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 June 30, 2012 and December 31, 2011 were as follows:

				Included in AOCI
						Gross Unrealized Losses
							Related to
		Cost or		Gross			Changes in		Non-credit
June 30, 2012		Amortized		Unrealized			Estimated		Related
(U.S. dollars in thousands)		Cost		Gains			Fair Value		OTTI		Fair Value
Fixed maturities - AFS
	U.S. Government and Government- Related/Supported (1)	$	1,971,384	$	133,040		$	(2,799)	$	-	$	2,101,625
	Corporate (2) (3) (4)		9,297,657		597,211			(157,659)		(16,056)		9,721,153
	RMBS – Agency		5,001,023		203,766			(2,476)		-		5,202,313
	RMBS – Non-Agency		728,309		21,822			(52,341)		(113,247)		584,543
	CMBS		842,802		66,058			(487)		(3,581)		904,792
	CDO		796,018		8,095			(149,211)		(4,884)		650,018
	Other asset-backed securities (2)		1,392,065		44,974			(19,486)		(9,815)		1,407,738
	U.S. States and political subdivisions of the States		1,640,991		125,221			(1,781)		-		1,764,431
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		3,772,530		148,569			(14,910)		-		3,906,189
	Total fixed maturities - AFS	$	25,442,779	$	1,348,756		$	(401,150)	$	(147,583)	$	26,242,802
	Total short-term investments (1)	$	227,321	$	293		$	(234)	$	-	$	227,380
	Total equity securities	$	553,715	$	3,212		$	(27,871)	$	-	$	529,056
Total investments - AFS		$	26,223,815	$	1,352,261		$	(429,255)	$	(147,583)	$	26,999,238
Fixed maturities - HTM
	U.S. Government and Government- Related/Supported (1)	$	10,458	$	1,753		$	-	$	-	$	12,211
	Corporate (2)		1,387,033		131,267			(8,847)		-		1,509,453
	RMBS – Non-Agency		81,028		6,077			(15)		-		87,090
	CMBS		12,546		1,667			-		-		14,213
	Other asset-backed securities (2)		217,347		20,156			(464)		-		237,039
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		1,007,945		142,215			(3,174)		-		1,146,986
Total investments - HTM		$	2,716,357	$	303,135		$	(12,500)	$	-	$	3,006,992

(1) U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $2,012.4 million and fair value of $2,066.0 million and U.S. Agencies with an amortized cost of $455.0 million and fair value of $500.5 million.

(2) At June 30, 2012, Covered Bonds within Fixed maturities – AFS with an amortized cost of $478.1 million and a fair value of $500.5 million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.1 million and a fair value of $7.8 million have been included within Other asset-backed securities to align the Company's classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012.

(3) 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 $186.1 million and an amortized cost of $199.1 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.

(4) 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 $346.2 million and an amortized cost of $420.3 million at June 30, 2012.


				Included in AOCI
						Gross Unrealized Losses
							Related to
		Cost or		Gross			Changes in		Non-credit
December 31, 2011		Amortized		Unrealized			Estimated		Related
(U.S. dollars in thousands)		Cost		Gains			Fair Value		OTTI		Fair Value
Fixed maturities - AFS
	U.S. Government and Government- Related/Supported (1)	$	1,864,354	$	130,874		$	(4,245)	$	-	$	1,990,983
	Corporate (2) (3) (4)		9,866,677		527,192			(233,581)		(51,666)		10,108,622
	RMBS – Agency		5,189,473		193,782			(3,849)		-		5,379,406
	RMBS – Non-Agency		851,557		19,667			(112,867)		(116,542)		641,815
	CMBS		927,684		56,704			(2,405)		(7,148)		974,835
	CDO		843,553		6,624			(186,578)		(4,997)		658,602
	Other asset-backed securities (2)		1,341,309		30,731			(25,486)		(6,305)		1,340,249
	U.S. States and political subdivisions of the States		1,698,573		101,025			(2,220)		-		1,797,378
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		3,188,535		127,439			(17,839)		-		3,298,135
	Total fixed maturities - AFS	$	25,771,715	$	1,194,038		$	(589,070)	$	(186,658)	$	26,190,025
	Total short-term investments (1)	$	359,378	$	519		$	(834)	$	-	$	359,063
	Total equity securities	$	480,685	$	27,947		$	(40,435)	$	-	$	468,197
Total investments - AFS		$	26,611,778	$	1,222,504		$	(630,339)	$	(186,658)	$	27,017,285
Fixed maturities - HTM
	U.S. Government and Government- Related/Supported (2)	$	10,399	$	1,510		$	-	$	-	$	11,909
	Corporate (2)		1,290,209		91,313			(14,433)		-		1,367,089
	RMBS – Non-Agency		80,955		6,520			(32)		-		87,443
	Other asset-backed securities (2)		288,741		20,875			(320)		-		309,296
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (1)		998,674		127,227			(5,950)		-		1,119,951
Total investments - HTM		$	2,668,978	$	247,445		$	(20,735)	$	-	$	2,895,688

(1) U.S. Government and Government-Related/Supported, Non-U.S. Sovereign Government, Provincials, Supranationals and Government-Related/Supported and Total short-term investments includes government-related securities with an amortized cost of $1,878.3 million and fair value of $1,915.6 million and U.S. Agencies with an amortized cost of $494.0 million and fair value of $541.2 million.

(2) Covered Bonds within Fixed maturities – AFS with an amortized cost of $345.4 million and a fair value of $353.9 million and Covered Bonds within Fixed maturities – HTM with an amortized cost of $8.1 million and a fair value of $7.7 million at December 31, 2011 have been reclassified from Corporate to Other asset-backed securities to align the Company's classification to market indices and conform to current period presentation.

(3) 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 $266.0 million and an amortized cost of $297.7 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.

(4) 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 $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

At June 30, 2012 and December 31, 2011, approximately 2.7% and 2.4%, respectively, of the Company's fixed income investment portfolio at fair value was invested in securities that were below investment grade or not rated. Approximately 34.2% and 31.4% of the gross unrealized losses in the Company's fixed income securities portfolio at June 30, 2012 and December 31, 2011, respectively, related to securities that were below investment grade or not rated.

During the third quarter of 2011, the Company changed the manner in which it classifies fixed income securities between Fixed maturities and Short-term investments on the balance sheet and the related note disclosure. Short-term investments under the Company's previous classification comprised investments with a remaining maturity of less than one year from the reporting date. Under this prior presentation, longer term securities were reclassified from Fixed maturities to Short-term investments as they neared maturity. Under the Company's new classification, Short-term investments include investments due to mature within one year from the date of purchase and are valued using the same external factors and in the same manner as Fixed maturities. No reclassifications will be made between Fixed maturities and Short-term investments subsequent to the initial date of purchase.

This change in classification did not have an impact on the total value of investments available for sale on the balance sheet, nor did it impact the consolidated statements of income, comprehensive income, shareholders' equity or cash flows. The only impact, other than the changes in the balance sheet line items, are changes required within the detailed tables included within this note as well as Note 3, “Fair Value Measurements,” to allocate securities previously classified as Short-term investments under the former practice into the appropriate categories of Fixed maturities within each table to conform to the new accounting presentation for current and comparative periods.

During 2009 and 2010, the Company elected to hold certain fixed income securities to maturity. Consistent with this intention, the Company reclassified these securities from AFS to HTM in the consolidated financial statements. As a result of this classification, these fixed income securities are reflected in the HTM portfolio and recorded at amortized cost in the consolidated balance sheets and not fair value. Additional securities purchased that have already been designated as HTM are included as part of the HTM portfolio. The HTM portfolio is comprised of long duration non-U.S. securities, which are Euro and U.K. sterling denominated. The Company believes this HTM strategy is achievable due to the relatively stable and predictable cash flows of the Company's long-term liabilities within its Life operations, along with its ability to substitute other assets at a future date in the event that liquidity was required due to changes in expected cash flows or other transactions entered into related to the long-term liabilities supported by the HTM portfolio. At June 30, 2012, 97.3% of the HTM securities were rated A or higher. The unrealized appreciation at the dates of these reclassifications continues to be reported as a separate component of shareholders' equity and is being amortized over the remaining lives of the securities as an adjustment to yield in a manner consistent with the amortization of any premium or discount. At the time of the reclassifications, the unrealized U.S. dollar equivalent appreciation related to securities reclassified was $131.5 million in total, with $105.5 million and $108.4 million unamortized at June 30, 2012 and December 31, 2011, respectively.

Covered Bonds were included within Corporate securities prior to January 1, 2012. They are now classified as Other asset-backed securities to align the Company's classification to market indices. At December 31, 2011, Covered Bonds with a fair value of $353.9 million have been reclassified from Corporate to Other asset-backed securities to conform to current period presentation.

The contractual maturities of AFS and HTM fixed income securities at June 30, 2012 and December 31, 2011 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.

		June 30,2012 (1)				December 31,2011 (1)
		Amortized		Fair		Amortized		Fair
(U.S. dollars in thousands)		Cost		Value		Cost		Value
Fixed maturities - AFS
Due less than one year		$	1,983,583	$	1,999,239	$	2,004,395	$	2,020,361
Due after 1 through 5 years			7,976,631		8,243,009		7,736,717		7,909,354
Due after 5 through 10 years			3,401,824		3,610,915		3,619,141		3,777,073
Due after 10 years			3,320,524		3,640,235		3,257,886		3,488,330
		$	16,682,562	$	17,493,398	$	16,618,139	$	17,195,118
RMBS – Agency			5,001,023		5,202,313		5,189,473		5,379,406
RMBS – Non-Agency			728,309		584,543		851,557		641,815
CMBS			842,802		904,792		927,684		974,835
CDO			796,018		650,018		843,553		658,602
Other asset-backed securities			1,392,065		1,407,738		1,341,309		1,340,249
Total mortgage and asset-backed securities		$	8,760,217	$	8,749,404	$	9,153,576	$	8,994,907
	Total fixed maturities - AFS	$	25,442,779	$	26,242,802	$	25,771,715	$	26,190,025
Fixed maturities - HTM
Due less than one year		$	30,847	$	31,138	$	11,796	$	11,768
Due after 1 through 5 years			165,678		172,104		122,091		123,871
Due after 5 through 10 years			365,103		386,251		393,865		402,424
Due after 10 years			1,843,808		2,079,157		1,771,530		1,960,886
		$	2,405,436	$	2,668,650	$	2,299,282	$	2,498,949
RMBS – Non-Agency			81,028		87,090		80,955		87,443
CMBS			12,546		14,213		-		-
Other asset-backed securities			217,347		237,039		288,741		309,296
Total mortgage and asset-backed securities		$	310,921	$	338,342	$	369,696	$	396,739
	Total fixed maturities - HTM	$	2,716,357	$	3,006,992	$	2,668,978	$	2,895,688

(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 $346.2 million and $386.1 million at June 30, 2012 and December 31, 2011, respectively. These securities are reflected in the table based on their call date and have net unrealized losses of $74.7 million and $108.8 million at June 30, 2012 and December 31, 2011, respectively.

Under final authoritative accounting guidance, a debt security for which amortized cost exceeds fair value is deemed to be other-than-temporarily impaired if it meets either of the following conditions: (a) the Company intends to sell, or it is more likely than not that the Company will be required to sell, the security before a recovery in value, or (b) the Company does not expect to recover the entire amortized cost basis of the security. Other than in a situation in which the Company has the intent to sell a debt security or more likely than not will be required to sell a debt security, the amount of the OTTI related to a credit loss on the security is recognized in earnings, and the amount of the OTTI related to other factors (e.g., interest rates, market conditions, etc.) is recorded as a component of OCI. The net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment (“NPV”). The remaining difference between the security's NPV and its fair value is recognized in OCI. Subsequent changes in the fair value of these securities are included in OCI unless a further impairment is deemed to have occurred.

In the scenario where the Company has the intent to sell a security in which its amortized cost exceeds its fair value, or it is more likely than not it will be required to sell such a security, the entire difference between the security's amortized cost and its fair value is recognized in earnings.

The determination of credit losses is based on detailed analyses of underlying cash flows. Such analyses require the use of certain assumptions to develop the estimated performance of underlying collateral. Key assumptions used include, but are not limited to, items such as RMBS default rates based on collateral duration in arrears, severity of losses on default by collateral class, collateral reinvestment rates and expected future general corporate default rates.

Factors considered in determining that a gross unrealized loss is not other-than-temporarily impaired include management's consideration of current and near term liquidity needs and other available sources of funds, an evaluation of the factors and time necessary for recovery and an assessment of whether the Company has the intention to sell or considers it more likely than not that it will be forced to sell a security.

Certain of the Company's invested assets are held in trust and pledged in support of insurance and reinsurance liabilities as well as credit facilities. Such pledges are largely required by the Company's operating subsidiaries that are “non-admitted” under U.S. state insurance regulations, in order for the U.S. cedant to receive statutory credit for reinsurance. Also, certain deposit liabilities and annuity contracts require the use of pledged assets. At June 30, 2012 and December 31, 2011, the Company had $17.5 billion and $17.2 billion in pledged assets, respectively.

The following is an analysis of how long the AFS and HTM securities at June 30, 2012 and December 31, 2011 had been in a continual unrealized loss position:

						Equal to or greater
		Less than 12 months				than 12 months
				Gross				Gross
June 30, 2012		Fair		Unrealized		Fair		Unrealized
(U.S. dollars in thousands)		Value		Losses		Value		Losses
Fixed maturities and short-term investments - AFS
	U.S. Government and Government-Related/Supported	$	311,939	$	(1,902)	$	10,518	$	(1,014)
	Corporate (1) (2) (3)		422,004		(12,834)		903,366		(160,988)
	RMBS – Agency		100,286		(1,496)		14,405		(980)
	RMBS – Non-Agency		29,190		(1,745)		462,704		(163,843)
	CMBS		13,945		(281)		30,996		(3,787)
	CDO		13,727		(2,651)		627,018		(151,444)
	Other asset-backed securities (3)		97,511		(972)		139,949		(28,329)
	U.S. States and political subdivisions of the States		10,227		(121)		16,029		(1,660)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		296,340		(4,296)		163,791		(10,624)
Total fixed maturities and short-term investments - AFS		$	1,295,169	$	(26,298)	$	2,368,776	$	(522,669)
Total equity securities (4)		$	422,204	$	(27,871)	$	-	$	-
Fixed maturities -HTM
	Corporate (3)	$	23,418	$	(374)	$	49,617	$	(8,473)
	RMBS – Non-Agency		4,996		(15)		-		-
	Other asset-backed securities (3)		8,972		(464)		-		-
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		20,173		(71)		8,725		(3,103)
Total fixed maturities - HTM		$	57,559	$	(924)	$	58,342	$	(11,576)

(1) Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $186.1 million and an amortized cost of $199.1 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.

(2) 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, which are in a gross unrealized loss position, have a fair value of $346.2 million and an amortized cost of $420.3 million at June 30, 2012.

(3) Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $34.3 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $8.1 million have been included within Other asset-backed securities to align the Company's classification to market indices. Covered Bonds were included in Corporate prior to January 1, 2012.

(4) Included within equity securities are investments in fixed income funds with a fair value of $95.8 million and an amortized cost of $100.0 million at June 30, 2012.

						Equal to or greater
		Less than 12 months				than 12 months
				Gross				Gross
December 31, 2011		Fair		Unrealized		Fair		Unrealized
(U.S. dollars in thousands)		Value		Losses		Value		Losses
Fixed maturities and short-term investments - AFS
	U.S. Government and Government-Related/Supported	$	289,260	$	(332)	$	43,622	$	(3,984)
	Corporate (1) (2) (3)		1,078,664		(42,151)		1,185,535		(243,683)
	RMBS – Agency		310,318		(849)		36,960		(3,000)
	RMBS – Non-Agency		106,294		(31,714)		449,138		(197,695)
	CMBS		69,109		(2,716)		39,444		(6,837)
	CDO		3,357		(2,261)		636,362		(189,456)
	Other asset-backed securities (3)		227,098		(3,324)		161,312		(28,467)
	U.S. States and political subdivisions of the States		25,309		(199)		27,646		(2,021)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		265,766		(4,707)		202,890		(13,166)
Total fixed maturities and short-term investments - AFS		$	2,375,175	$	(88,253)	$	2,782,909	$	(688,309)
Total equity securities (4)		$	361,585	$	(40,435)	$	-	$	-
Fixed maturities -HTM
	Corporate (3)	$	147,836	$	(7,770)	$	62,343	$	(6,663)
	RMBS – Non-Agency		9,372		(32)		-		-
	Other asset-backed securities (3)		7,743		(314)		1,106		(6)
	Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported		79,242		(1,206)		18,330		(4,744)
Total fixed maturities - HTM		$	244,193	$	(9,322)	$	81,779	$	(11,413)

(1) Included within Corporate are certain medium term notes supported primarily by pools of European investment grade credit with varying degrees of leverage. The notes, which are in a gross unrealized loss position, have a fair value of $266.0 million and an amortized cost of $297.7 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.

(2) 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, which are in a gross unrealized loss position, have a fair value of $386.1 million and an amortized cost of $494.9 million at December 31, 2011.

(3) Covered Bonds within Fixed maturities and short-term investments – AFS with a fair value of $44.7 million and Covered Bonds within Fixed Maturities – HTM with a fair value of $7.7 million have been included within Other asset-backed securities to align the Company's classification to market indices and to conform to current period presentation. Covered Bonds were included in Corporate prior to January 1, 2012.

(4) Included within equity securities are investments in fixed income funds with a fair value of $91.6 million and an amortized cost of $100.0 million at December 31, 2011.

The Company had gross unrealized losses totaling $576.8 million on 1,308 securities out of a total of 7,156 held at June 30, 2012 in its AFS portfolio and $12.5 million on 15 securities out of a total of 208 held in its HTM portfolio, which it considers to be temporarily impaired or with respect to which reflects non-credit losses on OTTI. Individual security positions comprising this balance have been evaluated by management to determine the severity of these impairments and whether they should be considered other-than-temporary. Management believes it is more likely than not that the issuer will be able to fund sufficient principal and interest payments to support the current amortized cost.

Management, in its assessment of whether securities in a gross unrealized loss position are temporarily impaired, considers the significance of the impairments. At June 30, 2012, the Company had structured credit securities with gross unrealized losses of $55.2 million, which had a fair value of $26.3 million, and a cumulative fair value decline of greater than 50% of amortized cost. All of these securities are mortgage and asset-backed securities. These greater than 50% impaired securities include gross unrealized losses of $32.7 million on non-Agency RMBS, $21.7 million on Core CDOs and $0.8 million of CMBS holdings.

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

	Three Months Ended				Six Months Ended
Net Realized Gains (Losses) on Investments	June 30,				June 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Gross realized gains	$	53,732	$	61,037	$	120,621	$	88,179
Gross realized losses on investments sold		(37,932)		(43,405)		(63,053)		(99,539)
OTTI on investments, net of amounts transferred to other comprehensive income		(28,193)		(27,176)		(49,158)		(64,621)
Net realized gains (losses) on investments	$	(12,393)	$	(9,544)	$	8,410	$	(75,981)

The significant components of the net impairment charges of $28.2 million for the three months ended June 30, 2012 were:

▪ $14.3 million for structured securities where the Company determined that the likely recovery on these securities was below the carrying value and, accordingly, recorded an impairment of the securities to the discounted value of the cash flows expected to be received on these securities.

▪ $10.2 million related to medium term notes backed primarily by European investment grade credit. On certain notes, management concluded that future returns on the underlying assets were not sufficient to support the previously reported amortized cost. The Company also adjusted the estimated remaining holding period of certain notes resulting in a shorter reinvestment spectrum.

▪ $2.2 million related to currency losses primarily arising on U.K. sterling denominated securities held in U.S. dollar portfolios.

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

	Three Months Ended				Six Months Ended
Credit Loss Impairments	June 30,				June 30,
(U.S. dollars in thousands)	2012		2011		2012		2011
Opening balance	$	314,805	$	330,170	$	333,379	$	426,372
Credit loss impairment recognized in the current period on securities not previously impaired		4,043		11,333		5,878		15,906
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(40,797)		(38,316)		(59,737)		(164,027)
Credit loss impairments previously recognized on securities impaired to fair value during the period		-		-		(16,384)		-
Additional credit loss impairments recognized in the current period on securities previously impaired		21,952		13,339		36,882		38,798
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(283)		(682)		(298)		(1,205)
Balance at June 30,	$	299,720	$	315,844	$	299,720	$	315,844

During the three months ended June 30, 2012 and 2011, the $40.8 million and $38.3 million, respectively, of credit loss impairments previously recognized on securities that matured, or were paid down, prepaid or sold, includes $21.9 million and $20.9 million, respectively, of non-Agency RMBS.

During the six months ended June 30, 2012 and 2011, the $59.7 million and $164.0 million, respectively, of credit loss impairments previously recognized on securities that matured, or were paid down, prepaid or sold, includes $31.8 million and $112.6 million, respectively, of non-Agency RMBS.

The Company historically participated in structured transactions in project finance related areas under which the Company provided a cash loan supporting project finance transactions. These transactions are accounted for in accordance with guidance governing accounting by certain entities (including entities with trade receivables) that lend to or finance the activities of others under which the loans are considered held for investment as the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff. Accordingly, these funded loan participations are reported in the balance sheet at outstanding principal adjusted for any allowance for loan losses as considered necessary by management.

The following table shows a summary of the structured project finance loans at June 30, 2012 and December 31, 2011:

Project Finance Loans	June 30,		December 31,
(U.S. dollars in thousands)	2012		2011
Aggregate loan value	$	36,536	$	49,650
Aggregate loan net carrying value	$	30,953	$	40,483

Opening allowance for loan losses	$	(9,167)	$	(9,167)
Amounts charged off during the period		3,584		-
Closing allowance for loan losses	$	(5,583)	$	(9,167)

Number of individual loan participations		4		6
Number of individual loan participations relating to the allowance for loan losses		1		2
Weighted average contractual term to maturity		1.1 years		2.1 years
Weighted average credit rating		BB		BB-
Range of individual credit ratings		BB+ to BB-		BB+ to CCC

Surveillance procedures are conducted over each structured project finance loan on an ongoing basis with current expectations of future collections of contractual interest and principal used to determine whether any allowance for loan losses may be required at each period end. If it is determined that a future credit loss on a specific contract is reasonably possible and an amount can be estimated, an allowance is recorded. The contractual receivable is only charged off when the final outcome is known and the Company has exhausted all commercial efforts to try and collect any outstanding balances.

During the six months ended June 30, 2012 and the year ended December 31, 2011, management conducted separate reviews of each loan participation and determined loss allowance estimates, as shown in the table above, using a recovery value concept. Management considers recovery value to be the percentage of all future contractual interest and principal that the Company expects to receive from the borrower through any combination of regular debt service, other payments, salvage and recovery. The allowances for loan losses are made when it is probable that a loss will be incurred based upon current information received from the borrower.

During May 2012, the Company invested $25.0 million to obtain a 94% interest in Five Oaks Investment Corp. (“Five Oaks”), a newly formed private investment company. Five Oaks is a mortgage real estate investment trust that is expected to follow an investment strategy balancing a leveraged portfolio of Agency RMBS with an unlevered or moderately levered portfolio of non-Agency RMBS. Five Oaks may enter into repurchase agreements to acquire investment leverage up to a maximum of $79.5 million. At June 30, 2012, the Company has consolidated Five Oaks resulting in the recording within its balance sheet of: RMBS securities at their fair value of $80.7 million (amortized cost: $80.6 million) within Fixed maturities, $14.9 million of Cash and cash equivalents, $69.1 million of liabilities related to obligations under repurchase agreements within Other liabilities, and $1.5 million of Non-controlling interest in equity of consolidated subsidiaries. $75.6 million of securities held by Five Oaks and consolidated by XL are pledged as collateral under the repurchase agreements. The repurchase agreements do not provide the counterparties any recourse to assets of XL aside from its investment in Five Oaks. Amounts recorded within the Company's consolidated statement of income related to Five Oaks were immaterial during the three and six month periods ended June 30, 2012. In addition, the Company has purchased an equity interest in Oak Circle Capital Partners (“Oak Circle”), the investment management company that provides portfolio management and other administrative services to Five Oaks. XL's investment in Oak Circle has been accounted for using the equity method consistent with other investment manager affiliate positions held by the Company.