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Derivative Instruments
 6 Months Ended
Jun. 30, 2022
Summary of Derivative Instruments [Abstract]  
Derivative Instruments DERIVATIVE INSTRUMENTS
From time to time, the Company may enter into derivative instruments such as futures, options, swaps, forward contracts and other derivative contracts primarily to manage its foreign currency exposure, obtain exposure to a particular financial market, for yield enhancement, or for trading and to assume risk. The Company’s derivative instruments can be exchange traded or over-the-counter, with over-the-counter derivatives generally traded under International Swaps and Derivatives Association master agreements, which establish the terms of the transactions entered into with the Company’s derivative counterparties. In the event a party becomes insolvent or otherwise defaults on its obligations, a master agreement generally permits the non-defaulting party to accelerate and terminate all outstanding transactions and net the transactions’ marked-to-market values so that a single sum in a single currency will be owed by, or owed to, the non-defaulting party. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure. Where the Company has entered into master netting agreements with counterparties, or the Company has the legal and contractual right to offset positions, the derivative positions are generally netted by counterparty and are reported accordingly in other assets and other liabilities.
The Company is not aware of the existence of any credit-risk related contingent features that it believes would be triggered in its derivative instruments that are in a net liability position at June 30, 2022.
The tables below show the gross and net amounts of recognized derivative assets and liabilities at fair value, including the location on the consolidated balance sheets of the Company’s principal derivative instruments:
Derivative Assets
At June 30, 2022Gross Amounts of Recognized AssetsGross Amounts Offset in the Balance Sheet Net Amounts of Assets Presented in the Balance SheetBalance Sheet LocationCollateral ReceivedNet Amount
Derivative instruments not designated as hedges
Interest rate futures$9,164 $— $9,164 Other assets$— $9,164 
Foreign currency forward contracts (1)
16,810 — 16,810 Other assets— 16,810 
Foreign currency forward contracts (2)
3,299 — 3,299 Other assets— 3,299 
Foreign currency option contracts22 — 22 Other assets— 22 
Credit default swaps5 — 5 Other assets— 5 
Total derivative instruments not designated as hedges29,300 — 29,300 — 29,300 
Derivative instruments designated as hedges
Foreign currency forward contracts (3)
1,420 — 1,420 Other assets— 1,420 
Total$30,720 $— $30,720 $— $30,720 
Derivative Liabilities
At June 30, 2022Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Balance Sheet Net Amounts of Liabilities Presented in the Balance SheetBalance Sheet LocationCollateral PledgedNet Amount
Derivative instruments not designated as hedges
Interest rate futures$4,119 $— $4,119 Other liabilities$3,948 $171 
Foreign currency forward contracts (1)
13,120 — 13,120 Other liabilities— 13,120 
Foreign currency forward contracts (2)
3,647 — 3,647 Other liabilities— 3,647 
Foreign currency option contracts230 — 230 Other liabilities— 230 
Credit default swaps6 — 6 Other assets6 — 
Equity futures2,754 — 2,754 Other liabilities2,754 — 
Total$23,876 $— $23,876 $6,708 $17,168 
(1)Contracts used to manage foreign currency risks in underwriting and non-investment operations.
(2)Contracts used to manage foreign currency risks in investment operations.
(3)Contracts designated as hedges of net investments in foreign operations.
Derivative Assets
At December 31, 2021Gross Amounts of Recognized AssetsGross Amounts Offset in the Balance Sheet Net Amounts of Assets Presented in the Balance SheetBalance Sheet LocationCollateral ReceivedNet Amount
Derivative instruments not designated as hedges
Interest rate futures$1,068 $— $1,068 Other assets$— $1,068 
Foreign currency forward contracts (1)
13,730 — 13,730 Other assets— 13,730 
Foreign currency forward contracts (2)
1,247 — 1,247 Other assets— 1,247 
Credit default swaps478 — 478 Other assets— 478 
Total derivative instruments not designated as hedges16,523 — 16,523 — 16,523 
Derivative instruments designated as hedges
Foreign currency forward contracts (3)
1,366 — 1,366 Other assets— 1,366 
Total$17,889 $— $17,889 $— $17,889 
Derivative Liabilities
At December 31, 2021Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Balance Sheet Net Amounts of Liabilities Presented in the Balance SheetBalance Sheet LocationCollateral PledgedNet Amount
Derivative instruments not designated as hedges
Interest rate futures$1,426 $— $1,426 Other liabilities$1,426 $— 
Foreign currency forward contracts (1)
7,880 — 7,880 Other liabilities— 7,880 
Foreign currency forward contracts (2)
3,412 — 3,412 Other liabilities— 3,412 
Equity futures173 — 173 Other liabilities173 — 
Total derivative instruments not designated as hedges12,891 — 12,891 1,599 11,292 
Derivative instruments designated as hedges
Foreign currency forward contracts (3)
4,063 — 4,063 Other liabilities— 4,063 
Total$16,954 $— $16,954 $1,599 $15,355 
(1)Contracts used to manage foreign currency risks in underwriting and non-investment operations.
(2)Contracts used to manage foreign currency risks in investment operations.
(3)Contracts designated as hedges of net investments in foreign operations.
The location and amount of the gain (loss) recognized in the Company’s consolidated statements of operations related to its principal derivative instruments are shown in the following table:
Location of gain (loss)
recognized on derivatives		Amount of gain (loss) recognized on
derivatives
Three months ended June 3020222021
Derivative instruments not designated as hedges
Interest rate futures (4)
Net realized and unrealized gains (losses) on investments$(14,699)$(11,295)
Interest rate swaps (4)
Net realized and unrealized gains (losses) on investments— (78)
Foreign currency forward contracts (1)
Net foreign exchange gains (losses)(51,834)240 
Foreign currency forward contracts (2)
Net foreign exchange gains (losses)10,062 (1,840)
Foreign currency option contractsNet foreign exchange gains (losses)(225)— 
Credit default swaps (4)
Net realized and unrealized gains (losses) on investments(2,337)1,169 
Total return swaps (4)
Net realized and unrealized gains (losses) on investments— 875 
Equity futures (5)
Net realized and unrealized gains (losses) on investments(49,042)— 
Total derivative instruments not designated as hedges(108,075)(10,929)
Derivative instruments designated as hedges
Foreign currency forward contracts (3)
Accumulated other comprehensive income (loss)7,321 2,437 
Total$(100,754)$(8,492)
Location of gain (loss)
recognized on derivatives		Amount of gain (loss) recognized on
derivatives
Six months ended June 3020222021
Derivative instruments not designated as hedges
Interest rate futuresNet realized and unrealized gains (losses) on investments$(43,486)$4,212 
Interest rate swapsNet realized and unrealized gains (losses) on investments— (979)
Foreign currency forward contracts (1)
Net foreign exchange gains (losses)(72,757)(3,401)
Foreign currency forward contracts (2)
Net foreign exchange gains (losses)8,171 (6,901)
Foreign currency option contractsNet foreign exchange gains (losses)(444)— 
Credit default swapsNet realized and unrealized gains (losses) on investments(6,474)1,424 
Total return swapsNet realized and unrealized gains (losses) on investments— 875 
Equity futuresNet realized and unrealized gains (losses) on investments(56,406)— 
Total derivative instruments not designated as hedges(171,396)(4,770)
Derivative instruments designated as hedges
Foreign currency forward contracts (3)
Accumulated other comprehensive income (loss)4,294 348 
Total$(167,102)$(4,422)
(1)Contracts used to manage foreign currency risks in underwriting and non-investment operations.
(2)Contracts used to manage foreign currency risks in investment operations.
(3)Contracts designated as hedges of net investments in foreign operations.
(4)Fixed income related derivatives included in net realized and unrealized gains (losses) on investment-related derivatives. See “Note 3. Investments” for additional information.
(5)Equity related derivatives included in net realized and unrealized gains (losses) on investment-related derivatives. See “Note 3. Investments” for additional information.
Derivative Instruments Not Designated as Hedges
Interest Rate Derivatives
The Company uses interest rate futures and swaps within its portfolio of fixed maturity investments to manage its exposure to interest rate risk, which may result in increasing or decreasing its exposure to this risk.
Interest Rate Futures
The fair value of interest rate futures is determined using exchange traded prices. At June 30, 2022, the Company had $1.6 billion of notional long positions and $0.6 billion of notional short positions of primarily Eurodollar and U.S. treasury futures contracts (December 31, 2021 - $2.2 billion and $0.5 billion, respectively).
Interest Rate Swaps
The fair value of interest rate swaps is determined using the relevant exchange traded price where available or a discounted cash flow model based on the terms of the contract and inputs, including, where applicable, observable yield curves. At June 30, 2022 and December 31, 2021, the Company had no outstanding total return swaps.
Foreign Currency Derivatives
The Company’s functional currency is the U.S. dollar. The Company writes a portion of its business in currencies other than U.S. dollars and may, from time to time, experience foreign exchange gains and losses in the Company’s consolidated financial statements. The impact of changes in exchange rates on the Company’s assets and liabilities denominated in currencies other than the U.S. dollar, excluding non-monetary assets and liabilities, are recognized in the Company’s consolidated statements of operations.
Underwriting and Non-investments Operations Related Foreign Currency Contracts
The Company’s foreign currency policy with regard to its underwriting operations is generally to enter into foreign currency forward and option contracts for notional values that approximate the foreign currency liabilities, including claims and claim expense reserves and reinsurance balances payable, net of any cash, investments and receivables held in the respective foreign currency. The Company’s use of foreign currency forward and option contracts is intended to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities associated with its underwriting operations. The Company may determine not to match a portion of its projected underwriting related assets or liabilities with underlying foreign currency exposure with investments in the same currencies, which would increase its exposure to foreign currency fluctuations and potentially increase the impact and volatility of foreign exchange gains and losses on its results of operations. The fair value of the Company’s underwriting operations related foreign currency contracts is determined using indicative pricing obtained from counterparties or broker quotes. The fair value of the Company’s foreign currency option contracts is determined using market-based prices from pricing vendors.
At June 30, 2022, the Company had outstanding underwriting related foreign currency forward contracts of $1.1 billion in notional long positions and $727.5 million in notional short positions, denominated in U.S. dollars (December 31, 2021 - $915.0 million and $329.3 million, respectively).
At June 30, 2022, the Company had $34.6 million of notional long positions in foreign currency option contracts, denominated in U.S. dollars (December 31, 2021 – $Nil).
Investment Portfolio Related Foreign Currency Forward Contracts
The Company’s investment operations are exposed to currency fluctuations through its investments in non-U.S. dollar fixed maturity investments, short term investments and other investments. From time to time, the Company may employ foreign currency forward contracts in its investment portfolio to either assume foreign currency risk or to economically hedge its exposure to currency fluctuations from these investments. The fair value of the Company’s investment portfolio related foreign currency forward contracts is determined using an interpolated rate based on closing forward market rates. At June 30, 2022, the Company had outstanding investment portfolio related foreign currency contracts of $232.4 million in notional long positions and $87.3 million in notional short positions, denominated in U.S. dollars (December 31, 2021 - $245.8 million and $131.0 million, respectively).
Credit Derivatives
The Company’s exposure to credit risk is primarily due to its fixed maturity investments, short term investments, premiums receivable and reinsurance recoverable. From time to time, the Company may purchase credit derivatives to manage its exposures in the insurance industry, and to assist in managing the credit risk associated with ceded reinsurance. The Company also employs credit derivatives in its investment portfolio to either assume credit risk or manage its credit exposure.
Credit Default Swaps
The fair value of the Company’s credit default swaps is determined using industry valuation models, broker bid indications or internal pricing valuation techniques. The fair value of these credit default swaps can change based on a variety of factors including changes in credit spreads, default rates and recovery rates, the correlation of credit risk between the referenced credit and the counterparty, and market rate inputs such as interest rates. At June 30, 2022, the Company had outstanding credit default swaps of $3.4 million in notional positions to hedge credit risk and $2.7 million in notional positions to assume credit risk, denominated in U.S. dollars (December 31, 2021 - $Nil and $218.5 million, respectively).
Total Return Swaps
From time to time, the Company uses total return swaps as a means to manage spread duration and credit exposure in its investment portfolio. The fair value of the Company’s total return swaps is determined using broker-dealer bid quotations, market-based prices from pricing vendors or valuation models. At June 30, 2022 and December 31, 2021, the Company had no outstanding total return swaps.
Equity Derivatives
Equity Futures
From time to time, the Company uses equity derivatives in its investment portfolio to either assume equity risk or hedge its equity exposure. The fair value of the Company’s equity futures is determined using market-based prices from pricing vendors. At June 30, 2022, the Company had a $328.7 million notional long position of equity futures, denominated in U.S. dollars (December 31, 2021 - $74.3 million).
Derivative Instruments Designated as Hedges of Net Investments in Foreign Operations
Foreign Currency Derivatives
Hedges of Net Investments in Foreign Operations
Certain of the Company’s subsidiaries use non-U.S. dollar functional currencies. The Company, from time to time, enters into foreign exchange forwards to hedge currencies, which includes hedges of net investments in foreign operations, on an after-tax basis, from changes in the exchange rate between the U.S. dollar and these currencies. These currencies included the Australian dollar as of June 30, 2022, and both the Australian dollar and Euro as of June 30, 2021.
The Company utilizes foreign exchange forward contracts to hedge the fair value of its net investment in a foreign operation. The Company has entered into foreign exchange forward contracts that were formally
designated as hedges of its investment in subsidiaries with non-U.S. dollar functional currencies. There was no ineffectiveness in these transactions.
The table below provides a summary of derivative instruments designated as hedges of net investments in foreign operations, including the weighted average U.S. dollar equivalent of foreign denominated net (liabilities) assets that were hedged and the resulting derivative gains (losses) that are recorded in foreign currency translation adjustments, net of tax, within accumulated other comprehensive income (loss) on the Company’s consolidated statements of changes in shareholders’ equity:
Three months endedSix months ended
June 30,
2022		June 30,
2021		June 30,
2022		June 30,
2021
Weighted average of U.S. dollar equivalent of foreign denominated net assets (liabilities) $79,933 $58,876 $83,769 $(48,790)
Derivative gains (losses) (1)
$7,321 $2,437 $4,294 $348 
(1)Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in foreign currency translation adjustments, net of tax, within accumulated other comprehensive income (loss) on the Company’s consolidated statements of changes in shareholders’ equity.