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DERIVATIVE INSTRUMENTS | 12 Months Ended
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Dec. 31, 2011
DERIVATIVE INSTRUMENTS [Abstract] |
DERIVATIVE INSTRUMENTS [Text Block] | 7. DERIVATIVE INSTRUMENTS The following table summarizes the balance sheet classification of derivatives recorded at fair value. The notional amount s represent the basis upon which payments or receipts are calculated and are presented in the table in order to quantify the magnitude of our derivative activities. Notional amounts are not reflective of credit risk.
|  |  | December 31, 2011 |  | December 31, 2010 |
|  |  |  | Derivative Notional Amount |  |  | Asset Derivative Fair Value(1) |  |  | Liability Derivative Fair Value(1) |  |  | Derivative Notional Amount |  |  | Asset Derivative Fair Value(1) |  |  | Liability Derivative Fair Value(1) |
| Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | $ | 540,176 |  | $ | 16,519 |  | $ | - |  | $ | 612,845 |  | $ | - |  | $ | 13,748 |
| Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Relating to investment portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts |  | 287,711 |  |  | 7,012 |  |  | 1,783 |  |  | 154,990 |  |  | 2,182 |  |  | 746 |
| Relating to underwriting portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | $ | 955,728 |  |  | 14,644 |  |  | 252 |  | $ | 110,564 |  |  | 4,459 |  |  | 492 |
| Total derivatives |  |  |  |  | $ | 38,175 |  | $ | 2,035 |  |  |  |  | $ | 6,641 |  | $ | 14,986 |
(1) Asset and liability derivatives are classified within other assets and other liabilities on the consolidated balance sheets.
Fair Value Hedge s We entered into foreign exchange forward contracts to hedge the foreign currency exposure of two available for sale fixed maturity portfolios denominated in Euros. The hedges were designated and qualified as fair value hedges, resulting in the net impact of the hedges recognized in net realized investment gains (losses). The following table provides the total impact on earnings relating to foreign exchange contracts designated as fair value hedges along with the impact of the related hedged investment portfolio for the periods indicated:
| Year ended December 31, |  |  | 2011 |  |  | 2010 |  |  | 2009 |
| Foreign exchange forward contracts |  |  | $ | 11,682 |  | $ | 35,886 |  | $ | (13,655) |
| Hedged investment portfolio |  |  |  | (16,085) |  |  | (30,063) |  |  | 16,565 |
| Hedge ineffectiveness recognized in earnings |  | $ | (4,403) |  | $ | 5,823 |  | $ | 2,910 |
Derivative Instruments not Designated as Hedging Instruments a) Relating to Investment Portfolio Within our investment portfolio we are exposed to foreign currency risk. Accordingly, the fair values for our investment portfolio are partially influenced by the change in foreign exchange rates. We entered into foreign currency forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes. In addition, our external equity investment managers have the discretion to hold foreign currency exposures as part of their total return strategy. The significant increase in the notional amount of investment related derivatives since December 31, 2010, was primarily due to hedging an increase in Canadian, Sterling, and Eu ro denominated fixed maturities whereby the portfolio managers hedge against foreign currency exposure in accordance with our investment guidelines. b) Relating to Underwriting Portfolio Longevity Risk In September 2007, we issued a policy which indemnifie d a third party in the event of a non-payment of a $400 million asset-backed note. This security had a 10 year term with the full principal amount due at maturity and was collateralized by a portfolio of life settlement contracts and cash held by a special purpose entity. We concluded that the indemnity contract was a derivative instrument and accordingly we recorded it at its fair value. This contract was cancelled and settled during the fourth quarter of 2009. Foreign Currency Risk Our (re)insurance subsidiaries and branches operate in various foreign countries and consequently our underwriting portfolio is exposed to significant foreign currency risk. We manage foreign currency risk by seeking to match our liabilities under (re)insurance contracts that are payable in foreign currencies with cash and investments that are denominated in such currencies. When necessary, we may also use derivatives to economically hedge un-matched foreign currency exposures, specifically forward contracts and currency options. The significant increase in the notional amount of underwriting related derivatives since December 31, 2010, was primarily due to hedging our foreign denominated liability exposure relating to the significant catastrophe losses from the New Zealand and Japanese earthquakes.
The following table provides the total unrealized and realized gains (losses) on derivatives recorded in earnings:
|  |  |  | Amount of Gain (Loss) Recognized in Income on Derivative |
|  | Location of Gain (Loss) Recognized |  |  |  |  |  |  |  |
|  | in Income on Derivative |  | 2011 |  |  | 2010 |  |  | 2009 |
| Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |
| Relating to investment portfolio: |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | Net realized investment gains (losses) | $ | 4,431 |  | $ | (3,641) |  | $ | (1,032) |
| Relating to underwriting portfolio: |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | Foreign exchange gains (losses) |  | 33,893 |  |  | 9,596 |  |  | (10,429) |
| Currency collar options | Foreign exchange gains (losses) |  | 267 |  |  | - |  |  | 2,428 |
| Longevity risk derivative | Other insurance related income (loss) |  | - |  |  | - |  |  | (132,595) |
| Catastrophe-related risk | Other insurance related income (loss) |  | - |  |  | - |  |  | 45 |
| Total |  | $ | 38,591 |  | $ | 5,955 |  | $ | (141,583) |

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -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. 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