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Investments (Tables)
 3 Months Ended
Mar. 31, 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 March 31, 2013 and December 31, 2012 were as follows:
 
 
 
Included in AOCI
 
 
 
 
March 31, 2013 
(U.S. dollars in thousands)
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses Related to
Changes in
Estimated
Fair Value
 
Fair Value
 
Non-credit Related OTTI (1)
Fixed maturities - AFS
 

 
 

 
 

 
 

 
 

U.S. Government and Government-Related/Supported (2)
$
1,857,361

 
$
123,329

 
$
(2,690
)
 
$
1,978,000

 
$
—

Corporate (4) (5)
9,712,063

 
658,882

 
(65,621
)
 
10,305,324

 
(11,453
)
RMBS – Agency
4,684,803

 
166,268

 
(10,363
)
 
4,840,708

 
—

RMBS – Non-Agency
600,120

 
46,414

 
(53,143
)
 
593,391

 
(88,778
)
CMBS
1,094,389

 
64,322

 
(5,370
)
 
1,153,341

 
(2,947
)
CDO
764,942

 
11,448

 
(65,323
)
 
711,067

 
(5,197
)
Other asset-backed securities (3)
1,240,097

 
50,081

 
(9,499
)
 
1,280,679

 
(5,514
)
U.S. States and political subdivisions of the States
1,764,746

 
129,271

 
(4,748
)
 
1,889,269

 
—

Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)
4,470,002

 
156,307

 
(28,903
)
 
4,597,406

 
—

Total fixed maturities - AFS
$
26,188,523

 
$
1,406,322

 
$
(245,660
)
 
$
27,349,185

 
$
(113,889
)
Total short-term investments (2)
$
260,021

 
$
95

 
$
(1,847
)
 
$
258,269

 
$
—

Total equity securities (6)
$
790,132

 
$
63,052

 
$
(2,214
)
 
$
850,970

 
$
—

Total investments - AFS
$
27,238,676

 
$
1,469,469

 
$
(249,721
)
 
$
28,458,424

 
$
(113,889
)
Fixed maturities - HTM
 

 
 

 
 

 
 

 
 

U.S. Government and Government-Related/Supported (2)
$
10,149

 
$
1,710

 
$
—

 
$
11,859

 
$
—

Corporate
1,300,893

 
180,171

 
(907
)
 
1,480,157

 
—

RMBS – Non-Agency
62,604

 
8,071

 
—

 
70,675

 
—

CMBS
135,505

 
22,713

 
—

 
158,218

 
—

Other asset-backed securities (3)
100,154

 
12,926

 
(156
)
 
112,924

 
—

Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported (2)
1,052,516

 
200,915

 
(886
)
 
1,252,545

 
—

Total investments - HTM
$
2,661,821

 
$
426,506

 
$
(1,949
)
 
$
3,086,378

 
$
—

___________
(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 includes government-related securities with an amortized cost of $2,079.0 million and fair value of $2,164.4 million and U.S. Agencies with an amortized cost of $301.8 million and fair value of $341.5 million.
(3)
Covered Bonds within Fixed maturities - AFS with an amortized cost of $485.5 million and a fair value of $521.0 million and Covered Bonds within Fixed maturities - HTM with an amortized cost of $7.9 million and a fair value of $8.1 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 $193.7 million and an amortized cost of $192.4 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 $283.5 million and an amortized cost of $295.7 million at March 31, 2013.
(6)
Included within Total equity securities are investments in fixed income funds with a fair value of $101.0 million and an amortized cost of $100.0 million at March 31, 2013.
 
 
 
Included in AOCI
 
 
 
 
December 31, 2012
(U.S. dollars in thousands)
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses Related to
Changes in
Estimated
Fair Value
 
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 includes 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 March 31, 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.

March 31, 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
$
2,102,831

 
$
2,118,337

 
$
1,939,803

 
$
1,952,250

Due after 1 through 5 years
8,096,248

 
8,425,698

 
8,521,090

 
8,877,512

Due after 5 through 10 years
5,136,565

 
5,459,235

 
4,701,391

 
5,065,158

Due after 10 years
2,468,528

 
2,766,729

 
2,427,680

 
2,790,996

 
$
17,804,172

 
$
18,769,999

 
$
17,589,964

 
$
18,685,916

RMBS – Agency
4,684,803

 
4,840,708

 
5,054,097

 
5,255,493

RMBS – Non-Agency
600,120

 
593,391

 
678,469

 
647,733

CMBS
1,094,389

 
1,153,341

 
1,010,794

 
1,077,251

CDO
764,942

 
711,067

 
784,999

 
709,816

Other asset-backed securities
1,240,097

 
1,280,679

 
1,426,483

 
1,470,711

Total mortgage and asset-backed securities
$
8,384,351

 
$
8,579,186

 
$
8,954,842

 
$
9,161,004

Total fixed maturities - AFS
$
26,188,523

 
$
27,349,185

 
$
26,544,806

 
$
27,846,920

Fixed maturities - HTM
 

 
 

 
 

 
 

Due less than one year
$
27,480

 
$
28,862

 
$
36,515

 
$
37,580

Due after 1 through 5 years
176,470

 
186,992

 
195,121

 
205,562

Due after 5 through 10 years
369,716

 
415,524

 
377,541

 
420,008

Due after 10 years
1,789,892

 
2,113,183

 
1,886,974

 
2,239,688

 
$
2,363,558

 
$
2,744,561

 
$
2,496,151

 
$
2,902,838

RMBS – Non-Agency
62,604

 
70,675

 
83,205

 
93,707

CMBS
135,505

 
158,218

 
12,751

 
14,799

Other asset-backed securities
100,154

 
112,924

 
222,340

 
251,460

Total mortgage and asset-backed securities
$
298,263

 
$
341,817

 
$
318,296

 
$
359,966

Total fixed maturities - HTM
$
2,661,821

 
$
3,086,378

 
$
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 $283.5 million and $308.5 million at March 31, 2013 and December 31, 2012, respectively. These securities are reflected in the table based on their call date and have net unrealized losses of $12.1 million and $19.1 million at March 31, 2013 and December 31, 2012, respectively.
Summary of unrealized losses
The following is an analysis of how long the AFS and HTM securities at March 31, 2013 and December 31, 2012 had been in a continual unrealized loss position:
 
Less than 12 months
 
Equal to or greater
than 12 months
March 31, 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
$
197,384

 
$
(1,644
)
 
$
15,871

 
$
(1,066
)
Corporate
785,879

 
(11,646
)
 
514,156

 
(54,098
)
RMBS – Agency
942,759

 
(8,722
)
 
18,249

 
(1,641
)
RMBS – Non-Agency
9,197

 
(664
)
 
405,232

 
(52,479
)
CMBS
205,453

 
(2,116
)
 
19,846

 
(3,254
)
CDO
99

 
—

 
690,248

 
(65,323
)
Other asset-backed securities
106,354

 
(377
)
 
93,772

 
(9,122
)
U.S. States and political subdivisions of the States
215,939

 
(4,060
)
 
10,264

 
(688
)
Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported
887,311

 
(18,334
)
 
123,354

 
(12,273
)
Total fixed maturities and short-term investments - AFS
$
3,350,375

 
$
(47,563
)
 
$
1,890,992

 
$
(199,944
)
Total equity securities
$
86,305

 
$
(2,214
)
 
$
—

 
$
—

Fixed maturities -HTM
 

 
 

 
 

 
 

Corporate
$
720

 
$
(23
)
 
$
10,720

 
$
(884
)
Other asset-backed securities
1,193

 
(156
)
 
—

 
—

Non-U.S. Sovereign Government, Provincial, Supranational and Government-Related/Supported
—

 
—

 
10,638

 
(886
)
Total fixed maturities - HTM
$
1,913

 
$
(179
)
 
$
21,358

 
$
(1,770
)

 
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 March 31,
(U.S. dollars in thousands)
2013
 
2012
Gross realized gains
$
73,171

 
$
66,889

Gross realized losses on investments sold
(32,024
)
 
(25,121
)
OTTI on investments, net of amounts transferred to other comprehensive income
(4,637
)
 
(20,965
)
Net realized gains (losses) on investments
$
36,510

 
$
20,803
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 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 March 31,
(U.S. dollars in thousands)
2013
 
2012
Opening balance
$
268,708

 
$
333,379

Credit loss impairment recognized in the current period on securities not previously impaired
500

 
1,835

Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period
(6,475
)
 
(17,195
)
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
2,304

 
14,930

Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected
(4,971
)
 
(5,253
)
Balance at March 31,
$
260,066

 
$
314,805