Derivatives

3 Months Ended

Mar. 31, 2014

Disclosure - Derivatives [Abstract]

Derivatives

5. Derivatives

The Company's derivative instruments are recorded in the Condensed Consolidated Balance Sheets at fair value, with changes in fair value recognized in either net foreign exchange gains and losses or net realized and unrealized investment gains and losses in the Condensed Consolidated Statements of Operations or accumulated other comprehensive income or loss in theCondensed 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 equity futures to hedge certain investments.

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. The counterparties on the Company's assumed credit default swaps are all investment grade rated financial institutions.

Insurance-Linked Securities

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

Total Return and Interest Rate Swaps and Interest Rate Derivatives

The Company enters into total return swaps referencing various project, investments and principal finance obligations. The Company enters into interest rate swaps to mitigate the interest rate risk on certain of the total return swaps and certain fixed maturity investments. The Company also uses 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 net fair values and the related net notional values of derivatives included in the Company's Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013 were as follows (in thousands of U.S. dollars):

	Asset		Liability		Net derivatives
	derivatives		derivatives		Net notional
March 31, 2014	at fair value		at fair value		exposure		Fair value
Foreign exchange forward contracts	$	4,404	$	(5,888)	$	2,270,300	$	(1,484)
Foreign currency option contracts		398		0		103,887		398
Futures contracts		18,814		(5)		3,271,970		18,809
Insurance-linked securities (1)		0		(740)		170,252		(740)
Total return swaps		181		(483)		42,736		(302)
Interest rate swaps (2)		0		(5,797)		202,481		(5,797)
TBAs		0		(1,388)		143,110		(1,388)
Total derivatives	$	23,797	$	(14,301)			$	9,496
	Asset		Liability		Net derivatives
	derivatives		derivatives		Net notional
December 31, 2013	at fair value		at fair value		exposure		Fair value
Foreign exchange forward contracts	$	1,249	$	(8,648)	$	1,957,409	$	(7,399)
Foreign currency option contracts		0		(535)		87,620		(535)
Futures contracts		41,031		0		3,266,004		41,031
Credit default swaps (protection purchased)		0		(71)		14,000		(71)
Insurance-linked securities (1)		0		(268)		168,724		(268)
Total return swaps		79		(599)		31,740		(520)
Interest rate swaps (2)		2,147		(2,558)		202,859		(411)
TBAs		2		(1,331)		183,835		(1,329)
Total derivatives	$	44,508	$	(14,010)			$	30,498

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(1)At March 31, 2014 and December 31, 2013, 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 oncertain total return swaps and certain fixed maturities. Only the notional valueof interest rate swaps on fixed maturities is presented separately in the table.

The fair value of all derivatives at March 31, 2014 andDecember 31, 2013 is recorded in Other invested assets in the Company's Condensed Consolidated Balance Sheets. At March 31, 2014 and December 31, 2013, none of the Company's derivatives were designated as hedges.

The gains and losses in theCondensed Consolidated Statements of Operations for derivatives not designated as hedges for the three monthsended March 31, 2014 and 2013were as follows (in thousands of U.S. dollars):

	For the three		For the three
	months ended		months ended
	March 31, 2014		March 31, 2013
Foreign exchange forward contracts	$	8,255	$	17,530
Foreign currency option contracts		395		(565)
Total included in net foreign exchange gains and losses	$	8,650	$	16,965
Futures contracts	$	(16,073)	$	(6,303)
Credit default swaps (protection purchased)		(3)		(98)
Credit default swaps (assumed risks)		0		107
Insurance-linked securities		243		(3,019)
Total return swaps		218		(671)
Interest rate swaps		(5,385)		777
TBAs		3,747		(1,334)
Total included in net realized and unrealized investment gains and losses	$	(17,253)	$	(10,541)
Total derivatives	$	(8,603)	$	6,424

Offsetting of Derivatives

The gross and net fair values of derivatives that are subject to offsetting in theCondensed Consolidated Balance Sheetsat March 31, 2014 and December 31, 2013were as follows (in thousands of U.S. dollars):

			Gross		Net amounts of		Gross amounts not offset
	Gross		amounts		assets/ liabilities		in the balance sheet
	amounts		offset in the		presented in the		Financial		Cash collateral
March 31, 2014	recognized (1)		balance sheet		balance sheet		instruments		received/pledged		Net amount
Total derivative assets	$	23,797	$	0	$	23,797	$	(5)	$	0	$	23,792
Total derivative liabilities	$	(14,301)	$	0	$	(14,301)	$	5	$	1,806	$	(12,490)
December 31, 2013
Total derivative assets	$	44,508	$	0	$	44,508	$	(2)	$	0	$	44,506
Total derivative liabilities	$	(14,010)	$	0	$	(14,010)	$	2	$	4,341	$	(9,667)

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(1)Amounts include all derivative instruments, irrespective of whether there is a legally enforceable master netting arrangement in place.