Derivatives

6 Months Ended

Jun. 30, 2011

Disclosure - Derivatives [Abstract]

Derivatives

5. Derivatives

The Company's derivative instruments are recorded in the Unaudited CondensedConsolidated Balance Sheets at fair value, with changes in fair value mainly recognized in either net foreign exchange gains and losses or net realized and unrealized investment gains and losses in the Unaudited Condensed Consolidated Statements of Operations or accumulated other comprehensive income or loss in the Unaudited Condensed Consolidated Balance Sheets, depending on the nature of the derivative instrument. The Company's objectives for holding or issuing these derivatives are as follows:

Foreign Exchange Forward Contracts

The Company utilizes foreign exchange forward contracts as part of its overall currency risk management and investment strategies. From time to time, the Company also utilizes foreign exchange forward contracts to hedge a portion of its net investment exposure resulting from the translation of its foreign subsidiaries and branches whose functional currency is other than the U.S. dollar.

Foreign Currency Option Contracts and Futures Contracts

The Company also utilizes foreign currency option contracts to mitigate foreign currency risk. The Company uses exchange traded treasury note futures contracts to manage portfolio duration and commodity and equity futures to hedge certain investments. The Company also uses commodities futures to replicate the investment return on certain benchmarked commodities.

Credit Default Swaps

The Company purchases protection through credit default swaps to mitigate the risk associated with its underwriting operations, most notably in the credit/surety line, and to manage market exposures.

The Company also assumes credit risk through credit default swaps to replicate investment positions. The original term of these credit default swaps is generally five years or less and there are no recourse provisions associated with these swaps. While the Company would be required to perform under exposure assumed through credit default swaps in the event of a default on the underlying issuer, no issuer was in default at June 30, 2011. The counterparties on the Company's assumed credit default swaps are all highly rated financial institutions.

Insurance-Linked Securities

The Company has entered into various weather derivatives, weather futures and longevity total return swaps for which the underlying risks reference parametric weather risks for the weather derivatives and weather futures, and longevity risk for the longevity total return swaps.

Total Return and Interest Rate Swaps and Interest Rate Derivatives

The Company has entered into total return swaps referencing various project, investments and principal finance obligations. The Company has also entered into interest rate swaps to mitigate the interest rate risk on certain of the total return swaps. The Company may also use other interest rate derivatives to mitigate exposure to interest rate volatility.

The fair values and the related notional values of derivatives included in the Company's Unaudited Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 were as follows (in thousands of U.S. dollars):

	Asset		Liability		Net derivatives
	derivatives		derivatives		Net notional
June 30, 2011	at fair value		at fair value		exposure		Fair value
Derivatives not designated as hedges
Foreign exchange forward contracts	$	11,634	$	(4,512)	$	2,956,150	$	7,122
Foreign currency option contracts		2,921		(470)		163,304		2,451
Futures contracts		6,398		(19,613)		2,334,365		(13,215)
Credit default swaps (protection purchased)		4		(2,162)		109,890		(2,158)
Credit default swaps (assumed risks)		906		—		27,500		906
Insurance-linked securities		274		(15,126)		95,848		(14,852)
Total return swaps		4,685		(11,459)		159,720		(6,774)
Interest rate swaps(1)		52		(5,203)		—		(5,151)
Total derivatives	$	26,874	$	(58,545)			$	(31,671)
	Asset		Liability		Net derivatives
	derivatives		derivatives		Net notional
December 31, 2010	at fair value		at fair value		exposure		Fair value
Derivatives designated as hedges
Foreign exchange forward contracts (net investment hedge)	$	—	$	(1,160)	$	198,448	$	(1,160)
Total derivatives designated as hedges	$	—	$	(1,160)			$	(1,160)
Derivatives not designated as hedges
Foreign exchange forward contracts	$	27,880	$	(12,487)	$	1,770,448	$	15,393
Foreign currency option contracts		3,516		—		104,386		3,516
Futures contracts		30,593		(7,956)		1,756,811		22,637
Credit default swaps (protection purchased)		93		(2,407)		113,752		(2,314)
Credit default swaps (assumed risks)		533		(401)		27,500		132
Insurance-linked securities		1,320		(1,393)		88,765		(73)
Total return swaps		6,041		(12,848)		161,408		(6,807)
Interest rate swaps(1)		246		(6,033)		—		(5,787)
Total derivatives not designated as hedges	$	70,222	$	(43,525)			$	26,697
Total derivatives	$	70,222	$	(44,685)			$	25,537

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(1)       The Company enters into interest rate swaps to mitigate notional exposures oncertain total return swaps. Accordingly, the notional valueof interest rate swaps is not presented separately in the table.       

The fair value of all derivatives at June 30, 2011 andDecember 31, 2010 is recorded in Other invested assets in the Company's Unaudited Condensed Consolidated Balance Sheets. At June 30, 2011, none of the Company's derivatives were designated as hedges.

The gains and losses in the Unaudited Condensed Consolidated Statements of Operations for derivatives not designated as hedges for the three months and sixmonths ended June 30, 2011 and 2010 were as follows (in thousands of U.S. dollars):

		Amount of gain		Amount of gain		Amount of gain		Amount of gain
		(loss) on derivatives		(loss) on derivatives		(loss) on derivatives		(loss) on derivatives
		recognized in		recognized in		recognized in		recognized in
		income for the		income for the		income for the		income for the
		three months ended		three months ended		six months ended		six months ended
		June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Foreign exchange forward contracts		$	65,250	$	14,557	$	48,234	$	10,542
Foreign currency option contracts			2,457		(1,066)		2,381		1,134
Total included in net foreign exchange gains and losses		$	67,707	$	13,491	$	50,615	$	11,676
Futures contracts		$	(66,231)	$	(55,170)	$	(86,514)	$	(76,115)
Credit default swaps (protection purchased)			(306)		311		(551)		(341)
Credit default swaps (assumed risks)			770		(1,400)		1,607		(1,379)
Insurance-linked securities			(2,546)		2,676		(9,620)		3,814
Total return swaps			(115)		(212)		684		2,409
Interest rate swaps			(182)		(104)		641		393
Interest rate derivatives			—		—		—		(3,848)
Other			—		55		—		(66)
Total included in net realized and unrealized
	investment gains and losses	$	(68,610)	$	(53,844)	$	(93,753)	$	(75,133)
Total derivatives		$	(903)	$	(40,353)	$	(43,138)	$	(63,457)