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Derivatives
 12 Months Ended
Dec. 31, 2011
Disclosure - Derivatives [Abstract]  
Derivatives

6. Derivatives

The Company's derivative instruments are recorded in the Consolidated 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 Consolidated Statements of Operations or accumulated other comprehensive income or loss in the 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 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 December 31, 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.

To-Be-Announced Mortgage-Backed Securities

The Company utilizes TBAs as part of its overall investment strategy and to enhance investment performance.

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

     Asset Liability Net derivatives
     derivatives derivatives Net notional  
December 31, 2011 at fair value at fair value exposure Fair value
Derivatives not designated as hedges            
Foreign exchange forward contracts  $7,865 $(5,816) $2,555,230 $2,049
Foreign currency option contracts   1,074  (321)  110,079  753
Futures contracts   13,572  (14,173)  2,534,995  (601)
Credit default swaps (protection purchased)   92  (1,285)  94,961  (1,193)
Credit default swaps (assumed risks)   246  (772)  17,500  (526)
Insurance-linked securities (1)  —   (968)  136,375  (968)
Total return swaps   7,673  (640)  122,230  7,033
Interest rate swaps (2)  —   (7,992)  —   (7,992)
TBAs  747  (58)  104,315  689
Total derivatives   $31,269 $(32,025)    $(756)
                
     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(2)  246  (6,033)  —   (5,787)
TBAs  363  (553)  149,065  (190)
Total derivatives not designated as hedges   $70,585 $(44,078)    $26,507
                
Total derivatives   $70,585 $(45,238)    $25,347

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(1)       At December 31, 2011, insurance-linked securities include a longevity swap for which the notional amount is not reflective of the overall potential exposure of the swap. As such, the Company has included the probable maximum loss under the swap within the net notional exposure as an approximation of the notional amount.

(2)       The Company enters into interest rate swaps to mitigate notional exposures on certain total return swaps. Accordingly, the notional value of interest rate swaps is not presented separately in the table.       

The fair value of all derivatives at December 31, 2011 and 2010 is recorded in Other invested assets in the Company's Consolidated Balance Sheets. At December 31, 2011, none of the Company's derivatives were designated as hedges. The effective portion of net investment hedging derivatives recognized in accumulated other comprehensive income at December 31, 2010 was a loss of $1.2 million.

The gains and losses in the Consolidated Statements of Operations for derivatives not designated as hedges for the years ended December 31, 2011, 2010 and 2009 were as follows (in thousands of U.S. dollars):

      2011 2010 2009
Foreign exchange forward contracts  $98,089  $65,973  $39,573 
Foreign currency option contracts   (9,927)   6,368   5,734 
Total included in net foreign exchange gains and losses   $88,162  $72,341  $45,307 
                 
Futures contracts  $(185,816)  $(81,789)  $(10,147) 
Credit default swaps (protection purchased)   (352)   (2,155)   (15,535) 
Credit default swaps (assumed risks)   886   918   7,062 
Insurance-linked securities   (9,584)   10,241   3,524 
Total return swaps   2,473   4,029   22,083 
Interest rate swaps   (2,200)   2,374   4,190 
Interest rate derivatives   —    (3,848)   —  
TBAs  15,366   1,737   (858) 
Other   —    (158)   107 
Total included in net realized and unrealized            
 investment gains and losses   $(179,227)  $(68,651)  $10,426 
                 
Total derivatives  $(91,065)  $3,690  $55,733