,566		721,572		—			734,138
Other asset-backed securities		—		935,882		24,650		—			960,532
U.S. States and political subdivisions of the States		—		1,360,456		—		—			1,360,456
Non-U.S. Sovereign Government, Supranational and Government-Related		—		3,150,856		3,667		—			3,154,523
Total fixed maturities, at fair value	$	—	$	26,318,508	$	823,597	$	—		$	27,142,105
Equity securities, at fair value (2)		71,284		13,483		—		—			84,767
Short-term investments, at fair value (1)(3)		—		450,681		—		—			450,681
Total investments available for sale	$	71,284	$	26,782,672	$	823,597	$	—		$	27,677,553
Cash equivalents (4)		1,358,619		540,646		—		—			1,899,265
Other investments (5)		—		490,320		133,717		—			624,037
Other assets (6)(7)		—		108,056		7,882		(22,995	)		92,943
Total assets accounted for at fair value	$	1,429,903	$	27,921,694	$	965,196	$	(22,995	)	$	30,293,798
Liabilities
Financial instruments sold, but not yet purchased (8)	$	256	$	21,270	$	—	$	—		$	21,526
Other liabilities (6)(7)		—		13,591		47,077		—			60,668
Total liabilities accounted for at fair value	$	256	$	34,861	$	47,077	$	—		$	82,194

Notes:
(1)	Included within Corporate are certain medium term notes supported primarily by pools of European credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, had a fair value of $429.2 million and $454.8 million and an amortized cost of $460.0 million and $504.6 million at September 30, 2011 and December 31, 2010, respectively. These notes allow the investor to participate in cash flows of the underlying bonds, including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.
(2)	Included within equity securities are investments fixed income funds of $91.1 million and nil at September 30, 2011 and December 31, 2010, respectively.
(3)	Short-term investments consist primarily of Corporate securities and U.S. Government and Government-Related/Supported securities.
(4)	Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to fair value measurement guidance.
(5)	The Other investments balance excludes certain structured transactions, including certain investments in project finance transactions, a payment obligation and liquidity financing provided to a structured credit vehicle as a part of a third party medium term note facility. These investments are carried at amortized cost that totaled $324.7 million at September 30, 2011 and $315.4 million at December 31, 2010.
(6)	Other assets and other liabilities include derivative instruments.
(7)	The derivative balances included in each category above are reported on a gross basis by level with a netting adjustment presented separately in the “Collateral and Counterparty Netting” column. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under a netting agreement. In addition, the Company held net cash collateral related to derivative positions of approximately $54.0 million and $23.0 million at September 30, 2011 and December 31, 2010, respectively. This balance is included within cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative positions within the balance sheet as appropriate under the netting agreement. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy.
(8)	Financial instruments sold, but not yet purchased represent “short sales” and are included within “Payable for investments purchased” on the balance sheet.

          Level 3 Gains and Losses

          The tables below present additional information about assets and liabilities measured at fair value on a recurring basis and for which Level 3 inputs were utilized to determine fair value. The tables reflect gains and losses for the three and nine month periods ended September 30, 2011 and 2010 for all financial assets and liabilities categorized as Level 3 at September 30, 2011 and 2010, respectively. The tables do not include gains or losses that were reported in Level 3 in prior periods for assets that were transferred out of Level 3 prior to September 30, 2011 and 2010. Gains and losses for assets and liabilities classified within Level 3 in the table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, it should be noted that the following tables do not take into consideration the effect of offsetting Level 1 and 2 financial instruments entered into by the Company that are either economically hedged by certain exposures to the Level 3 positions or that hedge the exposures in Level 3 positions.

          In general, Level 3 assets include securities for which values were obtained from brokers where either significant inputs were utilized in determining the value that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification. Transfers into or out of Level 3 primarily arise as a result of the valuations utilized by the Company changing between either those provided by independent pricing services that do not contain significant observable inputs, or other valuations sourced from brokers which are considered Level 3.

          There were no transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2011 and 2010.

	Level 3 Assets and Liabilities Three Months Ended September 30, 2011
(U.S. dollars in thousands) (Unaudited)	Corporate			Residential mortgage-backed securities – Agency			Residential mortgage-backed securities – Non Agency			Commercial mortgage-backed securities			Collateralized debt obligations
Balance, beginning of period	$	4,786		$	15,385		$	3,194		$	4,563		$	727,239
Realized gains (losses)		23			(81	)		(328	)		(501	)		(2,662	)
Movement in unrealized gains (losses)		(22	)		52			76			564			(46,520	)
Purchases and issuances		—			33			—			—			—
Sales and settlements		—			(206	)		(143	)		(232	)		(12,215	)
Transfers into Level 3		—			—			—			—			—
Transfers out of Level 3		—			—			—			—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	4,787		$	15,183		$	2,799		$	4,394		$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	1		$	(29	)	$	(252	)	$	63		$	(49,432	)

	Level 3 Assets and Liabilities Three Months Ended September 30, 2011 (Continued)
(U.S. dollars in thousands) (Unaudited)	Other asset backed securities			Non-U.S. Sovereign Government and Supranationals and Government- Related		Short-term Investments		Other investments			Derivative Contracts - Net
Balance, beginning of period	$	17,048		$	—	$	—	$	114,540		$	(49,645	)
Realized gains (losses)		(238	)		—		—		(244	)		—
Movement in unrealized gains (losses)		302			—		—		2,642			(2,344	)
Purchases and issuances		—			—		—		1,667			—
Sales and settlements		—			—		—		(4,243	)		—
Transfers into Level 3		—			—		—		—			—
Transfers out of Level 3		—			—		—		—			—
Fixed maturities to short-term investments classification change		—			—		—		—			—
Balance, end of period	$	17,112		$	—	$	—	$	114,362		$	(51,989	)
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	64		$	—	$	—	$	2,398		$	(2,344	)

	Level 3 Assets and Liabilities Nine Months Ended September 30, 2011
(U.S. dollars in thousands) (Unaudited)	Corporate			Residential mortgage-backed securities – Agency			Residential mortgage-backed securities – Non Agency			Commercial mortgage-backed securities			Collateralized debt obligations
Balance, beginning of period	$	36,866		$	30,255		$	4,964		$	1,623		$	721,572
Realized gains (losses)		(257	)		(81	)		(329	)		(1,179	)		(3,733	)
Movement in unrealized gains (losses)		173			2			61			1,078			(10,104	)
Purchases and issuances		6,878			33			—			3,155			2,379
Sales and settlements		(10,049	)		(492	)		(517	)		(283	)		(46,158	)
Transfers into Level 3		—			—			—			—			1,886
Transfers out of Level 3		(28,824	)		(14,534	)		(1,380	)		—			—
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	4,787		$	15,183		$	2,799		$	4,394		$	665,842
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	(52	)	$	(79	)	$	(268	)	$	(855	)	$	(15,656	)

	Level 3 Assets and Liabilities Nine Months Ended September 30, 2011 (Continued)
(U.S. dollars in thousands) (Unaudited)	Other asset backed securities			Non-U.S. Sovereign Government and Supranationals and Government- Related			Short-term Investments		Other investments			Derivative Contracts - Net
Balance, beginning of period	$	24,650		$	3,667		$	—	$	133,717		$	(39,195	)
Realized gains (losses)		(555	)		—			—		11,911			—
Movement in unrealized gains (losses)		7,162			—			—		10,134			(12,620	)
Purchases and issuances		—			—			—		9,782			—
Sales and settlements		(9,114	)		—			—		(51,182	)		(174	)
Transfers into Level 3		—			—			—		—			—
Transfers out of Level 3		(5,031	)		(3,667	)		—		—			—
Fixed maturities to short-term investments classification change		—			—			—		—			—
Balance, end of period	$	17,112		$	—		$	—	$	114,362		$	(51,989	)
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	6,287		$	—		$	—	$	19,735		$	(12,620	)

	Level 3 Assets and Liabilities Three Months Ended September 30, 2010
(U.S. dollars in thousands) (Unaudited)	Corporate			Residential mortgage-backed securities – Agency			Residential mortgage-backed securities – Non Agency			Commercial mortgage-backed securities		Collateralized debt obligations
Balance, beginning of period	$	40,618		$	1,226		$	10,008		$	427	$	690,906
Realized gains (losses)		(3	)		(6	)		(385	)		—		(5,520	)
Movement in unrealized gains (losses)		338			39			(41	)		3		46,999
Purchases and issuances		2,400			6,740			—			—		—
Sales and settlements		(1,282	)		—			(6	)		—		(11,825	)
Transfers into Level 3		—			—			—			—		—
Transfers out of Level 3		(30,762	)		—			(4,518	)		—		(28,651	)
Fixed maturities to short-term investments classification change		—			—			—			—		—
Balance, end of period	$	11,309		$	7,999		$	5,058		$	430	$	691,909
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	338		$	40		$	(37	)	$	3	$	46,685

	Level 3 Assets and Liabilities Three Months Ended September 30, 2010 (Continued)
(U.S. dollars in thousands) (Unaudited)	Other asset backed securities			Non-U.S. Sovereign Government and Supranationals and Government- Related		Short-term Investments		Other investments			Derivative Contracts - Net
Balance, beginning of period	$	22,521		$	3,182	$	—	$	92,857		$	162,911
Realized gains (losses)		(7,515	)		—		—		1,294			—
Movement in unrealized gains (losses)		5,643			307		—		234			32,567
Purchases and issuances		10,714			—		—		664			—
Sales and settlements		—			—		—		(12,489	)		(1,516	)
Transfers into Level 3		—			—		—		—			—
Transfers out of Level 3		(1	)		—		—		—			—
Fixed maturities to short-term investments classification change		—			—		—		—			—
Balance, end of period	$	31,362		$	3,489	$	—	$	82,560		$	193,962
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	(2,006	)	$	307	$	—	$	234		$	32,567

	Level 3 Assets and Liabilities Nine Months Ended September 30, 2010
(U.S. dollars in thousands) (Unaudited)	Corporate			Residential mortgage-backed securities – Agency			Residential mortgage-backed securities – Non Agency			Commercial mortgage-backed securities			Collateralized debt obligations
Balance, beginning of period	$	10,311		$	7,894		$	42,190		$	2,755		$	197,149
Realized gains (losses)		(4,315	)		—			(46	)		(209	)		(17,498	)
Movement in unrealized gains (losses)		393			39			104			29			76,655
Purchases and issuances		1,265			7,949			—			—			—
Sales and settlements		(519	)		—			(2,294	)		(707	)		(16,614	)
Transfers into Level 3		8,115			—			4,044			—			475,548
Transfers out of Level 3		(3,941	)		(7,883	)		(38,940	)		(1,438	)		(23,331	)
Fixed maturities to short-term investments classification change		—			—			—			—			—
Balance, end of period	$	11,309		$	7,999		$	5,058		$	430		$	691,909
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	576		$	39		$	(56	)	$	(136	)	$	72,239

	Level 3 Assets and Liabilities Nine Months Ended September 30, 2010 (Continued)
(U.S. dollars in thousands) (Unaudited)	Other asset backed securities			Non-U.S. Sovereign Government and Supranationals and Government- Related		Short-term Investments		Other investments			Derivative Contracts - Net
Balance, beginning of period	$	38,179		$	3,217	$	—	$	75,584		$	100,515
Realized gains (losses)		(19,018	)		—		—		3,860			—
Movement in unrealized gains (losses)		14,757			32		—		5,785			84,202
Purchases and issuances		12,978			—		—		11,575			10,985
Sales and settlements		(1,504	)		—		—		(14,244	)		(1,740	)
Transfers into Level 3		204			240		—		—			—
Transfers out of Level 3		(14,234	)		—		—		—			—
Fixed maturities to short-term investments classification change		—			—		—		—			—
Balance, end of period	$	31,362		$	3,489	$	—	$	82,560		$	193,962
Movement in total gains (losses) above relating to instruments still held at the reporting date	$	7,642		$	32	$	—	$	5,785		$	84,202

          Fixed maturities and short-term investments

          At March 31, 2010, certain collateralized debt obligations (“CDOs”) that were previously classified as Level 2 due to sufficient market data being available to allow a price to be determined and provided by third party pricing vendors, were transferred to Level 3 because third party vendor prices were no longer believed to be the most appropriate pricing source. Broker quotes, for which sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification, are the primary source of the valuations for these CDO securities.

          Other investments

          Included within the Other investments component of the Company’s Level 3 valuations are private investments and alternative fund investments where the Company is not deemed to have significant influence over the investee. The fair value of these investments is based upon net asset values received from the investment manager or general partner of the respective entity. The nature of the underlying investments held by the investee which form the basis of the net asset value include assets such as private business ventures and are such that significant Level 3 inputs are utilized in the determination of the individual underlying holding values and, accordingly, the fair value of the Company’s investment in each entity is classified within Level 3. The Company also incorporates factors such as the most recent financial information received, the values at which capital transactions with the investee take place, and management’s judgment regarding whether any adjustments should be made to the net asset value in recording the fair value of each position. Investments in alternative funds included in Other investments utilize strategies including arbitrage, directional, event driven and multi-style. These funds potentially have lockup and gate provisions which may limit redemption liquidity. For further details regarding the nature of Other investments and related features see Item 8, Note 10, “Other Investments,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

          Derivative instruments

          Derivative instruments classified within Level 3 include: (i) certain interest rate swaps where the duration of the contract the Company holds exceeds that of the longest term on a market observable input, (ii) guaranteed minimum income benefits (“GMIB”) embedded within a certain reinsurance contract, (iii) a put option included within the Company’s remaining contingent capital facility and (iv) credit derivatives sold providing protection on senior tranches of structured finance transactions where the value is obtained directly from the investment bank counterparty and sufficient information regarding the inputs utilized in such valuation was not obtained to support a Level 2 classification. The majority of inputs utilized in the valuations of these types of derivative contracts are considered Level 1 or Level 2; however, each valuation includes at least one Level 3 input that was significant to the valuation and, accordingly, the values are disclosed within Level 3.

          In addition, see Item 8, Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for a general discussion of types of assets and liabilities that are classified within Level 3 of the fair value hierarchy as well as the Company’s valuation policies for such instruments.

          Financial Instruments Not Carried at Fair Value

          Authoritative guidance over disclosure about fair value of financial instruments requires additional disclosure of fair value information for financial instruments not carried at fair value in both interim and annual reporting periods. Certain financial instruments, particularly insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents, accrued investment income, receivable from investments sold, other assets, payable for investments purchased, other liabilities and other financial instruments not included below approximated their fair values. The following table includes financial instruments for which the carrying value differs from the estimated fair values:

	(Unaudited) September 30, 2011				December 31, 2010
(U.S. dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Fixed maturities, held to maturity	$	2,725,623	$	2,901,434	$	2,728,335	$	2,742,626
Other investments – structured transactions	$	324,723	$	316,781	$	327,686	$	317,524
Financial Assets	$	3,050,346	$	3,218,215	$	3,056,021	$	3,060,150
Deposit liabilities	$	1,636,602	$	1,760,445	$	1,684,606	$	1,737,107
Notes payable and debt		2,281,335		2,305,867		2,464,410		2,627,897
Financial Liabilities	$	3,917,937	$	4,066,312	$	4,149,016	$	4,365,004
Non-controlling interest - Redeemable Series C preference ordinary shares	$	—	$	—	$	71,900	$	61,115

          The Company historically participated in structured transactions. Remaining structured transactions include cash loans supporting project finance transactions, providing liquidity facility financing to structured project deals and an investment in a payment obligation with an insurance company. These transactions are carried at amortized cost. The fair value of these investments held by the Company is determined through use of internal models utilizing reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

          Deposit liabilities include obligations under structured insurance and reinsurance transactions. For purposes of fair value disclosures, the Company determined the estimated fair value of the deposit liabilities by assuming a discount rate equal to the appropriate U.S. Treasury rate plus 220.0 basis points and the appropriate U.S. Treasury rate plus 142.3 basis points at September 30, 2011 and December 31, 2010, respectively. The discount rate incorporates the Company’s own credit risk into the determination of estimated fair value.

          The fair values of the Company’s notes payable and debt outstanding are determined based on quoted market prices.

          The fair value of the Company’s Redeemable Series C preference ordinary shares outstanding is determined based on indicative quotes provided by brokers. During the three months ended September 30, 2011 all outstanding Redeemable Series C preference ordinary shares were repurchased and canceled.

          There are no significant concentrations of credit risk within the Company’s financial instruments as defined in the authoritative guidance over disclosures of fair value of financial instruments not carried at fair value, which excludes certain financial instruments, particularly insurance contracts.