3. Investments

(a) Fixed Maturities and Other Investments

The original or amortized cost, estimated fair value and gross unrealized gains and losses of available-for-sale and other investments as of September 30, 2011 and December 31, 2010 are as follows:

As of September 30, 2011	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Fixed Maturities – available-for-sale:
U.S. treasury bonds	$	44,208	$	1,834	$	—		$	46,042
U.S. agency bonds – mortgage-backed		976,019		45,938		(5	)		1,021,952
U.S. agency bonds – other		16,738		1,856		—			18,594
Non-U.S. government bonds		14,584		578		—			15,162
Corporate bonds		659,471		49,965		(24,527	)		684,909
Municipal bonds		110,731		680		—			111,411
Total available-for-sale fixed maturities	$	1,821,751	$	100,851	$	(24,532	)	$	1,898,070

Other investments	$	1,812	$	198	$	—		$	2,010

As of December 31, 2010	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Fixed Maturities – available-for-sale:
U.S. treasury bonds	$	92,043	$	1,108	$	(1,422	)	$	91,729
U.S. agency bonds – mortgage-backed		951,465		22,351		(4,348	)		969,468
U.S. agency bonds – other		41,770		1,638		—			43,408
Non-U.S. government bonds		15,494		444		—			15,938
Corporate bonds		673,756		46,647		(11,410	)		708,993
Municipal bonds		45,247		441		(791	)		44,897
Total available-for-sale fixed maturities	$	1,819,775	$	72,629	$	(17,971	)	$	1,874,433

Other investments	$	5,751	$	96	$	—		$	5,847

The contractual maturities of our fixed maturities, available-for-sale as of September 30, 2011 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations prior to contractual maturity.

As of September 30, 2011	Amortized Cost		Fair Value		% of Total Fair Value
Maturity
Due in one year or less	$	67,804	$	67,418		3.6	%
Due after one year through five years		222,474		221,039		11.7	%
Due after five years through ten years		423,502		452,131		23.8	%
Due after ten years		131,952		135,530		7.1	%
		845,732		876,118		46.2	%
U.S. agency bonds – mortgage-backed		976,019		1,021,952		53.8	%
Total	$	1,821,751	$	1,898,070		100.0	%

The following tables summarize our available-for-sale securities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the securities have continuously been in an unrealized loss position:

	Less than 12 Months					12 Months or More					Total
As of September 30, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale securities:
U.S. agency bonds – mortgage-backed	$	2,258	$	(5	)	$	—	$	—		$	2,258	$	(5	)
Corporate bonds		127,659		(5,088	)		118,138		(19,439	)		245,797		(24,527	)
Total temporarily impaired available-for-sale securities	$	129,917	$	(5,093	)	$	118,138	$	(19,439	)	$	248,055	$	(24,532	)

As of September 30, 2011, there were approximately 26 securities in an unrealized loss position with a fair value of $248,055 and unrealized losses of $24,532. Of these securities, there are 7 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $118,138 and unrealized losses of $19,439.

	Less than 12 Months					12 Months or More					Total
As of December 31, 2010	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale securities:
U.S. treasury bonds	$	47,165	$	(1,422	)	$	—	$	—		$	47,165	$	(1,422	)
U.S. agency bonds – mortgage-backed		315,370		(4,348	)		—		—			315,370		(4,348	)
Corporate bonds		86,976		(1,555	)		166,062		(9,855	)		253,038		(11,410	)
Municipal bonds		27,315		(791	)		—		—			27,315		(791	)
Total temporarily impaired available-for-sale securities	$	476,826	$	(8,116	)	$	166,062	$	(9,855	)	$	642,888	$	(17,971	)

As of December 31, 2010, there were approximately 32 securities in an unrealized loss position with a fair value of $642,888 and unrealized losses of $17,971. Of these securities, there are 9 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $166,062 and unrealized losses of $9,855.

Other-Than-Temporary Impairments (“OTTI”)

We review our investment portfolio for impairment on a quarterly basis. Impairment of investments results in a charge to operations when a fair value decline below cost is deemed to be other-than-temporary. As of September 30, 2011, we reviewed our portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. During the three and nine months ended September 30, 2011 and 2010, the Company recognized no OTTI. Based on our qualitative and quantitative OTTI review of each asset class within our fixed maturity portfolio, the remaining unrealized losses on fixed maturities at September 30, 2011 were primarily due to widening of credit spreads relating to the market illiquidity, rather than credit events. Because we do not intend to sell these securities and it is not more likely than not that we will be required to sell these securities until a recovery of fair value to amortized cost, we currently believe it is probable that we will collect all amounts due according to their respective contractual terms. Therefore, we do not consider these fixed maturities to be other-than-temporarily impaired at September 30, 2011.

(b) Other Investments

The table below shows our portfolio of other investments:

	September 30, 2011				December 31, 2010
Hedge fund	$	—	—		$	4,846	82.9	%
Investments in limited partnerships		2,010	100.0	%		1,001	17.1	%
Total other investments	$	2,010	100.0	%	$	5,847	100.0	%

The Company has an unfunded commitment on its investments in limited partnerships of approximately $3,990 as of September 30, 2011.

Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method and include adjustments to the cost basis of investments for declines in value that are considered to be other-than-temporary. The Company maintained one open position in a U.S. Treasury bond sold but not yet purchased valued at $55,495 which resulted in an unrealized loss of $3,143, which is recorded in net realized and unrealized investment gains (losses) on the Company’s consolidated statement of income for the three and nine months ended September 30, 2011, respectively. The following provides an analysis of realized and unrealized investment gains and losses for the three and nine months ended September 30, 2011 and 2010:

For the three months ended September 30, 2011	Gross gains		Gross losses			Net
Available-for-sale securities	$	1,036	$	(1,078	)	$	(42	)
Trading securities and short sales		1,898		(1,590	)		308
Other investments		—		(23	)		(23	)
Net realized gains		2,934		(2,691	)		243
Unrealized loss on short sales		—		(3,143	)		(3,143	)
Net realized and unrealized investment gains (losses)	$	2,934	$	(5,834	)	$	(2,900	)

For the three months ended September 30, 2010	Gross gains		Gross losses			Net
Available-for-sale securities	$	3,612	$	(137	)	$	3,475
Trading securities		1,127		(781	)		346
Other investments		—		(249	)		(249	)
Net realized gains		4,739		(1,167	)		3,572
Unrealized loss on short sales		—		(1,945	)		(1,945	)
Net realized and unrealized investment gains (losses)	$	4,739	$	(3,112	)	$	1,627

For the nine months ended September 30, 2011	Gross gains		Gross losses			Net
Available-for-sale securities	$	1,310	$	(1,118	)	$	192
Trading securities and short sales		2,708		(1,902	)		806
Other investments		—		(117	)		(117	)
Net realized gains		4,018		(3,137	)		881
Unrealized loss on short sales		—		(3,143	)		(3,143	)
Net realized and unrealized investment gains (losses)	$	4,018	$	(6,280	)	$	(2,262	)

For the nine months ended September 30, 2010	Gross gains		Gross losses			Net
Available-for-sale securities	$	9,412	$	(1,756	)	$	7,656
Trading securities		1,649		(1,918	)		(269	)
Other investments		—		(249	)		(249	)
Net realized gains		11,061		(3,923	)		7,138
Unrealized loss on short sales		—		(4,664	)		(4,664	)
Net realized and unrealized investment gains (losses)	$	11,061	$	(8,587	)	$	2,474

Proceeds from sales of fixed maturities classified as available-for-sale were $106,041 and $113,136 for the nine months ended September 30, 2011 and 2010, respectively.

Net unrealized gain (loss) on available-for-sale securities and other investments was as follows:

	September 30, 2011			September 30, 2010
Fixed maturities	$	76,319		$	76,941
Other investments		198			(3	)
Total net unrealized gains		76,517			76,938
Deferred income tax expense		(43	)		—
Net unrealized gains, net of deferred income tax	$	76,474		$	76,938
Change in unrealized gains, net of deferred income tax	$	21,720		$	44,191

(d) Restricted Cash and Investments

We are required to maintain assets on deposit to support our reinsurance operations and to serve as collateral for our reinsurance liabilities under various reinsurance agreements. The assets on deposit are available to settle reinsurance liabilities. We also utilize trust accounts to collateralize business with our reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trust as collateral are primarily cash and highly rated fixed maturity securities. The fair value of our restricted assets was as follows:

	September 30, 2011		December 31, 2010
Restricted cash – third party agreements	$	53,268	$	59,615
Restricted cash – related party agreements		43,038		29,743
Restricted cash – U.S. state regulatory authorities		464		398
Total restricted cash		96,770		89,756
Restricted investments – in trust for third party agreements at fair value (Amortized cost: 2011 – $866,400; 2010 – $1,024,895 )		890,616		1,053,982
Restricted investments – in trust for related party agreements at fair value (Amortized cost: 2011 – $424,180; 2010 – $339,810 )		453,258		361,424
Restricted investments – in trust for U.S. state regulatory authorities (Amortized cost: 2011 – $12,865; 2010 – $13,198 )		13,763		13,690
Total restricted investments		1,357,637		1,429,096
Total restricted cash and investments	$	1,454,407	$	1,518,852

(e) Other

The Company enters into repurchase agreements. The agreements are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or securities, that it invests or holds in short term or fixed income securities. During the period, the Company repaid the entire balance outstanding of $76,225. Interest expense associated with these repurchase agreements was $0 and $756 for the three and nine months ended September 30, 2011, respectively, (2010 - $463 and $818, respectively) out of which $0 was accrued as of September 30, 2011 (December 31, 2010 - $702).

Securities sold but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price and, thereby, create a liability to purchase the security in the market at prevailing prices. The Company’s liability for securities to be delivered is measured at their fair value and as of September 30, 2011 were $55,495 for a U.S. Treasury bond. This amount is included in accrued expenses and other liabilities in the condensed consolidated balance sheets. Collateral of an equivalent amount has been pledged to the clearing broker.