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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2011
Fair Value Measurements |
Fair Value Measurements |
NOTE 9. | FAIR VALUE MEASUREMENTS
The use of fair value to measure certain assets and liabilities with resulting unrealized gains or losses is pervasive within the Company's financial statements. Fair value is defined under accounting guidance currently applicable to the Company to be the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between open market participants at the measurement date. The Company recognizes the change in unrealized gains and losses arising from changes in fair value in its consolidated statements of operations, with the exception of changes in unrealized gains and losses on its fixed maturity investments available for sale, which are recognized as a component of accumulated other comprehensive income in shareholders' equity. FASB ASC Topic Fair Value Measurements and Disclosures prescribes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
• |  | Fair values determined by Level 1 inputs utilize unadjusted quoted prices obtained from active markets for identical assets or liabilities for which the Company has access. The fair value is determined by multiplying the quoted price by the quantity held by the Company;
• |  | Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals, broker quotes and certain pricing indices; and
• |  | Level 3 inputs are based on unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In these cases, significant management assumptions can be used to establish management's best estimate of the assumptions used by other market participants in determining the fair value of the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement of the asset or liability. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the asset or liability. In order to determine if a market is active or inactive for a security, the Company considers a number of factors, including, but not limited to, the spread between what a seller is asking for a security and what a buyer is bidding for the same security, the volume of trading activity for the security in question, the price of the security compared to its par value (for fixed maturity investments), and other factors that may be indicative of market activity. There have been no material changes in the Company's valuation techniques, nor have there been any transfers between Level 1 and Level 2, or Level 2 and Level 3, respectively, during the period represented by these consolidated financial statements. Below is a summary of the assets and liabilities that are measured at fair value on a recurring basis and also represents the carrying amount on the Company's consolidated balance sheet:
September 30, 2011 |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | 428,865 |  |  | $ | 428,865 |  |  | $ | — |  |  | $ | — |
Agencies |  |  | 127,063 |  |  |  | — |  |  |  | 127,063 |  |  |  | — |
Non-U.S. government (Sovereign debt) |  |  | 402,288 |  |  |  | — |  |  |  | 402,288 |  |  |  | — |
FDIC guaranteed corporate |  |  | 183,314 |  |  |  | — |  |  |  | 183,314 |  |  |  | — |
Non-U.S. government-backed corporate |  |  | 594,897 |  |  |  | — |  |  |  | 594,897 |  |  |  | — |
Corporate |  |  | 1,294,442 |  |  |  | — |  |  |  | 1,273,528 |  |  |  | 20,914 |
Agency mortgage-backed |  |  | 363,814 |  |  |  | — |  |  |  | 363,814 |  |  |  | — |
Non-agency mortgage-backed |  |  | 104,541 |  |  |  | — |  |  |  | 104,541 |  |  |  | — |
Commercial mortgage-backed |  |  | 318,805 |  |  |  | — |  |  |  | 318,805 |  |  |  | — |
Asset-backed |  |  | 19,609 |  |  |  | — |  |  |  | 19,609 |  |  |  | — |
Total fixed maturity investments |  |  | 3,837,638 |  |  |  | 428,865 |  |  |  | 3,387,859 |  |  |  | 20,914 |
Short term investments |  |  | 1,557,937 |  |  |  | — |  |  |  | 1,557,937 |  |  |  | — |
Equity investments trading |  |  | 45,607 |  |  |  | 45,607 |  |  |  | — |  |  |  | — |
Other investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Private equity partnerships |  |  | 345,986 |  |  |  | — |  |  |  | — |  |  |  | 345,986 |
Senior secured bank loan funds |  |  | 243,766 |  |  |  | — |  |  |  | 231,251 |  |  |  | 12,515 |
Catastrophe bonds |  |  | 85,800 |  |  |  | — |  |  |  | 85,619 |  |  |  | 181 |
Non-U.S. fixed income funds |  |  | 29,440 |  |  |  | — |  |  |  | 29,440 |  |  |  | — |
Hedge funds |  |  | 26,810 |  |  |  | — |  |  |  | 26,810 |  |  |  | — |
Miscellaneous other investments |  |  | 4,955 |  |  |  | — |  |  |  | — |  |  |  | 4,955 |
Total other investments |  |  | 736,757 |  |  |  | — |  |  |  | 373,120 |  |  |  | 363,637 |
Other assets and (liabilities) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assumed and ceded (re)insurance contracts |  |  | 4,418 |  |  |  | — |  |  |  | — |  |  |  | 4,418 |
Derivatives |  |  | 2,720 |  |  |  | (773 | ) |  |  | 950 |  |  |  | 2,543 |
Other |  |  | 13,375 |  |  |  | (4,241 | ) |  |  | — |  |  |  | 17,616 |
Total other assets and (liabilities) |  |  | 20,513 |  |  |  | (5,014 | ) |  |  | 950 |  |  |  | 24,577 |
|  | $ | 6,198,452 |  |  | $ | 469,458 |  |  | $ | 5,319,866 |  |  | $ | 409,128 |
December 31, 2010 |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | 761,461 |  |  | $ | 761,461 |  |  | $ | — |  |  | $ | — |
Agencies |  |  | 216,963 |  |  |  | — |  |  |  | 216,963 |  |  |  | — |
Non-U.S. government (Sovereign debt) |  |  | 184,387 |  |  |  | — |  |  |  | 184,387 |  |  |  | — |
FDIC guaranteed corporate |  |  | 388,468 |  |  |  | — |  |  |  | 388,468 |  |  |  | — |
Non-U.S. government-backed corporate |  |  | 357,504 |  |  |  | — |  |  |  | 357,504 |  |  |  | — |
Corporate |  |  | 1,512,411 |  |  |  | — |  |  |  | 1,490,626 |  |  |  | 21,785 |
Agency mortgage-backed |  |  | 401,807 |  |  |  | — |  |  |  | 401,807 |  |  |  | — |
Non-agency mortgage-backed |  |  | 34,149 |  |  |  | — |  |  |  | 34,149 |  |  |  | — |
Commercial mortgage-backed |  |  | 219,440 |  |  |  | — |  |  |  | 219,440 |  |  |  | — |
Asset-backed |  |  | 40,107 |  |  |  | — |  |  |  | 40,107 |  |  |  | — |
Total fixed maturity investments |  |  | 4,116,697 |  |  |  | 761,461 |  |  |  | 3,333,451 |  |  |  | 21,785 |
Short term investments |  |  | 1,110,364 |  |  |  | — |  |  |  | 1,110,364 |  |  |  | — |
Other investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Private equity partnerships |  |  | 347,556 |  |  |  | — |  |  |  | — |  |  |  | 347,556 |
Senior secured bank loan funds |  |  | 166,106 |  |  |  | — |  |  |  | 158,386 |  |  |  | 7,720 |
Catastrophe bonds |  |  | 123,961 |  |  |  | — |  |  |  | 123,961 |  |  |  | — |
Non-U.S. fixed income funds |  |  | 80,224 |  |  |  | — |  |  |  | 80,224 |  |  |  | — |
Hedge funds |  |  | 41,005 |  |  |  | — |  |  |  | 41,005 |  |  |  | — |
Miscellaneous other investments |  |  | 28,696 |  |  |  | — |  |  |  | 21,870 |  |  |  | 6,826 |
Total other investments |  |  | 787,548 |  |  |  | — |  |  |  | 425,446 |  |  |  | 362,102 |
Other secured assets |  |  | 14,250 |  |  |  | — |  |  |  | 14,250 |  |  |  | — |
Other assets and (liabilities) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Platinum warrants |  |  | 44,925 |  |  |  | — |  |  |  | 44,925 |  |  |  | — |
Assumed and ceded (re)insurance contracts |  |  | 1,772 |  |  |  | — |  |  |  | — |  |  |  | 1,772 |
Derivatives |  |  | 2,693 |  |  |  | (51 | ) |  |  | 6,245 |  |  |  | (3,501 | )
Other |  |  | 13,629 |  |  |  | (4,599 | ) |  |  | — |  |  |  | 18,228 |
Total other assets and (liabilities) |  |  | 63,019 |  |  |  | (4,650 | ) |  |  | 51,170 |  |  |  | 16,499 |
|  | $ | 6,091,878 |  |  | $ | 756,811 |  |  | $ | 4,934,681 |  |  | $ | 400,386 |
Fixed Maturity Investments Fixed maturity investments included in Level 1 consist of the Company's investments in U.S. treasuries. Fixed maturity investments included in Level 2 are agencies, non-U.S. government, FDIC guaranteed corporate, non-U.S. government-backed corporate, corporate, agency mortgage-backed, non-agency mortgage-backed, commercial mortgage-backed and asset-backed fixed maturity investments. The Company's fixed maturity investments portfolios are priced using broker quotations and pricing services, such as index providers and pricing vendors. The pricing vendors provide pricing for a high volume of liquid securities that are actively traded. For securities that do not trade on an exchange, the pricing services generally utilize market data and other observable inputs in matrix pricing models to determine prices. Prices are generally verified using third party data. Prices obtained from broker quotations are considered non-binding, however they are based on observable inputs and by observing secondary trading of similar securities obtained from active, non-distressed markets. The Company considers these Level 2 inputs as they are corroborated with other externally obtained information. The techniques generally used to determine the fair value of our fixed maturity investments are detailed below by asset class. U.S. treasuries At September 30, 2011, the Company's U.S. treasuries fixed maturity investments had a weighted average effective yield of 0.9%, a weighted average credit quality of AA, and are primarily priced by pricing vendors. When pricing these securities, the vendor utilizes daily data from many real time market sources, including active broker dealers, as such, the Company considers its U.S. treasuries fixed maturity investments Level 1. All data sources are regularly reviewed for accuracy to ensure the most reliable price source is used for each issue and maturity date. Agencies At September 30, 2011, the Company's agencies fixed maturity investments had a weighted average effective yield of 0.5% and a weighted average credit quality of AA. The issuers of the Company's agencies fixed maturity investments primarily consist of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. Fixed maturity investments included in agencies are primarily priced by pricing vendors. When evaluating these securities, the vendor gathers information from market sources and integrates other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The dollar value for each security is individually computed using analytical models which incorporate option adjusted spreads and other daily interest rate data. The Company considers its agencies fixed maturity investments Level 2. Non-U.S. government (Sovereign debt) Non-U.S. government fixed maturity investments held by the Company at September 30, 2011, had a weighted average effective yield of 1.6% and a weighted average credit quality of AA. The issuers for securities in this sector are generally non-U.S. governments and agencies as well as supranational organizations. Securities held in these sectors are primarily priced by pricing vendors who employ proprietary discounted cash flow models to value the securities. Key quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high issuance credits. The pricing vendor then applies a credit spread for each security which is developed by in-depth and real time market analysis. For securities in which trade volume is low, the pricing vendor utilizes data from more frequently traded securities with similar attributes. These models may also be supplemented by daily market and credit research for international markets. The Company considers its non-U.S. government fixed maturity investments Level 2. FDIC guaranteed corporate The Company's FDIC guaranteed corporate fixed maturity investments had a weighted average effective yield of 0.4% and a weighted average credit quality of AA at September 30, 2011. The issuers consist of well known corporate issuers who participate in the FDIC program. The Company's FDIC guaranteed corporate fixed maturity investments are primarily priced by pricing vendors. When evaluating these securities, the vendor gathers information from market sources regarding the issuer of the security, obtain credit data, as well as other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing vendor also considers the specific terms and conditions of the securities, including any specific features which may influence risk. Each security is individually evaluated using a spread model which is added to the U.S. treasury curve. The Company considers its FDIC guaranteed corporate fixed maturity investments Level 2. Non-U.S. government-backed corporate Non-U.S. government-backed corporate fixed maturity investments are considered Level 2 by the Company and had a weighted average effective yield of 1.2% and a weighted average credit quality of AAA at September 30, 2011. Non-U.S. government-backed fixed maturity investments are primarily priced by pricing vendors who employ proprietary discounted cash flow models to value the securities. Key quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high issuance credits. The pricing vendor then applies a credit spread for each security which is developed by in-depth and real time market analysis. For securities in which trade volume is low, the pricing vendor utilizes data from more frequently traded securities with similar attributes. These models may also be supplemented by daily market and credit research for international markets. Corporate At September 30, 2011, the Company's corporate fixed maturity investments had a weighted average effective yield of 4.6% and a weighted average credit quality of A, and principally consist of U.S. and international corporations. The Company's corporate fixed maturity investments are primarily priced by pricing vendors, and are considered Level 2 by the Company. When evaluating these securities, the vendor gathers information from market sources regarding the issuer of the security, obtains credit data, as well as other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing vendor also considers the specific terms and conditions of the securities, including any specific features which may influence risk. Each security is individually evaluated using a spread model which is added to the U.S. treasury curve. The fair value of certain corporate fixed maturity investments are valued using internally developed models and are considered Level 3 by the Company. The internally developed models use a combination of quantitative and qualitative factors, which may include, but are not limited to, discounted cash flow analysis, financial statement analysis, budgets and forecasts, capital transactions and third party valuations. Agency mortgage-backed At September 30, 2011, the Company's agency mortgage-backed fixed maturity investments included agency residential mortgage-backed securities with a weighted average effective yield of 1.8%, a weighted average credit quality of AA and a weighted average life of 2.8 years. The Company's agency mortgage-backed fixed maturity investments are primarily priced by pricing vendors using a mortgage pool specific model which utilizes daily inputs from the active and the to be announced ("TBA") market which is very liquid, as well as the U.S. treasury market. The vendor model also utilizes additional information, such as the weighted average maturity, weighted average coupon and other available pool level data which is provided by the sponsoring agency. Valuations are also corroborated with daily active market quotes. The Company considers its agency mortgage-backed fixed maturity investments Level 2. Non-agency mortgage-backed The Company's non-agency mortgage-backed fixed maturity investments include non-agency prime residential mortgage-backed and non-agency Alt-A fixed maturity investments, and the Company considers these fixed maturity investments Level 2. The Company has no fixed maturity investments classified as sub-prime held in its fixed maturity investments portfolio. At September 30, 2011, the Company's non-agency prime residential mortgage-backed fixed maturity investments have a weighted average effective yield of 7.4%, a weighted average credit quality of BBB and a weighted average life of 4.0 years. The Company's non-agency Alt-A fixed maturity investments held at September 30, 2011 have a weighted average effective yield of 8.8%, a weighted average credit quality of A, a weighted average life of 3.8 years, and are from vintage years 2006 and prior. Securities held in these sectors are primarily priced by pricing vendors using an option adjusted spread ("OAS") model or other relevant models, which principally utilize inputs including benchmark yields, available trade information or broker quotes, and issuer spreads. The pricing vendor also reviews collateral prepayment speeds, loss severity and delinquencies among other collateral performance indicators for the securities valuation, when applicable. Commercial mortgage-backed The Company's commercial mortgage-backed fixed maturity investments held at September 30, 2011 have a weighted average effective yield of 3.5%, a weighted average credit quality of AA and a weighted average life of 4.1 years. Securities held in these sectors are primarily priced by pricing vendors and are considered Level 2 by the Company. The pricing vendor applies dealer quotes and other available trade information such as bid and offers, prepayment speeds which may be adjusted for the underlying collateral or current price data, the U.S. treasury curve and swap curve as well as cash settlement. The model utilizes a single cash flow stream and computes both a yield to call and weighted average yield to maturity. The model generates a derived price for the bond by applying the most likely scenario. Asset-backed At September 30, 2011, the Company's asset-backed fixed maturity investments had a weighted average effective yield of 1.0%, a weighted average credit quality of AAA and a weighted average life of 1.2 years. The underlying collateral for the Company's asset-backed fixed maturity investments primarily consists of student loans, credit card receivables and other receivables. Securities held in these sectors are primarily priced by pricing vendors and are considered Level 2 by the Company. The pricing vendor applies dealer quotes and other available trade information such as bids and offers, prepayment speeds which may be adjusted for the underlying collateral or current price data, the U.S. treasury curve and swap curve as well as cash settlement. The model utilizes a single cash flow stream and computes both a yield to call and weighted average yield to maturity. The model generates a derived price for the bond by applying the most likely scenario. Short term investments Short term investments are considered Level 2 and fair values are generally determined using amortized cost which approximates fair value and, in certain cases, in a manner similar to the Company's fixed maturity investments noted above. Equity investments, classified as trading Equity investments are considered Level 1 by the Company and fair values are primarily priced by pricing vendors, reflecting the closing price quoted for the final trading day of the period. When pricing these securities, the vendor utilizes daily data from many real time market sources, including active broker dealers and applicable securities exchanges. All data sources are regularly reviewed for accuracy to ensure the most reliable price source is used for each issue. Other Investments Private equity partnerships Included in the Company's investments in private equity partnerships at September 30, 2011 are alternative asset limited partnerships (or similar corporate structures) that invest in certain private equity asset classes including U.S. and global leveraged buyouts; mezzanine investments; distressed securities; real estate; and oil, gas and power. The fair value of private equity partnership investments is based on net asset values obtained from the investment manager or general partner of the respective entity. The type of underlying investments held by the investee which form the basis of the net asset valuation include assets such as private business ventures, for which the Company does not have access to financial information, and as a result is unable to corroborate the fair value measurement and therefore requires significant management judgment to determine the underlying value of the private equity partnership and accordingly the fair value of the Company's investment in each private equity partnership is considered Level 3. The Company also considers factors such as recent financial information, the value of capital transactions with the partnership and management's judgment regarding whether any adjustments should be made to the net asset value. The Company regularly reviews the performance of its private equity partnerships directly with the fund managers. Senior secured bank loan funds At September 30, 2011, the Company's investments in senior secured bank loan funds include funds that invest primarily in bank loans and other senior debt instruments. The fair value of the Company's senior secured bank loan funds are estimated using the net asset value per share of the funds. Investments of $231.3 million are redeemable in part, on a monthly basis, or in whole over a three month period. These investments are valued at the net asset value of the fund and are considered Level 2. The Company also has a $12.5 million investment in a closed end fund which invests primarily in loans. The Company has no right to redeem its investment in this fund. The Company's investment in this fund is valued using monthly net asset valuations received from the investment manager. The lock up provisions in this fund result in a lack of current observable market transactions between the fund participants and the fund, and therefore, the Company considers the fair value of its investment in this fund to be determined using Level 3 inputs. Catastrophe bonds The Company's other investments include investments in catastrophe bonds which are recorded at fair value. The fair value of the Company's investments in catastrophe bonds considered Level 2 are based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications. In addition, the Company's investments in catastrophe bonds considered Level 3 are based on internal valuation models with the inputs to the internal valuation model based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications. Non-U.S. fixed income funds The Company considers its investments in non-U.S. fixed income funds Level 2. The Company's non-U.S. fixed income funds invest primarily in non-U.S. convertible securities. The fair values of the investments in this category have been estimated using the net asset value per share of the investments which are provided by third parties such as the relevant investment manager or administrator, recent financial information issued by the applicable investee entity or available market data. Hedge funds The Company has investments in hedge funds that pursue multiple strategies. The fair values of the Company's hedge funds have been estimated using the net asset value per share of the investments which are provided by third parties such as the relevant investment manager or administrator, recent financial information issued by the applicable investee entity or available market data to estimate fair value. The Company considers its hedge fund investments Level 2. Other secured assets Other secured assets represented contractual rights under a purchase agreement, contingent purchase agreement and credit derivatives agreement with a major bank to sell certain securities within the Company's catastrophe-linked securities portfolio. The Company's other secured assets were accounted for at fair value based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications. As such, the Company considered its other secured assets Level 2. Other assets and liabilities Included in other assets and liabilities measured at fair value at September 30, 2011 are certain derivative-based risk management products primarily to address weather and energy risks, and hedging and trading activities related to these risks. The trading markets for these derivatives are generally linked to energy and agriculture commodities, weather and other natural phenomena and the fair value of these contracts is obtained through the use of exchange traded market prices, or in the absence of such market prices, industry or internal valuation models, as such, these products are considered Level 1 and Level 3, respectively. The Company considers assumed and ceded reinsurance contracts accounted for at fair value as Level 3, as the fair value of these contracts is obtained through the use of internal valuation models with the inputs to the internal valuation model based on proprietary data as observable market inputs are not available. In addition, other assets and liabilities include certain other derivatives entered into by the Company; the fair value of these transactions include the fair value of certain exchange traded foreign currency forward contracts which are considered Level 1, and the fair value of certain credit derivatives, determined using industry valuation models and considered Level 2, as the inputs to the valuation model are based on observable market inputs. Below is a reconciliation of the beginning and ending balances, for the periods shown, of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs. Interest and dividend income are included in net investment (loss) income and are excluded from the reconciliation.
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
Three months ended September 30, 2011 |  | Fixed maturity investments trading |  |  | Other investments |  |  | Other assets and (liabilities) |  |  | Total |
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |  |  |  |
Balance - July 1 |  | $ | 21,264 |  |  | $ | 381,123 |  |  | $ | 72,992 |  |  | $ | 475,379 |
Total unrealized losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | (350 | ) |  |  | (25,262 | ) |  |  | — |  |  |  | (25,612 | )
Included in other (loss) income |  |  | — |  |  |  | — |  |  |  | (46,116 | ) |  |  | (46,116 | )
Total realized gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Included in other (loss) income |  |  | — |  |  |  | — |  |  |  | 48,393 |  |  |  | 48,393 |
Total foreign exchange losses |  |  | — |  |  |  | (2,511 | ) |  |  | (55 | ) |  |  | (2,566 | )
Purchases |  |  | — |  |  |  | 19,460 |  |  |  | 26,224 |  |  |  | 45,684 |
Sales |  |  | — |  |  |  | — |  |  |  | (19,860 | ) |  |  | (19,860 | )
Settlements |  |  | — |  |  |  | (9,173 | ) |  |  | (57,001 | ) |  |  | (66,174 | )
Net transfers in and/or out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance - September 30 |  | $ | 20,914 |  |  | $ | 363,637 |  |  | $ | 24,577 |  |  | $ | 409,128 |
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
Nine months ended September 30, 2011 |  | Fixed maturity investments trading |  |  | Other investments |  |  | Other assets and (liabilities) |  |  | Total |
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |  |  |  |
Balance - January 1 |  | $ | 21,785 |  |  | $ | 362,102 |  |  | $ | 16,499 |  |  | $ | 400,386 |
Total unrealized (losses) gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | (871 | ) |  |  | 4,630 |  |  |  | — |  |  |  | 3,759 |
Included in other (loss) income |  |  | — |  |  |  | — |  |  |  | (4,517 | ) |  |  | (4,517 | )
Total realized gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Included in other (loss) income |  |  | — |  |  |  | — |  |  |  | 61,215 |  |  |  | 61,215 |
Total foreign exchange losses |  |  | — |  |  |  | (589 | ) |  |  | (197 | ) |  |  | (786 | )
Purchases |  |  | — |  |  |  | 48,144 |  |  |  | 36,839 |  |  |  | 84,983 |
Sales |  |  | — |  |  |  | — |  |  |  | (30,884 | ) |  |  | (30,884 | )
Settlements |  |  | — |  |  |  | (50,650 | ) |  |  | (54,378 | ) |  |  | (105,028 | )
Net transfers in and/or out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance - September 30 |  | $ | 20,914 |  |  | $ | 363,637 |  |  | $ | 24,577 |  |  | $ | 409,128 |
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
Three months ended September 30, 2010 |  | Other investments |  |  | Other assets and (liabilities) |  |  | Total |
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |
Balance - July 1 |  | $ | 314,663 |  |  | $ | 15,153 |  |  | $ | 329,816 |
Total unrealized losses |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | 156 |  |  |  | — |  |  |  | 156 |
Included in other (loss) income |  |  | — |  |  |  | (6,496 | ) |  |  | (6,496 | )
Total realized gains |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | — |  |  |  | — |  |  |  | — |
Included in other (loss) income |  |  | — |  |  |  | 18,237 |  |  |  | 18,237 |
Total foreign exchange losses |  |  | 2,354 |  |  |  | (16 | ) |  |  | 2,338 |
Purchases |  |  | 31,727 |  |  |  | 8,147 |  |  |  | 39,874 |
Issuances |  |  | — |  |  |  | (12,181 | ) |  |  | (12,181 | )
Settlements |  |  | (15,035 | ) |  |  | (10,396 | ) |  |  | (25,431 | )
Net transfers in and/or out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |
Balance - September 30 |  | $ | 333,865 |  |  | $ | 12,448 |  |  | $ | 346,313 |
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
Nine months ended September 30, 2010 |  | Other investments |  |  | Other assets and (liabilities) |  |  | Total |
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |
Balance - January 1 |  | $ | 393,913 |  |  | $ | 17,026 |  |  | $ | 410,939 |
Total unrealized losses |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | 3,323 |  |  |  | — |  |  |  | 3,323 |
Included in other (loss) income |  |  | — |  |  |  | (6,482 | ) |  |  | (6,482 | )
Total realized gains |  |  |  |  |  |  |  |  |  |  |  |
Included in net investment (loss) income |  |  | — |  |  |  | — |  |  |  | — |
Included in other (loss) income |  |  | — |  |  |  | 31,349 |  |  |  | 31,349 |
Total foreign exchange losses |  |  | (912 | ) |  |  | (717 | ) |  |  | (1,629 | )
Purchases |  |  | 51,401 |  |  |  | 12,448 |  |  |  | 63,849 |
Issuances |  |  | — |  |  |  | (39,414 | ) |  |  | (39,414 | )
Settlements |  |  | (113,860 | ) |  |  | (1,762 | ) |  |  | (115,622 | )
Net transfers in and/or out of Level 3 |  |  | — |  |  |  | — |  |  |  | — |
Balance - September 30 |  | $ | 333,865 |  |  | $ | 12,448 |  |  | $ | 346,313 |
Senior Notes In January 2003, RenaissanceRe issued $100.0 million, which represents the carrying amount on the Company's consolidated balance sheet, of 5.875% Senior Notes due February 15, 2013, with interest on the notes payable on February 15 and August 15 of each year. At September 30, 2011, the fair value of the 5.875% Senior Notes was $102.9 million (December 31, 2010 - $105.9 million). In March 2010, RenRe North America Holdings Inc. ("RRNAH") issued $250.0 million of 5.75% Senior Notes due March 15, 2020, with interest on the notes payable on March 15 and September 15 of each year. At September 30, 2011, the fair value of the 5.75% Senior Notes was $256.3 million (December 31, 2010 - $252.4 million). The fair value of RenaissanceRe's 5.875% Senior Notes and RRNAH's 5.75% Senior Notes is determined using indicative market pricing obtained from third-party service providers. The Fair Value Option for Financial Assets and Financial Liabilities The Company has elected to account for certain assets and liabilities at fair value under FASB ASC Topic Financial Instruments. The Company has elected to use the guidance under FASB ASC Topic Financial Instruments, as it represents the most current authoritative GAAP. Below is a summary of the balances the Company has elected to account for at fair value:
(in thousands of U.S. dollars) |  | September 30, 2011 |  |  | December 31, 2010 |
Other investments |  | $ | 736,757 |  |  | $ | 787,548 |
Other secured assets |  | $ | — |  |  | $ | 14,250 |
Other assets and (liabilities) |  | $ | 22,034 |  |  | $ | 20,000 |
Included in net investment (loss) income for the three and nine months ended September 30, 2011 was $42.9 million and $9.2 million, respectively, of net unrealized losses related to the changes in fair value of other investments (September 30, 2010 - net unrealized gains of $15.3 million and $21.0 million, respectively). Net unrealized losses related to the changes in the fair value of other secured assets recorded in other (loss) income was $Nil and $0.1 million, respectively, for the three and nine months ended September 30, 2011 (September 30, 2010 - net unrealized gains of $0.3 million and $0.1 million, respectively). Net unrealized losses related to the changes in the fair value of other assets and liabilities recorded in other (loss) income was $45.5 million and $2.2 million for the three and nine months ended September 30, 2011 (September 30, 2010 – net unrealized losses of $0.6 million and $1.5 million, respectively). Reinsurance Contracts Accounted for at Fair Value The Company assumes and cedes certain reinsurance contracts that are accounted for at fair value under the fair value option. The fair value of these contracts is obtained through the use of internal valuation models. These contracts are recorded on the Company's balance sheet in other assets and other liabilities and totaled $4.5 million and $0.1 million, respectively, at September 30, 2011 (December 31, 2010 - $1.8 million and $Nil, respectively). During the three and nine months ended September 30, 2011, the Company recorded (losses) gains of $(2.7) million and $39.9 million, respectively, which are included in other (loss) income and represent changes in the fair value of these contracts (September 30, 2010 - losses of $0.8 million and $3.1 million, respectively). Measuring the Fair Value of Other Investments Using Net Asset Valuations The table below shows the Company's portfolio of other investments measured using net asset valuations:
September 30, 2011 |  | Fair Value |  |  | Unfunded Commitments |  |  | Redemption Frequency |  | Redemption Notice Period
(in thousands of U.S. dollars) |  |  |  |  |  |  |  |  |  |
Private equity partnerships |  | $ | 345,986 |  |  | $ | 155,373 |  |  | See below |  | See below
Senior secured bank loan funds |  |  | 243,766 |  |  |  | 12,050 |  |  | See below |  | See below
Non-U.S. fixed income funds |  |  | 29,440 |  |  |  | — |  |  | Monthly, bi-monthly |  | 5 - 20 days
Hedge funds |  |  | 26,810 |  |  |  | — |  |  | Annually, bi-annually |  | 45 - 90 days
Total other investments measured using net asset valuations |  | $ | 646,002 |  |  | $ | 167,423 |  |  |  |  |
Private equity partnerships – Included in the Company's investments in private equity partnerships are alternative asset limited partnerships (or similar corporate structures) that invest in certain private equity asset classes including U.S. and global leveraged buyouts; mezzanine investments; distressed securities; real estate; and oil, gas and power. The fair values of the investments in this category have been estimated using the net asset value of the investments. The Company generally has no right to redeem its interest in any of these private equity partnerships in advance of dissolution of the applicable partnership. Instead, the nature of these investments is that distributions are received by the Company in connection with the liquidation of the underlying assets of the applicable limited partnership. It is estimated that the majority of the underlying assets of the limited partnerships would liquidate over 7 to 10 years from inception of the limited partnership. Senior secured bank loan funds – The Company's investment in senior secured bank loan funds includes funds that invest primarily in bank loans and other senior debt instruments. The fair values of the investments in this category have been estimated using the net asset value per share of the funds. Investments of $231.3 million are redeemable, in part on a monthly basis, or in whole over a three month period. The Company also has a $12.5 million investment in a closed end fund which invests in loans. The Company has no right to redeem its investment in this fund. Non-U.S. fixed income funds – The Company's non-U.S. fixed income funds invest primarily in non-U.S. convertible securities. The fair values of the investments in this category have been estimated using the net asset value per share of the funds. Investments of $29.4 million are redeemable, in whole or in part, on a bi-monthly basis. The issuers of these securities may permit redemptions which exceed this amount, but they are not obliged to do so. Hedge funds – The Company invests in hedge funds that pursue multiple strategies. The fair values of the investments in this category have been estimated using the net asset value per share of the funds. Included in the Company's hedge funds is $6.8 million of so called "side pocket" investments which are not redeemable at the option of the shareholder. As to each investment in a hedge fund that includes side pocket investments, if the investment is otherwise fully redeemed, the Company will still retain its interest in the side pocket investments until the underlying investments attributable to such side pockets are liquidated, realized or deemed realized at the discretion of the fund manager.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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