INVESTMENTS

Fixed Maturity Investments Trading

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




	March 31, 2013		December 31, 2012
U.S. treasuries	$	1,186,742	$	1,259,800
Agencies	285,969		315,154
Non-U.S. government (Sovereign debt)	199,561		133,198
Non-U.S. government-backed corporate	291,077		349,514
Corporate	1,598,749		1,607,233
Agency mortgage-backed	433,661		399,619
Non-agency mortgage-backed	223,392		230,747
Commercial mortgage-backed	284,825		361,645
Asset-backed	7,909		8,511
Total fixed maturity investments trading	$	4,511,885	$	4,665,421

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 March 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit Other-Than- Temporary Impairments (1)
Corporate	$	4,253	$	626	$	(57	)	$	4,822	$	(62	)
Agency mortgage-backed	6,378		500		(1		)	6,877		—
Non-agency mortgage-backed	13,889		2,946		(10		)	16,825		(808		)
Commercial mortgage-backed	10,730		1,546		—			12,276		—
Asset-backed	4,074		380		—			4,454		—
Total fixed maturity investments available for sale	$	39,324	$	5,998	$	(68	)	$	45,254	$	(870	)




			Included in Accumulated Other Comprehensive Income
At December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit Other-Than- Temporary Impairments (1)
Corporate	$	7,065	$	1,002	$	(93	)	$	7,974	$	(85	)
Agency mortgage-backed	8,280		632		—			8,912		—
Non-agency mortgage-backed	14,613		2,989		(10		)	17,592		(835		)
Commercial mortgage-backed	37,292		7,229		—			44,521		—
Asset-backed	4,195		248		—			4,443		—
Total fixed maturity investments available for sale	$	71,445	$	12,100	$	(103	)	$	83,442	$	(920	)

(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 March 31, 2013	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	216,198	$	215,538	$	—	$	—	$	216,198	$	215,538
Due after one through five years	2,613,378		2,636,410		2,312		2,648		2,615,690		2,639,058
Due after five through ten years	549,292		568,695		1,155		1,234		550,447		569,929
Due after ten years	129,104		141,455		786		940		129,890		142,395
Mortgage-backed	914,832		941,878		30,998		35,978		945,830		977,856
Asset-backed	7,481		7,909		4,073		4,454		11,554		12,363
Total	$	4,430,285	$	4,511,885	$	39,324	$	45,254	$	4,469,609	$	4,557,139

Equity Investments Trading

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




	March 31, 2013		December 31, 2012
Financial institution securities	$	555	$	58,186

Pledged Investments

At March 31, 2013, $1,693.3 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, $632.9 million is on deposit with, or in trust accounts for the benefit of, U.S. state regulatory authorities.

Reverse Repurchase Agreements

At March 31, 2013, the Company held $118.2 million (December 31, 2012 - $74.8 million) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of short term investments on the Company's consolidated balance sheets. The required collateral for these loans typically include high-quality, readily marketable instruments at a minimum rate of 102% of the loan principal. Upon maturity, the Company receives principal and interest income.

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 March 31,
	2013			2012
Fixed maturity investments	$	24,310		$	26,333
Short term investments	318			500
Equity investments	—			170
Other investments
Hedge funds and private equity investments	14,880			28,473
Other	6,995			14,170
Cash and cash equivalents	52			26
	46,555			69,672
Investment expenses	(2,940		)	(2,701		)
Net investment income	$	43,615		$	66,971

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




	Three months ended March 31,
	2013			2012
Gross realized gains	$	34,080		$	36,286
Gross realized losses	(4,554		)	(6,950		)
Net realized gains on fixed maturity investments	29,526			29,336
Net unrealized (losses) gains on fixed maturity investments trading	(23,065		)	14,257
Net realized gains on equity investments trading	17,561			—
Net unrealized (losses) gains on equity investments trading	(10,172		)	2,520
Net realized and unrealized gains on investments	$	13,850		$	46,113
Total other-than-temporary impairments	$	—		$	(161	)
Portion recognized in other comprehensive income, before taxes	—			27
Net other-than-temporary impairments	$	—		$	(134	)

The following table provides an analysis of the components of other comprehensive income and reclassifications out of accumulated other comprehensive income.




	Three months ended March 31, 2013
	Investments in other ventures			Fixed maturity investments available for sale			Total
Beginning balance	$	1,625		$	11,997		$	13,622
Other comprehensive loss before reclassifications	(1,505		)	(206		)	(1,711		)
Amounts reclassified from accumulated other comprehensive income by statement of operations line item:
Realized gains reclassified from accumulated other comprehensive income to net realized and unrealized gains on investments	—			(5,861		)	(5,861		)
Net current-period other comprehensive loss	(1,505		)	(6,067		)	(7,572		)
Ending balance	$	120		$	5,930		$	6,050

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 March 31, 2013	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate	$	387	$	(24	)	$	87	$	(33	)	$	474	$	(57	)
Agency mortgage-backed	854		(1		)	—		—			854		(1		)
Non-agency mortgage-backed	—		—			101		(10		)	101		(10		)
Total	$	1,241	$	(25	)	$	188	$	(43	)	$	1,429	$	(68	)




	Less than 12 Months					12 Months or Greater					Total
At December 31, 2012	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate	$	598	$	(30	)	$	440	$	(63	)	$	1,038	$	(93	)
Non-agency mortgage-backed	—		—			101		(10		)	101		(10		)
Total	$	598	$	(30	)	$	541	$	(73	)	$	1,139	$	(103	)

At March 31, 2013, the Company held 13 fixed maturity investments available for sale securities that were in an unrealized loss position (December 31, 2012 - 28), including 4 fixed maturity investments available for sale securities that were in an unrealized loss position for twelve months or greater (December 31, 2012 - 11). 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 three months ended March 31, 2013 and 2012, 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 three months ended March 31, 2013, the Company recognized $Nil other-than-temporary impairments due to the Company’s intent to sell these securities as of March 31, 2013 (2012 – $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 three months ended March 31, 2013, the Company recognized $Nil of other-than-temporary impairments due to required sales (2012 – $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 three months ended March 31, 2013, the Company recognized $Nil of other-than-temporary impairments which were recognized in earnings and $Nil related to other factors which were recognized in other comprehensive income (2012 – $0.1 million and $27 thousand, 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:




	2013			2012
Balance – January 1	$	838		$	2,370
Additions:
Amount related to credit loss for which an other-than-temporary impairment was not previously recognized	—			—
Amount related to credit loss for which an other-than-temporary impairment was previously recognized	—			66
Reductions:
Securities sold during the period	(27		)	(248		)
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 – March 31	$	811		$	2,188