DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table provides the balance sheet classifications of derivatives recorded at fair value:




	At December 31, 2019						At December 31, 2018
	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⁾

Relating to investment portfolio:
Foreign exchange forward contracts	$	68,998	$	—	$	1,405	$	79,336	$	262	$	531
Interest rate swaps	—		—		—		150,000		—		1,116

Relating to underwriting portfolio:
Foreign exchange forward contracts	1,038,630		3,174		2,560		737,419		7,975		2,576
Other underwriting-related contracts	85,000		—		9,672		85,000		—		10,299
Total derivatives			$	3,174	$	13,637			$	8,237	$	14,522


(1)	Asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

The notional amounts of derivative contracts represent the basis on which amounts paid or received are calculated and are presented in the above table to quantify the volume of the Company's derivative activities. Notional amounts are not reflective of credit risk.

None of the Company's derivative instruments are designated as hedges under current accounting guidance.

Offsetting Assets and Liabilities

The Company's 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 following table provides a reconciliation of gross derivative assets and liabilities to the net amounts presented in the consolidated balance sheets, with the difference being attributable to the impact of master netting agreements:



	December 31, 2019							December 31, 2018
	Gross amounts		Gross amounts offset			Net amounts⁽¹⁾		Gross amounts		Gross amounts offset			Net amounts⁽¹⁾

Derivative assets	$	7,673	$	(4,499	)	$	3,174	$	11,967	$	(3,730	)	$	8,237
Derivative liabilities	$	18,136	$	(4,499	)	$	13,637	$	18,252	$	(3,730	)	$	14,522


(1)	Net asset and liability derivatives are classified within other assets and other liabilities in the consolidated balance sheets.

Refer to Note 5 'Investments' for information on reverse repurchase agreements.


a)	Relating to Investment Portfolio

Foreign Currency Risk

The Company's investment portfolio is exposed to foreign currency risk therefore the fair values of its investments are partially influenced by changes in foreign exchange rates. The Company 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.

Interest Rate Risk

The Company's investment portfolio includes a large percentage of fixed maturities which exposes it to significant interest rate risk. As part of overall management of this risk, the Company may use interest rate swaps.


b)	Relating to Underwriting Portfolio

Foreign Currency Risk

The Company's insurance and reinsurance subsidiaries and branches operate in various countries. Some of its business is written in currencies other than the U.S. dollar, therefore the underwriting portfolio is exposed to significant foreign currency risk. The Company manages foreign currency risk by seeking to match its foreign-denominated net liabilities under insurance and reinsurance contracts with cash and investments that are denominated in the same currencies. The Company uses derivative instruments, specifically, forward contracts to economically hedge foreign currency exposures.

Weather Risk

During 2013, the Company 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 consisted 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 wished to minimize the upfront payment, these transactions were structured as swaps or collars. In general, the Company's portfolio of such derivative contracts was of short duration, with contracts being predominantly seasonal in nature. In order to economically hedge a portion of this portfolio, the Company also purchased weather derivatives. Effective July 1, 2017, the Company ceased writing derivative-based risk management products which address weather risks.

Other Underwriting-related Risks

The Company enters into insurance and reinsurance contracts that are accounted for as derivatives. These insurance or reinsurance contracts provide indemnification to an insured or cedant as a result of a change in a variable as opposed to an identifiable insurable event. The Company considers these contracts to be part of its underwriting operations.

The following table provides the total unrealized and realized gains (losses) recognized in net income for derivatives not designated as hedges:




	Location of gain (loss) recognized in net income	Amount of gain (loss) recognized in net income
		Amount of gain (loss) recognized in net income
		2019			2018			2017

Relating to investment portfolio:
Foreign exchange forward contracts	Net investment gains (losses)	$	1,854		$	3,446		$	(6,935	)
Interest rate swaps	Net investment gains (losses)	(3,677		)	1,999			(1,334		)
Relating to underwriting portfolio:
Foreign exchange forward contracts	Foreign exchange gains (losses)	(10,678		)	(3,509		)	25,383
Weather-related contracts	Other insurance related income (losses)	—			—			(9,629		)
Other underwriting-related contracts	Other insurance related income	1,789			2,384			1,476
Total		$	(10,712	)	$	4,320		$	8,961