Investments (Tables)

9 Months Ended

Sep. 30, 2013

Investments [Abstract]

Amortized cost and fair value summary

The cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains and gross unrealized (losses), including, other-than-temporary impairments (“OTTI”) recorded in accumulated other comprehensive income (“AOCI”) of the Company’s available for sale (“AFS”) and held to maturity (“HTM”) investments at September 30, 2013 and December 31, 2012 were as follows:

September 30, 2013 (U.S. dollars in thousands)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-credit Related OTTI (1)
Fixed maturities - AFS
U.S. Government and Government-Related/Supported (2)	$	2,128,375	$	66,604	$	(18,990	)	$	2,175,989	$	—
Corporate (4) (5)	10,395,005		470,327		(106,000		)	10,759,332		(7,945		)
RMBS – Agency	4,032,158		85,282		(48,358		)	4,069,082		—
RMBS – Non-Agency	407,789		30,786		(39,176		)	399,399		(76,138		)
CMBS	1,166,285		44,867		(13,271		)	1,197,881		(2,856		)
CDO	754,897		7,074		(49,823		)	712,148		(2,106		)
Other asset-backed securities (3)	1,122,958		38,343		(10,166		)	1,151,135		(2,932		)
U.S. States and political subdivisions of the States	1,784,621		61,561		(28,084		)	1,818,098		—
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)	4,980,055		90,713		(71,390		)	4,999,378		—
Total fixed maturities - AFS	$	26,772,143	$	895,557	$	(385,258	)	$	27,282,442	$	(91,977	)
Total short-term investments (2)	$	271,465	$	1,300	$	(60	)	$	272,705	$	—
Total equity securities (6)	$	878,679	$	113,075	$	(17,021	)	$	974,733	$	—
Total investments - AFS	$	27,922,287	$	1,009,932	$	(402,339	)	$	28,529,880	$	(91,977	)
Fixed maturities - HTM
U.S. Government and Government-Related/Supported (2)	$	10,712	$	946	$	—		$	11,658	$	—
Corporate	1,370,391		137,326		(1,436		)	1,506,281		—
RMBS – Non-Agency	65,542		5,580		—			71,122		—
CMBS	141,884		14,298		—			156,182		—
Other asset-backed securities (3)	104,624		9,074		—			113,698		—
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)	1,108,958		150,391		(1,350		)	1,257,999		—
Total investments - HTM	$	2,802,111	$	317,615	$	(2,786	)	$	3,116,940	$	—

___________

(1) Represents the non-credit component of OTTI losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

(2) U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments include government-related securities with an amortized cost of $2,373.4 million and fair value of $2,414.7 million and U.S. Agencies with an amortized cost of $268.7 million and fair value of $290.6 million.

(3) Covered Bonds within Fixed maturities - AFS with an amortized cost of $531.4 million and a fair value of $560.7 million and Covered Bonds within Fixed maturities - HTM with an amortized cost of $8.3 million and a fair value of $8.3 million are included within Other asset-backed securities to align the Company's classification to market indices.

(4) Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $150.9 million and an amortized cost of $150.6 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(5) Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $271.5 million and an amortized cost of $280.2 million at September 30, 2013.

(6) Included within Total equity securities are investments in fixed income funds with a fair value of $89.7 million and an amortized cost of $100.0 million at September 30, 2013.

December 31, 2012 (U.S. dollars in thousands)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-credit Related OTTI (1)
Fixed maturities - AFS
U.S. Government and Government-Related/Supported (2)	$	1,906,044	$	131,860	$	(3,287	)	$	2,034,617	$	—
Corporate (4) (5)	9,837,962		723,028		(78,990		)	10,482,000		(11,453		)
RMBS – Agency	5,054,097		206,931		(5,535		)	5,255,493		—
RMBS – Non-Agency	678,469		46,132		(76,868		)	647,733		(93,259		)
CMBS	1,010,794		70,745		(4,288		)	1,077,251		(2,962		)
CDO	784,999		11,973		(87,156		)	709,816		(4,872		)
Other asset-backed securities (3)	1,426,483		59,663		(15,435		)	1,470,711		(6,530		)
U.S. States and political subdivisions of the States	1,767,669		146,294		(2,946		)	1,911,017		—
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)	4,078,289		188,186		(8,193		)	4,258,282		—
Total fixed maturities - AFS	$	26,544,806	$	1,584,812	$	(282,698	)	$	27,846,920	$	(119,076	)
Total short-term investments (2)	$	322,563	$	192	$	(52	)	$	322,703	$	—
Total equity securities (6)	$	617,486	$	31,935	$	(62	)	$	649,359	$	—
Total investments - AFS	$	27,484,855	$	1,616,939	$	(282,812	)	$	28,818,982	$	(119,076	)
Fixed maturities - HTM
U.S. Government and Government-Related/Supported (2)	$	10,788	$	1,651	$	—		$	12,439	$	—
Corporate	1,425,320		190,871		(794		)	1,615,397		—
RMBS – Non-Agency	83,205		10,502		—			93,707		—
CMBS	12,751		2,048		—			14,799		—
Other asset-backed securities (3)	222,340		29,287		(167		)	251,460		—
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)	1,060,043		216,679		(1,720		)	1,275,002		—
Total investments - HTM	$	2,814,447	$	451,038	$	(2,681	)	$	3,262,804	$	—

____________

(1) Represents the non-credit component of OTTI losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

(2) U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments include government-related securities with an amortized cost of $1,912.7 million and fair value of $1,988.5 million and U.S. Agencies with an amortized cost of $404.3 million and fair value of $446.7 million.

(3) Covered Bonds within Fixed maturities - AFS with an amortized cost of $605.4 million and a fair value of $647.1 million and Covered Bonds within Fixed maturities - HTM with an amortized cost of $8.4 million and a fair value of $8.6 million are included within Other asset-backed securities to align the Company's classification to market indices.

(4) Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes have a fair value of $194.3 million and an amortized cost of $194.8 million. These notes allow the investor to participate in cash flows of the underlying bonds including certain residual values, which could serve to either decrease or increase the ultimate values of these notes.

(5) Included within Corporate are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions. These securities have a fair value of $308.5 million and an amortized cost of $327.6 million at December 31, 2012.

(6) Included within Total equity securities are investments in fixed income funds with a fair value of $101.9 million and an amortized cost of $100.0 million at December 31, 2012.

Contractual maturities summary

The contractual maturities of AFS and HTM fixed income securities at September 30, 2013 and December 31, 2012 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2013 (1)				December 31, 2012 (1)
(U.S. dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Fixed maturities - AFS
Due less than one year	$	2,105,725	$	2,121,331	$	1,939,803	$	1,952,250
Due after 1 through 5 years	9,337,994		9,589,870		8,521,090		8,877,512
Due after 5 through 10 years	5,434,814		5,516,467		4,701,391		5,065,158
Due after 10 years	2,409,523		2,525,129		2,427,680		2,790,996
	$	19,288,056	$	19,752,797	$	17,589,964	$	18,685,916
RMBS – Agency	4,032,158		4,069,082		5,054,097		5,255,493
RMBS – Non-Agency	407,789		399,399		678,469		647,733
CMBS	1,166,285		1,197,881		1,010,794		1,077,251
CDO	754,897		712,148		784,999		709,816
Other asset-backed securities	1,122,958		1,151,135		1,426,483		1,470,711
Total mortgage and asset-backed securities	$	7,484,087	$	7,529,645	$	8,954,842	$	9,161,004
Total fixed maturities - AFS	$	26,772,143	$	27,282,442	$	26,544,806	$	27,846,920
Fixed maturities - HTM
Due less than one year	$	68,015	$	69,473	$	36,515	$	37,580
Due after 1 through 5 years	202,799		215,912		195,121		205,562
Due after 5 through 10 years	344,228		374,388		377,541		420,008
Due after 10 years	1,875,019		2,116,165		1,886,974		2,239,688
	$	2,490,061	$	2,775,938	$	2,496,151	$	2,902,838
RMBS – Non-Agency	65,542		71,122		83,205		93,707
CMBS	141,884		156,182		12,751		14,799
Other asset-backed securities	104,624		113,698		222,340		251,460
Total mortgage and asset-backed securities	$	312,050	$	341,002	$	318,296	$	359,966
Total fixed maturities - HTM	$	2,802,111	$	3,116,940	$	2,814,447	$	3,262,804

____________

(1) Included in the table above are Tier One and Upper Tier Two securities, representing committed term debt and hybrid instruments, which are senior to the common and preferred equities of the financial institutions, at their fair value of $271.5 million and $308.5 million at September 30, 2013 and December 31, 2012, respectively. These securities are reflected in the table based on their call date and have net unrealized losses of $8.8 million and $19.1 million at September 30, 2013 and December 31, 2012, respectively.

Summary of unrealized losses

The following is an analysis of how long the AFS and HTM securities at September 30, 2013 and December 31, 2012 had been in a continual unrealized loss position:

	Less than 12 months					Equal to or greater than 12 months
September 30, 2013 (U.S. dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities and short-term investments - AFS
U.S. Government and Government-Related/Supported	$	731,583	$	(18,079	)	$	21,489	$	(929	)
Corporate	1,962,868		(51,810		)	478,878		(54,190		)
RMBS – Agency	1,457,826		(36,568		)	164,046		(11,790		)
RMBS – Non-Agency	29,777		(1,257		)	244,218		(37,919		)
CMBS	287,314		(9,216		)	38,653		(4,055		)
CDO	29,541		(175		)	622,338		(49,648		)
Other asset-backed securities	222,044		(1,821		)	96,251		(8,345		)
U.S. States and political subdivisions of the States	457,908		(27,384		)	8,812		(700		)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported	1,886,303		(59,159		)	153,802		(12,273		)
Total fixed maturities and short-term investments - AFS	$	7,065,164	$	(205,469	)	$	1,828,487	$	(179,849	)
Total equity securities	$	216,631	$	(17,021	)	$	—	$	—
Fixed maturities -HTM
Corporate	$	32,424	$	(1,410	)	$	632	$	(26	)
Other asset-backed securities	—		—			—		—
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported	—		—			10,847		(1,350		)
Total fixed maturities - HTM	$	32,424	$	(1,410	)	$	11,479	$	(1,376	)

	Less than 12 months					Equal to or greater than 12 months
December 31, 2012 (U.S. dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturities and short-term investments - AFS
U.S. Government and Government-Related/Supported	$	307,879	$	(2,847	)	$	9,951	$	(471	)
Corporate	476,454		(10,603		)	607,796		(68,387		)
RMBS – Agency	578,823		(4,541		)	11,135		(994		)
RMBS – Non-Agency	6,674		(450		)	448,555		(76,418		)
CMBS	92,899		(666		)	23,580		(3,622		)
CDO	243		(1		)	694,351		(87,155		)
Other asset-backed securities	111,431		(531		)	93,388		(14,904		)
U.S. States and political subdivisions of the States	77,273		(1,407		)	12,851		(1,539		)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported	355,409		(1,378		)	131,884		(6,836		)
Total fixed maturities and short-term investments - AFS	$	2,007,085	$	(22,424	)	$	2,033,491	$	(260,326	)
Total equity securities	$	615	$	(62	)	$	—	$	—
Fixed maturities -HTM
Corporate	$	4,568	$	(31	)	$	23,005	$	(763	)
Other asset-backed securities	1,239		(167		)	—		—
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported	—		—			10,518		(1,720		)
Total fixed maturities - HTM	$	5,807	$	(198	)	$	33,523	$	(2,483	)

Analysis of net realized gains (losses) on investments

The following represents an analysis of net realized gains (losses) on investments:

Net Realized Gains (Losses) on Investments	Three months ended September 30,						Nine months ended September 30,
(U.S. dollars in thousands)	2013			2012			2013			2012
Gross realized gains	$	22,517		$	33,136		$	160,555		$	153,757
Gross realized losses on investments sold	(21,288		)	(26,000		)	(74,822		)	(89,054		)
OTTI on investments, net of amounts transferred to other comprehensive income	(3,187		)	(12,629		)	(10,214		)	(61,787		)
Net realized gains (losses) on investments	$	(1,958	)	$	(5,493	)	$	75,519		$	2,916

Credit loss impairments on fixed inmcome securities rollforward

The following table sets forth the amount of credit loss impairments on fixed income securities held by the Company as of the dates or the periods indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

Credit Loss Impairments	Three months ended September 30,						Nine months ended September 30,
(U.S. dollars in thousands)	2013			2012			2013			2012
Opening balance at beginning of indicated period	$	202,862		$	299,720		$	268,707		$	333,379
Credit loss impairment recognized in the current period on securities not previously impaired	242			2,805			769			8,683
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period	(17,341		)	(33,114		)	(78,960		)	(87,092		)
Credit loss impairments previously recognized on securities impaired to fair value during the period	—			—			—			(12,891		)
Additional credit loss impairments recognized in the current period on securities previously impaired	2,942			4,834			7,242			41,716
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected	(2,222		)	(2,773		)	(11,275		)	(12,323		)
Balance at September 30,	$	186,483		$	271,472		$	186,483		$	271,472