Investment Information

Available For Sale Investments

The following table summarizes the fair value and cost or amortized cost of the Company’s investments classified as available for sale:



	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Cost or Amortized Cost		OTTI Unrealized Losses (2)
June 30, 2013
Fixed maturities and fixed maturities pledged under securities lending agreements (1):
Corporate bonds	$	2,473,130	$	33,423	$	(60,264	)	$	2,499,971	$	—
Mortgage backed securities	1,592,207		16,874		(46,562		)	1,621,895		(9,330		)
Municipal bonds	1,507,924		35,880		(14,222		)	1,486,266		(17		)
Commercial mortgage backed securities	838,471		15,687		(13,340		)	836,124		(231		)
U.S. government and government agencies	975,345		8,744		(7,251		)	973,852		(19		)
Non-U.S. government securities	1,002,989		9,671		(27,927		)	1,021,245		—
Asset backed securities	1,225,183		17,677		(17,948		)	1,225,454		(3,348		)
Total	9,615,249		137,956		(187,514		)	9,664,807		(12,945		)

Equity securities	438,038		44,653		(16,834		)	410,219		—
Other investments	569,407		32,313		(18,328		)	555,422		—
Short-term investments	1,094,129		174		(4,650		)	1,098,605		—
Total	$	11,716,823	$	215,096	$	(227,326	)	$	11,729,053	$	(12,945	)

December 31, 2012
Fixed maturities and fixed maturities pledged under securities lending agreements (1):
Corporate bonds	$	2,857,513	$	105,798	$	(6,710	)	$	2,758,425	$	(62	)
Mortgage backed securities	1,532,736		24,809		(7,484		)	1,515,411		(9,329		)
Municipal bonds	1,463,586		62,322		(1,421		)	1,402,685		(17		)
Commercial mortgage backed securities	824,165		37,514		(4,468		)	791,119		(270		)
U.S. government and government agencies	1,131,688		20,178		(1,095		)	1,112,605		(19		)
Non-U.S. government securities	998,901		33,701		(8,860		)	974,060		—
Asset backed securities	1,073,999		25,528		(5,838		)	1,054,309		(3,346		)
Total	9,882,588		309,850		(35,876		)	9,608,614		(13,043		)

Equity securities	312,749		26,625		(12,290		)	298,414		—
Other investments	549,280		32,582		(3,257		)	519,955		—
Short-term investments	730,369		3,521		(1,248		)	728,096		—
Total	$	11,474,986	$	372,578	$	(52,671	)	$	11,155,079	$	(13,043	)

_________________________________________________


(1)	In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities and short-term investments pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities and short-term investments pledged. See “—Securities Lending Agreements.”

(2)

Represents the total other-than-temporary impairments (“OTTI”) recognized in accumulated other comprehensive income (“AOCI”). It does not include the change in fair value subsequent to the impairment measurement date. At June 30, 2013, the net unrealized gain related to securities for which a non-credit OTTI was recognized in AOCI was $4.2 million, compared to a net unrealized gain of $2.0 million at December 31, 2012.

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:



	Less than 12 Months					12 Months or More					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
June 30, 2013
Fixed maturities and fixed maturities pledged under securities lending agreements (1):
Corporate bonds	$	1,737,631	$	(58,235	)	$	17,492	$	(2,029	)	$	1,755,123	$	(60,264	)
Mortgage backed securities	1,015,422		(45,242		)	22,558		(1,320		)	1,037,980		(46,562		)
Municipal bonds	578,711		(13,690		)	10,380		(532		)	589,091		(14,222		)
Commercial mortgage backed securities	450,164		(13,132		)	2,111		(208		)	452,275		(13,340		)
U.S. government and government agencies	621,953		(7,251		)	—		—			621,953		(7,251		)
Non-U.S. government securities	726,472		(25,265		)	23,796		(2,662		)	750,268		(27,927		)
Asset backed securities	815,150		(14,822		)	31,177		(3,126		)	846,327		(17,948		)
Total	5,945,503		(177,637		)	107,514		(9,877		)	6,053,017		(187,514		)
Equity securities	181,248		(16,499		)	2,996		(335		)	184,244		(16,834		)
Other investments	197,537		(15,113		)	23,195		(3,215		)	220,732		(18,328		)
Short-term investments	161,476		(4,650		)	—		—			161,476		(4,650		)
Total	$	6,485,764	$	(213,899	)	$	133,705	$	(13,427	)	$	6,619,469	$	(227,326	)

December 31, 2012
Fixed maturities and fixed maturities pledged under securities lending agreements (1):
Corporate bonds	$	490,784	$	(3,692	)	$	52,334	$	(3,018	)	$	543,118	$	(6,710	)
Mortgage backed securities	537,883		(4,290		)	60,574		(3,194		)	598,457		(7,484		)
Municipal bonds	147,766		(1,120		)	7,052		(301		)	154,818		(1,421		)
Commercial mortgage backed securities	36,649		(2,261		)	8,878		(2,207		)	45,527		(4,468		)
U.S. government and government agencies	146,526		(1,095		)	—		—			146,526		(1,095		)
Non-U.S. government securities	244,827		(1,070		)	135,564		(7,790		)	380,391		(8,860		)
Asset backed securities	234,584		(1,508		)	57,371		(4,330		)	291,955		(5,838		)
Total	1,839,019		(15,036		)	321,773		(20,840		)	2,160,792		(35,876		)
Equity securities	130,385		(10,200		)	16,469		(2,090		)	146,854		(12,290		)
Other investments	23,849		(2,474		)	35,083		(783		)	58,932		(3,257		)
Short-term investments	57,415		(1,248		)	—		—			57,415		(1,248		)
Total	$	2,050,668	$	(28,958	)	$	373,325	$	(23,713	)	$	2,423,993	$	(52,671	)

_________________________________________________


(1)	In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities and short-term investments pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities and short-term investments pledged. See “—Securities Lending Agreements.”

At June 30, 2013, on a lot level basis, approximately 2,410 security lots out of a total of approximately 4,590 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $4.0 million. At December 31, 2012, on a lot level basis, approximately 910 security lots out of a total of approximately 4,580 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $2.5 million.

The contractual maturities of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	June 30, 2013				December 31, 2012
Maturity	Fair Value		Amortized Cost		Fair Value		Amortized Cost
Due in one year or less	$	281,901	$	276,338	$	446,402	$	436,376
Due after one year through five years	3,358,388		3,356,354		3,876,062		3,769,426
Due after five years through 10 years	2,082,358		2,108,760		1,949,297		1,869,698
Due after 10 years	236,741		239,882		179,927		172,275
	5,959,388		5,981,334		6,451,688		6,247,775
Mortgage backed securities	1,592,207		1,621,895		1,532,736		1,515,411
Commercial mortgage backed securities	838,471		836,124		824,165		791,119
Asset backed securities	1,225,183		1,225,454		1,073,999		1,054,309
Total	$	9,615,249	$	9,664,807	$	9,882,588	$	9,608,614

Securities Lending Agreements

The Company operates a securities lending program under which certain of its fixed income portfolio securities are loaned to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The fair value and amortized cost of fixed maturities and short-term investments pledged under securities lending agreements were $47.8 million and $48.1 million, respectively, at June 30, 2013, compared to $50.8 million and $49.6 million, respectively, at December 31, 2012. The fair value of the portfolio of collateral backing the Company's securities lending program was $41.1 million at June 30, 2013, compared to $42.5 million at December 31, 2012. Such amounts included approximately $6.3 million of sub-prime securities at June 30, 2013, compared to $5.4 million at December 31, 2012. The Company maintains legal control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan to the Company.

Other Investments

The following table summarizes the Company's other investments, including available for sale and fair value option components:



	June 30, 2013		December 31, 2012
Available for sale:
Asian and emerging markets	$	343,535	$	316,860
Investment grade fixed income	219,068		220,410
Other	6,804		12,010
Total available for sale	569,407		549,280
Fair value option:
Term loan investments (par value: $475,397 and $307,016)	481,773		308,596
Asian and emerging markets	28,932		24,035
Investment grade fixed income	74,320		67,624
Non-investment grade fixed income	9,331		11,093
Other (1)	118,018		116,623
Total fair value option	$	712,374	$	527,971
Total	$	1,281,781	$	1,077,251

_________________________________________________


(1)	Includes fund investments with strategies in mortgage servicing rights, transportation and infrastructure assets and other.

Certain of the Company's other investments are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund's subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company's ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.

Fair Value Option

The Company elected to carry certain fixed maturity securities, equity securities and other investments (primarily term loans) at fair value under the fair value option afforded by accounting guidance regarding the fair value option for financial assets and liabilities. Changes in fair value of investments accounted for using the fair value option are included in net realized gains or losses while interest income, dividends received and distributions from fund investments which are not a return of capital are reflected in net investment income. The primary reasons for electing the fair value option were to reflect economic events in earnings on a timely basis and to address practicality and cost-benefit considerations.

The following table summarizes the Company’s assets and liabilities which are accounted for using the fair value option:



	June 30, 2013		December 31, 2012
Fixed maturities	$	353,310	$	363,541
Other investments	712,374		527,971
Equity securities	—		25,954
Investments accounted for using the fair value option	1,065,684		917,466
Securities sold but not yet purchased (1)	—		(6,924		)
Net assets accounted for using the fair value option	$	1,065,684	$	910,542

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(1)	Represents the Company’s obligation to deliver equity securities that it did not own at the time of sale. Such amounts are included in “other liabilities” on the Company’s consolidated balance sheets.

Net Investment Income

The components of net investment income were derived from the following sources:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Fixed maturities	$	62,004		$	70,290		$	124,010		$	143,740
Term loan investments (1)	6,026			3,557			10,243			5,856
Equity securities	3,164			2,425			4,587			4,089
Short-term investments	364			760			756			1,132
Other (2)	4,734			2,980			11,033			6,173
Gross investment income	76,292			80,012			150,629			160,990
Investment expenses	(7,923		)	(6,404		)	(16,588		)	(13,085		)
Net investment income	$	68,369		$	73,608		$	134,041		$	147,905

_________________________________________________


(1)	Included in “investments accounted for using the fair value option” on the Company’s consolidated balance sheets.


(2)	Amounts include dividends on investment funds and other items.

Net Realized Gains (Losses)

Net realized gains (losses) were as follows, excluding other-than-temporary impairment provisions:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Available for sale securities:
Gross gains on investment sales	$	68,853		$	67,936		$	135,873		$	115,948
Gross losses on investment sales	(54,783		)	(20,757		)	(79,839		)	(38,693		)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	(6,702		)	(4,810		)	(1,644		)	3,407
Equity securities	5			(3,589		)	704			(202		)
Other investments	(9,502		)	(1,744		)	449			2,009
TALF investments	—			(1,274		)	—			(50		)
TALF borrowings	—			(176		)	—			895
Derivative instruments (1)	15,646			277			15,268			(4,392		)
Other	(865		)	(996		)	181			66
Net realized gains	$	12,652		$	34,867		$	70,992		$	78,988

_________________________________________________


(1)	See Note 9 for information on the Company’s derivative instruments.

Other-Than-Temporary Impairments

The Company performs quarterly reviews of its available for sale investments in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance. The following table details the net impairment losses recognized in earnings by asset class:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Fixed maturities:
Mortgage backed securities	$	—		$	(146	)	$	(15	)	$	(892	)
Corporate bonds	—			(1,166		)	—			(1,362		)
Non-U.S. government securities	—			(261		)	—			(261		)
Asset backed securities	—			(106		)	(20		)	(106		)
U.S. government and government agencies	—			(10		)	—			(10		)
Total	—			(1,689		)	(35		)	(2,631		)
Investment of funds received under securities lending agreements	—			(6		)	—			(87		)
Equity securities	(724		)	(256		)	(2,935		)	(256		)
Net impairment losses recognized in earnings	$	(724	)	$	(1,951	)	$	(2,970	)	$	(2,974	)

A description of the methodology and significant inputs used to measure the amount of net impairment losses recognized in earnings in the 2013 periods is as follows:

•

Equity securities — the Company utilized information received from asset managers on common stocks, including the business prospects, recent events, industry and market data and other factors. For certain equities which were in an unrealized loss position and where the Company determined that it did not have the intent or ability to hold such securities for a reasonable period of time by which the fair value of the securities would increase and the Company would recover its cost, the cost basis of such securities was adjusted down accordingly;

•

Mortgage backed and asset backed securities — the Company utilized underlying data provided by asset managers, cash flow projections and additional information from credit agencies in order to determine an expected recovery value for each security. The analysis includes expected cash flow projections under base case and stress case scenarios which modify the expected default expectations and loss severities and slow down prepayment assumptions. The significant inputs in the models include the expected default rates, delinquency rates and foreclosure costs. The expected recovery values were reduced on a small number of securities, primarily as a result of increases in expected default expectations and foreclosure costs. The amortized cost basis of the securities were adjusted down, if required, to the expected recovery value calculated in the OTTI review process.

The Company believes that the $13.0 million of OTTI included in accumulated other comprehensive income at June 30, 2013 on the securities which were considered by the Company to be impaired was due to market and sector-related factors (i.e., not credit losses). At June 30, 2013, the Company did not intend to sell these securities, or any other securities which were in an unrealized loss position, and determined that it is more likely than not that the Company will not be required to sell such securities before recovery of their cost basis.

The following table provides a roll forward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Balance at start of period	$	61,956		$	67,086		$	62,001		$	66,545
Credit loss impairments recognized on securities not previously impaired	—			1,693			33			1,905
Credit loss impairments recognized on securities previously impaired	—			258			2			1,069
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			—			—			—
Reductions for securities sold during the period	(507		)	(6,511		)	(587		)	(6,993		)
Balance at end of period	$	61,449		$	62,526		$	61,449		$	62,526

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its insurance and reinsurance operations. The Company’s insurance and reinsurance subsidiaries maintain assets in trust accounts as collateral for insurance and reinsurance transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties. See Note 4, “Commitments and Contingencies—Letter of Credit and Revolving Credit Facilities,” for further details. The following table details the value of the Company’s restricted assets:



	June 30, 2013		December 31, 2012
Assets used for collateral or guarantees:
Affiliated transactions	$	4,226,334	$	4,062,097
Third party agreements	793,162		771,631
Deposits with U.S. regulatory authorities	302,572		290,441
Deposits with non-U.S. regulatory authorities	6,591		247,321
Trust funds	103,021		96,342
Total restricted assets	$	5,431,680	$	5,467,832