INVESTMENTS

Fixed Maturity Investments Trading

The following table summarizes the fair value of fixed maturity investments trading:




	June 30, 2012		December 31, 2011
U.S. treasuries	$	1,126,759	$	885,152
Agencies	436,691		158,561
Non-U.S. government (Sovereign debt)	172,008		216,916
FDIC guaranteed corporate	29,386		423,630
Non-U.S. government-backed corporate	393,875		640,757
Corporate	1,652,007		1,187,437
Agency mortgage-backed	580,971		428,042
Non-agency mortgage-backed	135,268		82,096
Commercial mortgage-backed	414,524		255,885
Asset-backed	7,466		12,989
Total fixed maturity investments trading	$	4,948,955	$	4,291,465

Fixed Maturity Investments Available For Sale

The following table summarizes the amortized cost, fair value and related unrealized gains and losses and non-credit other-than-temporary impairments of fixed maturity investments available for sale:




			Included in Accumulated Other Comprehensive Income
At June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit Other-Than- Temporary Impairments (1)
Non-U.S. government (Sovereign debt)	$	5,000	$	223	$	—		$	5,223	$	—
Corporate	11,815		1,010		(110		)	12,715		75
Agency mortgage-backed	10,478		906		—			11,384		—
Non-agency mortgage-backed	15,929		2,496		(19		)	18,406		891
Commercial mortgage-backed	48,926		6,717		—			55,643		—
Asset-backed	4,499		232		—			4,731		—
Total fixed maturity investments available for sale	$	96,647	$	11,584	$	(129	)	$	108,102	$	966




			Included in Accumulated Other Comprehensive Income
At December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit Other-Than- Temporary Impairments (1)
Non-U.S. government (Sovereign debt)	$	10,087	$	921	$	(12	)	$	10,996	$	—
Non-U.S. government-backed corporate	312		13		—			325		—
Corporate	18,449		1,535		(517		)	19,467		(176		)
Agency mortgage-backed	12,636		1,071		—			13,707		—
Non-agency mortgage-backed	21,097		1,862		(284		)	22,675		(1,837		)
Commercial mortgage-backed	63,269		6,576		(1		)	69,844		—
Asset-backed	4,819		219		—			5,038		—
Total fixed maturity investments available for sale	$	130,669	$	12,197	$	(814	)	$	142,052	$	(2,013	)

(1)

Represents the non-credit component of other-than-temporary impairments recognized in accumulated other comprehensive income since the adoption of guidance related to the recognition and presentation of other-than-temporary impairments under FASB ASC Topic Financial Instruments – Debt and Equity Securities, during the second quarter of 2009, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

Contractual maturities of fixed maturity investments are as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.




	Trading				Available for Sale				Total Fixed Maturity Investments
At June 30, 2012	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	405,210	$	405,547	$	112	$	89	$	405,322	$	405,636
Due after one through five years	2,606,528		2,615,915		8,358		8,761		2,614,886		2,624,676
Due after five through ten years	625,279		646,130		6,200		6,779		631,479		652,909
Due after ten years	130,574		143,134		2,145		2,309		132,719		145,443
Mortgage-backed	1,115,304		1,130,763		75,333		85,433		1,190,637		1,216,196
Asset-backed	7,356		7,466		4,499		4,731		11,855		12,197
Total	$	4,890,251	$	4,948,955	$	96,647	$	108,102	$	4,986,898	$	5,057,057

Equity Investments Trading

The following table summarizes the fair value of equity investments trading:




	June 30, 2012		December 31, 2011
Financial institution securities	$	55,381	$	50,560

Pledged Investments

At June 30, 2012, $1,330.9 million of cash and investments at fair value were on deposit with, or in trust accounts for the benefit of various counterparties, including with respect to the Company's principal letter of credit facility. Of this amount, $522.6 million is on deposit with, or in trust accounts for the benefit of, U.S. state regulatory authorities.

Net Investment Income, Net Realized and Unrealized Gains on Investments and Net Other-Than-Temporary Impairments

The components of net investment income are as follows:




Three months ended June 30,	2012			2011
Fixed maturity investments	$	22,436		$	24,426
Short term investments	234			433
Equity investments	181			112
Other investments
Hedge funds and private equity investments	(10,413		)	8,230
Other	4,975			2,838
Cash and cash equivalents	54			45
	17,467			36,084
Investment expenses	(2,724		)	(2,756		)
Net investment income	$	14,743		$	33,328




Six months ended June 30,	2012			2011
Fixed maturity investments	$	48,769		$	52,339
Short term investments	734			1,028
Equity investments	351			126
Other investments
Hedge funds and private equity investments	18,060			31,737
Other	19,145			13,665
Cash and cash equivalents	80			86
	87,139			98,981
Investment expenses	(5,425		)	(5,372		)
Net investment income	$	81,714		$	93,609

Net realized and unrealized gains on investments and net other-than-temporary impairments are as follows:




Three months ended June 30,	2012			2011
Gross realized gains	$	19,458		$	15,430
Gross realized losses	(3,294		)	(4,156		)
Net realized gains on fixed maturity investments	16,164			11,274
Net unrealized gains on fixed maturity investments trading	12,538			24,728
Net unrealized gains (losses) on equity investments trading	2,301			(1,023		)
Net realized and unrealized gains on investments	$	31,003		$	34,979
Total other-than-temporary impairments	$	(234	)	$	—
Portion recognized in other comprehensive income, before taxes	25			—
Net other-than-temporary impairments	$	(209	)	$	—




Six months ended June 30,	2012			2011
Gross realized gains	$	55,744		$	25,992
Gross realized losses	(10,244		)	(16,773		)
Net realized gains on fixed maturity investments	45,500			9,219
Net unrealized gains on fixed maturity investments trading	26,795			20,970
Net unrealized gains on equity investments trading	4,821			(424		)
Net realized and unrealized gains on investments	$	77,116		$	29,765
Total other-than-temporary impairments	$	(395	)	$	—
Portion recognized in other comprehensive income, before taxes	52			—
Net other-than-temporary impairments	$	(343	)	$	—

The following table provides an analysis of the length of time the Company’s fixed maturity investments available for sale in an unrealized loss have been in a continual unrealized loss position.




	Less than 12 Months					12 Months or Greater					Total
At June 30, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate	$	1,424	$	(49	)	$	513	$	(61	)	$	1,937	$	(110	)
Non-agency mortgage-backed	—		—			98		(19		)	98		(19		)
Total	$	1,424	$	(49	)	$	611	$	(80	)	$	2,035	$	(129	)




	Less than 12 Months					12 Months or Greater					Total
At December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-U.S. government (Sovereign debt)	$	915	$	(9	)	$	42	$	(3	)	$	957	$	(12	)
Corporate	3,935		(385		)	412		(132		)	4,347		(517		)
Non-agency mortgage-backed	8,024		(224		)	798		(60		)	8,822		(284		)
Commercial mortgage-backed	—		—			455		(1		)	455		(1		)
Total	$	12,874	$	(618	)	$	1,707	$	(196	)	$	14,581	$	(814	)

At June 30, 2012, the Company held 44 fixed maturity investments available for sale securities that were in an unrealized loss position, including 13 fixed maturity investments available for sale securities that were in an unrealized loss position for twelve months or greater. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. The Company performed reviews of its fixed maturity investments available for sale for the six months ended June 30, 2012 and 2011, respectively, in order to determine whether declines in the fair value below the amortized cost basis were considered other-than-temporary in accordance with the applicable guidance, as discussed below.

Other-Than-Temporary Impairment Process

The Company's process for assessing whether declines in the fair value of its fixed maturity investments available for sale represent impairments that are other-than-temporary includes reviewing each fixed maturity investment available for sale that is impaired and determining: (i) if the Company has the intent to sell the debt security or (ii) if it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery; and (iii) whether a credit loss exists, that is, where the Company expects that the present value of the cash flows expected to be collected from the security are less than the amortized cost basis of the security.

In assessing the Company’s intent to sell securities, the Company’s procedures may include actions such as discussing planned sales with its third party investment managers, reviewing sales that have occurred shortly after the balance sheet date, and consideration of other qualitative factors that may be indicative of the Company’s intent to sell or hold the relevant securities. For the six months ended June 30, 2012, the Company recognized $Nil other-than-temporary impairments due to the Company’s intent to sell these securities as of June 30, 2012 (2011 – $Nil).

In assessing whether it is more likely than not that the Company will be required to sell a security before its anticipated recovery, the Company considers various factors including its future cash flow forecasts and requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short term investments, fixed maturity investments trading and fixed maturity investments available for sale in an unrealized gain position, and other relevant factors. For the six months ended June 30, 2012, the Company recognized $Nil of other-than-temporary impairments due to required sales (2011 – $Nil).

In evaluating credit losses, the Company considers a variety of factors in the assessment of a security including: (i) the time period during which there has been a significant decline below cost; (ii) the extent of the decline below cost and par; (iii) the potential for the security to recover in value; (iv) an analysis of the financial condition of the issuer; (v) the rating of the issuer; (vi) the implied rating of the issuer based on an analysis of option adjusted spreads; (vii) the absolute level of the option adjusted spread for the issuer; and (viii) an analysis of the collateral structure and credit support of the security, if applicable.

Once the Company determines that it is possible that a credit loss may exist for a security, the Company performs a detailed review of the cash flows expected to be collected from the issuer. The Company estimates expected cash flows by applying estimated default probabilities and recovery rates to the contractual cash flows of the issuer, with such default and recovery rates reflecting long-term historical averages adjusted to reflect current credit, economic and market conditions, giving due consideration to collateral and credit support, if applicable, and discounting the expected cash flows at the purchase yield on the security. In instances in which a determination is made that an impairment exists but the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, the impairment is separated into: (i) the amount of the total other-than-temporary impairment related to the credit loss; and (ii) the amount of the total other-than-temporary impairment related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the other-than-temporary impairment related to all other factors is recognized in other comprehensive income. For the six months ended June 30, 2012, the Company recognized $0.3 million of other-than-temporary impairments which were recognized in earnings and $52 thousand related to other factors which were recognized in other comprehensive income (2011 – $Nil and $Nil, respectively).

The following table provides a rollforward of the amount of other-than-temporary impairments related to credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income:




	2012			2011
Balance – April 1	$	520		$	2,875
Additions:
Amount related to credit loss for which an other-than-temporary impairment was not previously recognized	11			—
Amount related to credit loss for which an other-than-temporary impairment was previously recognized	41			—
Reductions:
Securities sold during the period	(396		)	(246		)
Securities for which the amount previously recognized in other comprehensive income was recognized in earnings, because the Company intends to sell the security or is more likely than not the Company will be required to sell the security	—			—
Increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			—
Balance – June 30	$	176		$	2,629




	2012			2011
Balance – January 1	$	564		$	3,098
Additions:
Amount related to credit loss for which an other-than-temporary impairment was not previously recognized	11			—
Amount related to credit loss for which an other-than-temporary impairment was previously recognized	50			—
Reductions:
Securities sold during the period	(449		)	(469		)
Securities for which the amount previously recognized in other comprehensive income was recognized in earnings, because the Company intends to sell the security or is more likely than not the Company will be required to sell the security	—			—
Increases in cash flows expected to be collected that are recognized over the remaining life of the security	—			—
Balance – June 30	$	176		$	2,629