Derivatives

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

11. Derivatives

As a result of the acquisition of Sirius Group, the Company now holds derivative financial instruments for both risk management and investment purposes.

Foreign currency risk derivatives

The Company executes foreign currency forwards, call options, swaps, and futures to manage foreign currency exposure. The foreign currency risk derivatives are not designated or accounted for under hedge accounting. Changes in fair value are presented within foreign exchange (gains) losses. The fair value of the swaps and forwards are estimated using a single broker quote, and accordingly, are classified as a Level 3 measurement. The fair value of the futures is widely available and have quoted prices in active markets, and accordingly, were classified as a Level 1 measurement. The Company did not provide or hold any collateral associated with the foreign currency risk derivatives.

Weather Derivatives

The Company holds assets and assumes liabilities related to weather and weather contingent risk management products. Weather and weather contingent derivative contracts are entered into with the objective of generating profits in normal climatic conditions. Accordingly, the Company’s weather and weather contingent derivatives are not designed to meet the criteria for hedge accounting under GAAP. The Company receives payment of premium at the contract inception in exchange for bearing the risk of variations in a quantifiable weather index. Changes in fair value are presented within net corporate and other expenses. Management uses available market data and internal pricing models based upon consistent statistical methodologies to estimate the fair value. Because of the significance of the unobservable inputs used to estimate the fair value of the Company's weather risk contracts, the fair value measurements of the contracts are deemed to be Level 3 measurements in the fair value hierarchy as of December 31, 2021. The Company does not provide or hold any collateral associated with the weather derivatives.

Equity warrants

The Company holds restricted equity warrants as part of its investment strategy. The equity warrants are not designated or accounted for under hedge accounting. Changes in fair value are presented within net realized and unrealized investment gains (losses). The fair value of the equity warrants is estimated using a single broker quote and accordingly, classified as a Level 3 measurement. The Company did not provide or hold any collateral associated with the equity warrants.

Interest rate cap

The Company entered into an interest rate swap ("Interest Rate Cap") with two financial institutions where it paid an upfront premium and in return receives a series of quarterly payments based on the 3-month London Interbank Offered Rate (“LIBOR”) at the time of payment. The 3-month LIBOR will cease as a benchmark rate in June 2023; accordingly, the Company is exploring alternatives for replacement when applicable, including the secured overnight financing rate published by the New York Federal Reserve Bank. The Interest Rate Cap does not qualify for hedge accounting. Changes in fair value are presented within net corporate and other expenses. The fair value of the Interest Rate Cap has been estimated using a single broker quote and, accordingly, has been classified as a Level 3 measurement as of December 31, 2021. Collateral held is recorded with an equal amount recognized as a liability to return collateral. The Company’s liability to return that collateral is based on the amounts provided by the counterparties and investment earnings thereon. As of December 31, 2021, the Company held collateral balances of $0.1 million.

The following table summarizes information on the classification and amount of the fair value of derivatives not designated as hedging instruments within the Company's consolidated balance sheets as at December 31, 2021:

	December 31, 2021
Derivatives not designated as hedging instruments	Derivative assets at fair value(1)(3)		Derivative liabilities at fair value(2)(3)		Notional Value
Foreign currency swaps	$	—	$	1.7	$	40.0
Foreign currency forwards	—		1.3		83.6
Foreign currency futures contracts	0.2		—		133.9
Weather derivatives	—		0.8		6.2
Equity warrants	0.1		—		0.1
Interest rate cap	$	—	$	—	$	250.0

(1)Derivative assets are classified within other assets in the Company's consolidated balance sheets at December 31, 2021.

(2)Derivative liabilities are classified within accounts payable, accrued expenses and other liabilities in the Company's consolidated balance sheets at December 31, 2021.

(3)The Company did not hold the above derivative instruments as of December 31, 2020.

The following table summarizes information on the classification and net impact on earnings, recognized in the Company's consolidated statements of income relating to derivatives during the year ended December 31, 2021:

Derivatives not designated as hedging instruments	Classification of gains (losses) recognized in earnings	December 31, 2021
Foreign currency swaps	Foreign exchange gains	$	0.2
Foreign currency forwards	Foreign exchange losses	(1.3)
Foreign currency futures contracts	Foreign exchange losses	(8.0)
Foreign currency call options	Foreign exchange gains	0.4
Weather derivatives	Net corporate and other expenses	0.9
Equity warrants	Net realized and unrealized investment losses	$	(0.3)

Underwriting-related derivatives

The following tables identify the listing currency, fair value and notional amounts of underwriting-related derivatives included in the consolidated balance sheets as of December 31, 2021 and December 31, 2020:

		December 31, 2021				December 31, 2020
Derivative assets	Listing currency (1)	Fair Value		Notional Amounts (2)		Fair Value		Notional Amounts (2)
Reinsurance contracts accounted for as derivative assets	GBP	$	1.2	$	49.3	$	1.2	$	4.2
		$	1.2	$	49.3	$	1.2	$	4.2
		December 31, 2021				December 31, 2020
Derivative liabilities	Listing currency (1)	Fair Value		Notional Amounts (2)		Fair Value		Notional Amounts (2)
Reinsurance contracts accounted for as derivative liabilities	GBP	$	0.1	$	37.4	$	1.0	$	15.7
		$	0.1	$	37.4	$	1.0	$	15.7

(1)GBP = British Pound.

(2)The absolute notional exposure represents the Company’s derivative activity as of December 31, 2021 and December 31, 2020, which is representative of the volume of derivatives held during the period.