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DERIVATIVE INSTRUMENTS | 6 Months Ended
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Jun. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS | The following table summarizes the balance sheet classification of derivatives recorded at fair values. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of our derivative activities. Notional amounts are not reflective of credit risk.
|  | June 30, 2015 |  | December 31, 2014 |
|  | Derivative Notional Amount |  | Derivative Asset Fair Value(1) |  | Derivative Liability Fair Value(1) |  | Derivative Notional Amount |  | Derivative Asset Fair Value(1) |  | Derivative Liability Fair Value(1) |
| Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
| Relating to investment portfolio: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | $ | 110,197 |  |  | $ | — |  |  | $ | 954 |  |  | $ | 161,678 |  |  | $ | 3,925 |  |  | $ | 12 |  |
| Interest rate swaps | — |  |  | — |  |  | — |  |  | 140,000 |  |  | — |  |  | 248 |  |
| Relating to underwriting portfolio: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | 672,735 |  |  | 347 |  |  | 4,967 |  |  | 577,836 |  |  | 3,228 |  |  | 2,781 |  |
| Weather-related contracts | 7,000 |  |  | 240 |  |  | 818 |  |  | 58,124 |  |  | 111 |  |  | 15,288 |  |
| Commodity contracts | 35,500 |  |  | 231 |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Total derivatives |  |  | $ | 818 |  |  | $ | 6,739 |  |  |  |  | $ | 7,264 |  |  | $ | 18,329 |  |
(1) | Asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.
Offsetting Assets and Liabilities Our derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements, which establish terms that apply to all transactions. In the event of a bankruptcy or other stipulated event, master netting agreements provide that individual positions be replaced with a new amount, usually referred to as the termination amount, determined by taking into account market prices and converting into a single currency. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure. The table below presents a reconciliation of our gross derivative assets and liabilities to the net amounts presented in our Consolidated Balance Sheets, with the difference being attributable to the impact of master netting agreements.
|  | June 30, 2015 |  | December 31, 2014 |
|  | Gross Amounts | Gross Amounts Offset | Net Amounts(1) |  | Gross Amounts | Gross Amounts Offset | Net Amounts(1) |
| Derivative assets | $ | 6,601 |  | $ | (5,783 | ) | $ | 818 |  |  | $ | 15,125 |  | $ | (7,861 | ) | $ | 7,264 |  |
| Derivative liabilities | $ | 12,522 |  | $ | (5,783 | ) | $ | 6,739 |  |  | $ | 26,190 |  | $ | (7,861 | ) | $ | 18,329 |  |
(1) | Net asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.
Refer to Note 4 - Investments for information on reverse repurchase agreements. Derivative Instruments not Designated as Hedging Instruments a) Relating to Investment Portfolio Foreign Currency Risk 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 may enter into foreign exchange forward contracts to manage the effect of this foreign currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes. The decrease in the notional amount of investment-related derivatives since December 31, 2014 was due to a decrease in GBP denominated fixed maturities being hedged. Interest Rate Risk Our investment portfolio contains a large percentage of fixed maturities which exposes us to significant interest rate risk. As part of our overall management of this risk, we may use interest rate swaps. b) Relating to Underwriting Portfolio Foreign Currency Risk Our (re)insurance subsidiaries and branches operate in various foreign countries. Consequently, some of our business is written in currencies other than the U.S. dollar and, therefore, our underwriting portfolio is exposed to significant foreign currency risk. We manage foreign currency risk by seeking to match our foreign-denominated net liabilities under (re)insurance contracts with cash and investments that are denominated in such currencies. We may also use derivative instruments, specifically forward contracts and currency options, to economically hedge foreign currency exposures. The increase in the notional amount of underwriting related derivatives since December 31, 2014, was primarily due to new business written in the first half of 2015. Weather Risk During 2013, we began to write derivative-based risk management products designed to address weather risks with the objective of generating profits on a portfolio basis. The majority of this business consists of receiving a payment at contract inception in exchange for bearing the risk of variations in a quantifiable weather-related phenomenon, such as temperature. Where a client wishes to minimize the upfront payment, these transactions may be structured as swaps or collars. In general, our portfolio of such derivative contracts is of short duration, with contracts being predominantly seasonal in nature. In order to economically hedge a portion of this portfolio, we may also purchase weather derivatives. Commodity Risk Within our (re)insurance portfolio we are exposed to commodity price risk. We may hedge a portion of this price risk by entering into commodity derivative contracts. The total unrealized and realized gains (losses) recognized in earnings for derivatives not designated as hedges were as follows:
|  | Location of Gain (Loss) Recognized in Income on Derivative | Three months ended June 30, |  | Six months ended June 30, |
|  | 2015 |  | 2014 |  | 2015 |  | 2014 |
| Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
| Relating to investment portfolio: |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | Net realized investment gains (losses) | $ | (1,716 | ) |  | $ | (2,355 | ) |  | $ | 4,822 |  |  | $ | (3,684 | ) |
| Interest rate swaps | Net realized investment gains (losses) | — |  |  | (4,800 | ) |  | (4,006 | ) |  | (8,960 | ) |
| Relating to underwriting portfolio: |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | Foreign exchange losses (gains) | (1,011 | ) |  | 1,058 |  |  | (16,284 | ) |  | 13,131 |  |
| Weather-related contracts | Other insurance related income | 3,625 |  |  | 383 |  |  | 10,968 |  |  | 4,061 |  |
| Commodity contracts | Other insurance related income | (890 | ) |  | 1,713 |  |  | (890 | ) |  | 1,713 |  |
| Total |  | $ | 8 |  |  | $ | (4,001 | ) |  | $ | (5,390 | ) |  | $ | 6,261 |  |

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