RNR Q3 2013 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Q   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
OR
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 001-14428
RENAISSANCERE HOLDINGS LTD.
(Exact Name Of Registrant As Specified In Its Charter)
Bermuda
98-014-1974
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
Renaissance House, 12 Crow Lane, Pembroke HM 19 Bermuda
(Address of Principal Executive Offices)
(441) 295-4513
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Q  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Q  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, as defined in Rule 12b-2 of the Act. Large accelerated filer Q, Accelerated filer o, Non-accelerated filer o, Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o  No Q

The number of Common Shares, par value US $1.00 per share, outstanding at November 4, 2013 was 44,413,413.
 



RENAISSANCERE HOLDINGS LTD.
TABLE OF CONTENTS
 
 
 
Page
 
ITEM 1.
 
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.


2


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets
(in thousands of United States Dollars, except per share amounts)
 
September 30,
2013
 
December 31,
2012
Assets
(Unaudited)
 
(Audited)
Fixed maturity investments trading, at fair value
 
 
 
(Amortized cost $4,722,167 and $4,549,112 at September 30, 2013 and December 31, 2012, respectively)
$
4,751,237

 
$
4,660,168

Fixed maturity investments available for sale, at fair value
 
 
 
(Amortized cost $34,091 and $71,445 at September 30, 2013 and December 31, 2012, respectively)
38,530

 
83,442

Short term investments, at fair value
925,329

 
821,163

Equity investments trading, at fair value
113,986

 
58,186

Other investments, at fair value
500,770

 
644,711

Investments in other ventures, under equity method
97,660

 
87,724

Total investments
6,427,512

 
6,355,394

Cash and cash equivalents
266,350

 
304,145

Premiums receivable
735,937

 
491,365

Prepaid reinsurance premiums
166,340

 
77,082

Reinsurance recoverable
149,201

 
192,512

Accrued investment income
26,887

 
33,478

Deferred acquisition costs
103,844

 
52,622

Receivable for investments sold
240,191

 
168,673

Other assets
113,159

 
110,777

Goodwill and other intangible assets
8,978

 
8,486

Assets of discontinued operations held for sale
115,556

 
134,094

Total assets
$
8,353,955

 
$
7,928,628

Liabilities, Noncontrolling Interests and Shareholders’ Equity
 
 
 
Liabilities
 
 
 
Reserve for claims and claim expenses
$
1,683,709

 
$
1,879,377

Unearned premiums
754,077

 
399,517

Debt
249,407

 
349,339

Reinsurance balances payable
358,988

 
290,419

Payable for investments purchased
407,788

 
278,787

Other liabilities
183,362

 
198,434

Liabilities of discontinued operations held for sale
56,275

 
57,440

Total liabilities
3,693,606

 
3,453,313

Commitments and Contingencies


 


Redeemable noncontrolling interest
945,915

 
968,259

Shareholders’ Equity
 
 
 
Preference Shares: $1.00 par value – 16,000,000 shares issued and outstanding at September 30, 2013 (December 31, 2012 – 16,000,000)
400,000

 
400,000

Common shares: $1.00 par value – 44,390,632 shares issued and outstanding at September 30, 2013 (December 31, 2012 – 45,542,203)
44,391

 
45,542

Accumulated other comprehensive income
4,566

 
13,622

Retained earnings
3,261,757

 
3,043,901

Total shareholders’ equity attributable to RenaissanceRe
3,710,714

 
3,503,065

Noncontrolling interest
3,720

 
3,991

Total shareholders’ equity
3,714,434

 
3,507,056

Total liabilities, noncontrolling interests and shareholders’ equity
$
8,353,955

 
$
7,928,628

See accompanying notes to the consolidated financial statements

3


RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Operations
For the three and nine months ended September 30, 2013 and 2012
(in thousands of United States Dollars, except per share amounts) (Unaudited)
 
Three months ended
 
Nine months ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Revenues
 
 
 
 
 
 
 
Gross premiums written
$
182,649

 
$
136,359

 
$
1,521,290

 
$
1,467,846

Net premiums written
$
127,241

 
$
105,035

 
$
1,123,163

 
$
1,025,240

Decrease (increase) in unearned premiums
167,476

 
157,588

 
(265,302
)
 
(239,536
)
Net premiums earned
294,717

 
262,623

 
857,861

 
785,704

Net investment income
59,931

 
46,135

 
129,296

 
126,725

Net foreign exchange gains
488

 
3,187

 
170

 
3,468

Equity in earnings of other ventures
7,313

 
4,310

 
16,920

 
16,626

Other income (loss)
651

 
(1,053
)
 
(2,186
)
 
730

Net realized and unrealized gains (losses) on investments
28,472

 
75,297

 
(26,788
)
 
150,982

Total other-than-temporary impairments
—

 
—

 
—

 
(395
)
Portion recognized in other comprehensive income, before taxes
—

 
—

 
—

 
52

Net other-than-temporary impairments
—

 
—

 
—

 
(343
)
Total revenues
391,572

 
390,499

 
975,273

 
1,083,892

Expenses
 
 
 
 
 
 
 
Net claims and claim expenses incurred
60,928

 
73,215

 
192,141

 
138,318

Acquisition expenses
37,699

 
24,438

 
94,475

 
74,157

Operational expenses
44,672

 
42,356

 
133,447

 
126,055

Corporate expenses
4,307

 
3,796

 
30,318

 
12,567

Interest expense
4,298

 
5,891

 
13,632

 
17,325

Total expenses
151,904

 
149,696

 
464,013

 
368,422

Income from continuing operations before taxes
239,668

 
240,803

 
511,260

 
715,470

Income tax expense
(223
)
 
(144
)
 
(356
)
 
(1,008
)
Income from continuing operations
239,445

 
240,659

 
510,904

 
714,462

(Loss) income from discontinued operations
(9,779
)
 
(166
)
 
2,422

 
(25,505
)
Net income
229,666

 
240,493

 
513,326

 
688,957

Net income attributable to noncontrolling interests
(44,331
)
 
(51,083
)
 
(96,953
)
 
(138,348
)
Net income attributable to RenaissanceRe
185,335

 
189,410

 
416,373

 
550,609

Dividends on preference shares
(5,595
)
 
(8,750
)
 
(19,353
)
 
(26,250
)
Net income available to RenaissanceRe common shareholders
$
179,740

 
$
180,660

 
$
397,020

 
$
524,359

Income from continuing operations available to RenaissanceRe common shareholders per common share – basic
$
4.32

 
$
3.67

 
$
8.95

 
$
10.89

(Loss) income from discontinued operations available to RenaissanceRe common shareholders per common share – basic
(0.23
)
 
—

 
0.06

 
(0.51
)
Net income available to RenaissanceRe common shareholders per common share – basic
$
4.09

 
$
3.67

 
$
9.01

 
$
10.38

Income from continuing operations available to RenaissanceRe common shareholders per common share – diluted
$
4.23

 
$
3.62

 
$
8.79

 
$
10.75

(Loss) income from discontinued operations available to RenaissanceRe common shareholders per common share – diluted
(0.22
)
 
—

 
0.05

 
(0.51
)
Net income available to RenaissanceRe common shareholders per common share – diluted
$
4.01

 
$
3.62

 
$
8.84

 
$
10.24

Dividends per common share
$
0.28

 
$
0.27

 
$
0.84

 
$
0.81


See accompanying notes to the consolidated financial statements

4


RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the three and nine months ended September 30, 2013 and 2012
(in thousands of United States Dollars) (Unaudited)
 
 
Three months ended
 
Nine months ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Comprehensive income
 
 
 
 
 
 
 
Net income
$
229,666

 
$
240,493

 
$
513,326

 
$
688,957

Change in net unrealized gains on investments
(343
)
 
1,536

 
(9,056
)
 
2,359

Portion of other-than-temporary impairments recognized in other comprehensive income
—

 
—

 
—

 
(52
)
Comprehensive income
229,323

 
242,029

 
504,270

 
691,264

Net income attributable to noncontrolling interests
(44,331
)
 
(51,083
)
 
(96,953
)
 
(138,348
)
Comprehensive income attributable to noncontrolling interests
(44,331
)
 
(51,083
)
 
(96,953
)
 
(138,348
)
Comprehensive income attributable to RenaissanceRe
$
184,992

 
$
190,946

 
$
407,317

 
$
552,916

Disclosure regarding net unrealized gains
 
 
 
 
 
 
 
Total realized and net unrealized holding gains (losses) on investments and net other-than-temporary impairments
$
25

 
$
2,293

 
$
(1,508
)
 
$
4,822

Net realized gains on fixed maturity investments available for sale
(368
)
 
(757
)
 
(7,548
)
 
(2,806
)
Net other-than-temporary impairments recognized in earnings
—

 
—

 
—

 
343

Change in net unrealized gains on investments
$
(343
)
 
$
1,536

 
$
(9,056
)
 
$
2,359

 




















See accompanying notes to the consolidated financial statements

5


RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
For the nine months ended September 30, 2013 and 2012
(in thousands of United States Dollars) (Unaudited)
 
 
Nine months ended
 
September 30,
2013
 
September 30,
2012
Preference shares
 
 
 
Balance – January 1
$
400,000

 
$
550,000

Issuance of shares
275,000

 
—

Repurchase of shares
(275,000
)
 
—

Balance – September 30
400,000

 
550,000

Common shares
 
 
 
Balance – January 1
45,542

 
51,543

Repurchase of shares
(1,722
)
 
(3,619
)
Exercise of options and issuance of restricted stock awards
571

 
304

Balance – September 30
44,391

 
48,228

Additional paid-in capital
 
 
 
Balance – January 1
—

 
—

Repurchase of shares
3,019

 
(19,423
)
Offering expenses
(9,345
)
 
—

Change in noncontrolling interests
622

 
7,176

Exercise of options and issuance of restricted stock awards
5,704

 
12,247

Balance – September 30
—

 
—

Accumulated other comprehensive income
 
 
 
Balance – January 1
13,622

 
11,760

Change in net unrealized gains on investments
(9,056
)
 
2,359

Portion of other-than-temporary impairments recognized in other comprehensive income
—

 
(52
)
Balance – September 30
4,566

 
14,067

Retained earnings
 
 
 
Balance – January 1
3,043,901

 
2,991,890

Net income
513,326

 
688,957

Net income attributable to noncontrolling interests
(96,953
)
 
(138,348
)
Repurchase of shares
(142,208
)
 
(248,847
)
Dividends on common shares
(36,956
)
 
(40,741
)
Dividends on preference shares
(19,353
)
 
(26,250
)
Balance – September 30
3,261,757

 
3,226,661

Noncontrolling interest
3,720

 
3,979

Total shareholders’ equity
$
3,714,434

 
$
3,842,935

 








See accompanying notes to the consolidated financial statements

6


RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2013 and 2012
(in thousands of United States Dollars) (Unaudited)
 
Nine months ended
 
September 30,
2013
 
September 30,
2012
Cash flows provided by operating activities
 
 
 
Net income
$
513,326

 
$
688,957

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Amortization, accretion and depreciation
42,423

 
45,303

Equity in undistributed earnings of other ventures
(12,048
)
 
(12,309
)
Net realized and unrealized losses (gains) on investments
26,806

 
(150,984
)
Net other-than-temporary impairments
—

 
343

Net unrealized gains included in net investment income
(33,836
)
 
(35,963
)
Net unrealized losses included in other income (loss)
12,782

 
10,713

Change in:
 
 
 
Premiums receivable
(244,572
)
 
(229,362
)
Prepaid reinsurance premiums
(89,258
)
 
(131,070
)
Reinsurance recoverable
43,311

 
194,539

Deferred acquisition costs
(51,222
)
 
(39,501
)
Reserve for claims and claim expenses
(195,668
)
 
(209,674
)
Unearned premiums
354,560

 
370,606

Reinsurance balances payable
68,569

 
99,253

Other
(49,375
)
 
(65,185
)
Net cash provided by operating activities
385,798

 
535,666

Cash flows used in investing activities
 
 
 
Proceeds from sales and maturities of fixed maturity investments trading
6,356,691

 
6,287,723

Purchases of fixed maturity investments trading
(6,449,697
)
 
(6,886,239
)
Proceeds from sales and maturities of fixed maturity investments available for sale
43,564

 
47,925

Net purchases of equity investments trading
(33,714
)
 
—

Net (purchases) sales of short term investments
(118,126
)
 
170,162

Net sales of other investments
198,101

 
41,262

Net purchases of investments in other ventures
(2,500
)
 
—

Net purchases of other assets
(994
)
 
(4,204
)
Net cash used in investing activities
(6,675
)
 
(343,371
)
Cash flows used in financing activities
 
 
 
Dividends paid – RenaissanceRe common shares
(36,956
)
 
(40,741
)
Dividends paid – preference shares
(19,353
)
 
(26,250
)
RenaissanceRe common share repurchases
(140,911
)
 
(257,461
)
Net repayment of debt
(100,847
)
 
4,907

Redemption of 6.08% Series C preference shares
(125,000
)
 
—

Redemption of 6.60% Series D preference shares
(150,000
)
 
—

Issuance of 5.375% Series E preference shares, net of expenses
265,655

 
—

Net third party DaVinciRe share transactions
(116,628
)
 
157,999

Third party investment in redeemable noncontrolling interest
13,000

 
—

Net cash used in financing activities
(411,040
)
 
(161,546
)
Effect of exchange rate changes on foreign currency cash
3,366

 
1,390

Net (decrease) increase in cash and cash equivalents
(28,551
)
 
32,139

Net (increase) decrease in cash and cash equivalents of discontinued operations
(9,244
)
 
12,169

Cash and cash equivalents, beginning of period
304,145

 
181,825

Cash and cash equivalents, end of period
$
266,350

 
$
226,133



See accompanying notes to the consolidated financial statements

7


RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(unless otherwise noted, amounts in tables expressed in thousands of United States (“U.S.”) dollars, except per share amounts and percentages) (Unaudited)
NOTE 1. ORGANIZATION
This report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
RenaissanceRe Holdings Ltd. (“RenaissanceRe”) was formed under the laws of Bermuda on June 7, 1993. Together with its wholly owned and majority-owned subsidiaries and DaVinciRe (as defined below), which are collectively referred to herein as the “Company”, RenaissanceRe provides reinsurance and insurance coverages and related services to a broad range of customers.
•
Renaissance Reinsurance Ltd. (“Renaissance Reinsurance”), the Company’s principal reinsurance subsidiary, provides property catastrophe and specialty reinsurance coverages to insurers and reinsurers on a worldwide basis.
•
The Company also manages property catastrophe and specialty reinsurance business written on behalf of joint ventures, which principally include Top Layer Reinsurance Ltd. (“Top Layer Re”), recorded under the equity method of accounting, and DaVinci Reinsurance Ltd. (“DaVinci”). Because the Company owns a noncontrolling equity interest in, but controls a majority of the outstanding voting power of DaVinci's parent, DaVinciRe Holdings Ltd. (“DaVinciRe”), the results of DaVinci and DaVinciRe are consolidated in the Company’s financial statements. Redeemable noncontrolling interest – DaVinciRe represents the interests of external parties with respect to the net income and shareholders’ equity of DaVinciRe. Renaissance Underwriting Managers, Ltd. (“RUM”), a wholly owned subsidiary, acts as exclusive underwriting manager for these joint ventures in return for fee-based income and profit participation.
•
RenaissanceRe Syndicate 1458 (“Syndicate 1458”) is the Company’s Lloyd’s syndicate. RenaissanceRe Corporate Capital (UK) Limited (“RenaissanceRe CCL”), a wholly owned subsidiary of RenaissanceRe, is Syndicate 1458’s sole corporate member and RenaissanceRe Syndicate Management Ltd. (“RSML”), a wholly owned subsidiary of RenaissanceRe, is the managing agent for Syndicate 1458.
•
RenaissanceRe Specialty Risks Ltd., formerly known as Glencoe Insurance Ltd. (“RenaissanceRe Specialty Risks”), is a Bermuda-domiciled excess and surplus lines insurance company that is currently eligible to do business on an excess and surplus lines basis in 49 U.S. states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. RenaissanceRe Underwriting Managers U.S. LLC, a specialty reinsurance agency domiciled in Connecticut, provides specialty treaty reinsurance solutions on both a quota share and excess of loss basis; and writes business on behalf of RenaissanceRe Specialty U.S. Ltd. ("RenaissanceRe Specialty U.S."), a Bermuda-domiciled reinsurer launched in June 2013 which operates subject to U.S. federal income tax, and RenaissanceRe Syndicate 1458.
•
On August 30, 2013, the Company entered into a purchase agreement with a subsidiary of Munich-American Holding Corporation (together with applicable affiliates, "Munich") to sell its U.S.-based weather and weather-related energy risk management unit, which principally included RenRe Commodity Advisors LLC ("RRCA"), Renaissance Trading Ltd. ("Renaissance Trading") and RenRe Energy Advisors Ltd. (collectively referred to as "REAL"). REAL offered certain derivative-based risk management products primarily to address weather and energy risk and engaged in hedging and trading activities related to those transactions. On October 1, 2013, the Company closed the sale of REAL to Munich. The Company has classified the assets and liabilities associated with this transaction as held for sale. The financial results for these operations have been presented in the Company’s consolidated financial statements as “discontinued operations” for all periods presented. Refer to “Note 3. Discontinued Operations”, for more information.

8


NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2012, except as noted below.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company's financial position and results of operations as at the end of and for the periods presented. All significant intercompany accounts and transactions have been eliminated from these statements. Except as discussed in "Note 3. Discontinued Operations," and unless otherwise noted, the notes to the consolidated financial statements reflect the Company’s continuing operations.
Certain comparative information has been reclassified to conform to the current presentation. Because of the seasonality of the Company's business, the results of operations and cash flows for any interim period will not necessarily be indicative of the results of operations and cash flows for the full fiscal year or subsequent quarters.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The major estimates reflected in the Company's consolidated financial statements include, but are not limited to, the reserve for claims and claim expenses; reinsurance recoverables, including allowances for reinsurance recoverables deemed uncollectible; estimates of written and earned premiums; fair value, including the fair value of investments, financial instruments and derivatives; impairment charges and the Company's deferred tax valuation allowance.
DISCONTINUED OPERATIONS
The results of operations of substantially all of the Company’s U.S.-based insurance operations and REAL, its U.S.-based weather and weather-related energy risk management unit, each of which has been sold to a separate unaffiliated third party, are classified as held for sale and are reported as discontinued operations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic Discontinued Operations. The consolidated financial statements and notes thereto are presented excluding the operations and cash flows of the discontinued operations from the continuing operations of the Company since the Company will not have any significant continuing involvement in the operations after the sale. The financial position and results of operations of discontinued operations are presented as single line items on the consolidated balance sheets and statements of operations, respectively. Certain prior year comparatives have been reclassified to conform to the current year presentation.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Disclosures About Offsetting Assets and Liabilities
In December 2011, the FASB issued Accounting Standard Update ("ASU") No. 2011-11, Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11"). The objective of ASU 2011-11 is to enhance disclosures by requiring improved information about financial instruments and derivative instruments in relation to netting arrangements. ASU 2011-11 became effective for interim and annual periods beginning on or after January 1, 2013, with retrospective presentation of the new disclosure required. The Company adopted ASU 2011-11 effective January 1, 2013; since this update is disclosure-related only, the adoption of this

9


guidance did not have a material impact on the Company's consolidated statements of operations and financial position.  
In January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ("ASU 2013-01"). The guidance clarified that the disclosures in ASU 2011-11 would apply only to derivatives, repurchase and reverse repurchase agreements, and securities borrowing and securities lending transactions, each to the extent that they met specific conditions provided in the initial accounting standard. ASU 2013-01 became effective for interim and annual periods beginning on or after January 1, 2013, with retrospective presentation of the new disclosure required. As this guidance is
disclosure-related only, the adoption of this guidance did not have a material impact on the Company's consolidated statements of operations and financial position. 
Testing Indefinite-Lived Intangible Assets for Impairment
In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). ASU 2012-02 simplifies the guidance for testing the decline in the realizable value of indefinite-lived intangible assets other than goodwill. ASU 2012-02 allows an organization the option to first assess the qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. ASU 2012-02 became effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The Company adopted ASU 2012-02 effective January 1, 2013 and the adoption of this guidance did not have a material impact on the Company's consolidated statements of operations and financial position.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). The objective of ASU 2013-02 is to improve the reporting of classifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional details about those amounts. ASU 2013-02 became effective for interim and annual reporting periods beginning after December 15, 2012. The Company prospectively adopted ASU 2013-02 effective January 1, 2013; since this update is disclosure-related only, the adoption of this guidance did not have a material impact on the Company's consolidated statements of operations and financial position.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The objective of ASU 2013-11 is to improve the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 seeks to reduce the diversity in practice by providing guidance on the presentation of unrecognized tax benefits to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. ASU 2013-11 is effective for annual and interim reporting periods beginning after December 15, 2013, with both early adoption and retrospective application permitted. The Company is currently evaluating the impact of this guidance; however, it is not expected to have a material impact on the Company's consolidated statements of operations and financial position.

10


NOTE 3. DISCONTINUED OPERATIONS
REAL
On August 30, 2013, the Company entered into a purchase agreement with Munich to sell REAL and, on October 1, 2013, the Company closed the sale of REAL to Munich. The Company has classified the assets and liabilities associated with this transaction as held for sale and the financial results are reflected in the Company's consolidated financial statements as “discontinued operations.”  Except as explicitly described as held for sale or as discontinued operations, and unless otherwise noted, all discussions and amounts presented herein relate to the Company's continuing operations. All prior periods presented have been reclassified to conform to this form of presentation.
Consideration for the transaction was $60.0 million, paid in cash at closing, subject to post-closing adjustments for certain tax and other items. The Company recorded a loss on sale of $8.8 million in conjunction with the sale, including related direct expenses to date.
Details of the assets, liabilities and shareholder's equity of discontinued operations held for sale related to REAL at September 30, 2013 and December 31, 2012 are as follows:
 
September 30,
2013
 
December 31,
2012
Assets of discontinued operations held for sale
 
 
 
Fixed maturity investments trading, at fair value
 
 
 
(Amortized cost $Nil and $5,250 at September 30, 2013 and December 31, 2012, respectively)
$
—

 
$
5,253

Cash and cash equivalents
30,457

 
21,213

Other assets
85,099

 
107,628

Total assets of discontinued operations held for sale
$
115,556

 
$
134,094

Liabilities of discontinued operations held for sale
 
 
 
Debt
$
1,589

 
$
2,436

Other liabilities
54,686

 
55,004

Total liabilities of discontinued operations held for sale
56,275

 
57,440

Shareholder's equity of discontinued operations held for sale
 
 
 
Total shareholder's equity of discontinued operations held for sale
59,281

 
76,654

Total liabilities and shareholder's equity of discontinued operations held for sale
$
115,556

 
$
134,094


11


Details of the (loss) income from discontinued operations for the three and nine months ended September 30, 2013 and 2012 are as follows:
 
Three months ended
 
Nine months ended
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
Revenues
 
 
 
 
 
 
 
Net investment (loss) income
$
(3
)
 
$
(16
)
 
$
1,150

 
$
2,543

Net foreign exchange (losses) gains
(140
)
 
(186
)
 
849

 
483

Other (loss) income
(1,001
)
 
171

 
9,471

 
(29,416
)
Net realized and unrealized (losses) gains on investments
(5
)
 
6

 
(18
)
 
2

Total revenues
(1,149
)
 
(25
)
 
11,452

 
(26,388
)
Expenses
 
 
 
 
 
 
 
Operational expenses
30

 
33

 
89

 
125

Corporate expenses
(2
)
 
54

 
104

 
161

Total expenses
28

 
87

 
193

 
286

(Loss) income before taxes
(1,177
)
 
(112
)
 
11,259

 
(26,674
)
Income tax benefit (expense)
168

 
—

 
(67
)
 
3

(Loss) income from discontinued operations related to REAL
$
(1,009
)
 
$
(112
)
 
$
11,192

 
$
(26,671
)
Loss on sale of REAL
(8,770
)
 
—

 
(8,770
)
 
—

(Loss) income from discontinued operations related to the former U.S.-based insurance operations
$
—

 
$
(54
)
 
$
—

 
$
1,166

(Loss) income from discontinued operations
$
(9,779
)
 
$
(166
)
 
$
2,422

 
$
(25,505
)
As detailed in the table above, (loss) income from discontinued operations presented in the consolidated statements of operations for the three and nine months ended September 30, 2012 includes a loss of $0.1 million and income of $1.2 million, respectively, related to our former U.S.-based insurance operations.
Renaissance Trading Margin Facility and Guarantees
Renaissance Trading, one of the entities acquired by Munich in the REAL transaction, maintains a brokerage facility with a leading prime broker, which has an associated margin facility of $20.0 million.  This margin facility is supported by a $25.0 million guarantee issued by RenaissanceRe.  Interest on amounts outstanding under this facility is at overnight LIBOR plus 200 basis points.  At September 30, 2013, $1.6 million was outstanding under the facility and has been included in liabilities of discontinued operations held for sale.
At September 30, 2013, RenaissanceRe had provided guarantees in the aggregate amount of $318.8 million to certain counterparties of the weather and energy risk operations of Renaissance Trading. Although the margin facility and related guarantee issued by RenaissanceRe, along with the guarantees issued to certain counterparties of Renaissance Trading by RenaissanceRe, remained in effect at September 30, 2013, in conjunction with the purchase agreement of REAL, Munich has agreed, effective October 1, 2013, to indemnify RenaissanceRe against any liabilities, losses and damages that may arise as a result of any transaction between Renaissance Trading and a counterparty that has been provided a guarantee by RenaissanceRe.

12


NOTE 4. INVESTMENTS
Fixed Maturity Investments Trading
The following table summarizes the fair value of fixed maturity investments trading:
 
 
 
 
 
 
 
 
September 30,
2013
 
December 31,
2012
 
 
U.S. treasuries
$
1,322,367

 
$
1,254,547

 
 
Agencies
197,047

 
315,154

 
 
Non-U.S. government (Sovereign debt)
353,810

 
133,198

 
 
Non-U.S. government-backed corporate
229,687

 
349,514

 
 
Corporate
1,684,413

 
1,607,233

 
 
Agency mortgage-backed
430,533

 
399,619

 
 
Non-agency mortgage-backed
231,351

 
230,747

 
 
Commercial mortgage-backed
291,284

 
361,645

 
 
Asset-backed
10,745

 
8,511

 
 
Total fixed maturity investments trading
$
4,751,237

 
$
4,660,168

 
 
 
 
 
 
 
Fixed Maturity Investments Available For Sale
The following table summarizes the amortized cost, fair value and related unrealized gains and losses and non-credit other-than-temporary impairments of fixed maturity investments available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in Accumulated
Other Comprehensive Income
 
 
 
 
 
 
September 30, 2013
Amortized 
Cost
 
Gross
Unrealized    
Gains
 
Gross
Unrealized    
Losses
 
Fair Value
 
Non-Credit
Other-Than-
Temporary
Impairments 
(1)  
 
 
Corporate
$
2,413

 
$
322

 
$
(30
)
 
$
2,705

 
$
(33
)
 
 
Agency mortgage-backed
5,142

 
366

 
(17
)
 
5,491

 
—

 
 
Non-agency mortgage-backed
12,315

 
2,504

 
(7
)
 
14,812

 
(768
)
 
 
Commercial mortgage-backed
10,469

 
1,050

 
—

 
11,519

 
—

 
 
Asset-backed
3,752

 
251

 
—

 
4,003

 
—

 
 
Total fixed maturity investments available for sale
$
34,091

 
$
4,493

 
$
(54
)
 
$
38,530

 
$
(801
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Included in Accumulated
Other Comprehensive Income
 
 
 
 
 
 
December 31, 2012
Amortized Cost
 
Gross
Unrealized    
Gains
 
Gross
Unrealized    
Losses
 
Fair Value
 
Non-Credit
Other-Than-
Temporary
Impairments
 (1)  
 
 
Corporate
$
7,065

 
$
1,002

 
$
(93
)
 
$
7,974

 
$
(85
)
 
 
Agency mortgage-backed
8,280

 
632

 
—

 
8,912

 
—

 
 
Non-agency mortgage-backed
14,613

 
2,989

 
(10
)
 
17,592

 
(835
)
 
 
Commercial mortgage-backed
37,292

 
7,229

 
—

 
44,521

 
—

 
 
Asset-backed
4,195

 
248

 
—

 
4,443

 
—

 
 
Total fixed maturity investments available for sale
$
71,445

 
$
12,100

 
$
(103
)
 
$
83,442

 
$
(920
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents the non-credit component of other-than-temporary impairments recognized in accumulated other comprehensive income since the adoption of guidance related to the recognition and presentation of other-than-temporary impairments under FASB ASC Topic Financial Instruments – Debt and Equity Securities, during the second quarter of 2009, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

13


Contractual maturities of fixed maturity investments are as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading
 
Available for Sale
 
Total Fixed Maturity Investments
 
 
September 30, 2013
Amortized 
Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
 
 
Due in less than one year
$
166,039

 
$
166,583

 
$
—

 
$
—

 
$
166,039

 
$
166,583

 
 
Due after one through five years
2,863,742

 
2,876,147

 
1,359

 
1,497

 
2,865,101

 
2,877,644

 
 
Due after five through ten years
633,863

 
629,875

 
647

 
707

 
634,510

 
630,582

 
 
Due after ten years
109,894

 
114,719

 
406

 
501

 
110,300

 
115,220

 
 
Mortgage-backed
938,147

 
953,168

 
27,928

 
31,822

 
966,075

 
984,990

 
 
Asset-backed
10,482

 
10,745

 
3,751

 
4,003

 
14,233

 
14,748

 
 
Total
$
4,722,167

 
$
4,751,237

 
$
34,091

 
$
38,530

 
$
4,756,258

 
$
4,789,767

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Investments Trading
The following table summarizes the fair value of equity investments trading:
 
 
 
 
 
 
 
 
September 30,
2013
 
December 31,
2012
 
 
Consumer
$
39,338

 
$
—

 
 
Industrial, utilities and energy
24,057

 
—

 
 
Financials
20,828

 
58,186

 
 
Health care
13,443

 
—

 
 
Basic materials
12,290

 
—

 
 
Communications and technology
4,030

 
—

 
 
Total
$
113,986

 
$
58,186

 
 
 
 
 
 
 
Pledged Investments
At September 30, 2013, $1,702.7 million of cash and investments at fair value were on deposit with, or in trust accounts for the benefit of various counterparties, including with respect to the Company's principal letter of credit facility. Of this amount, $649.7 million is on deposit with, or in trust accounts for the benefit of, U.S. state regulatory authorities.
Reverse Repurchase Agreements
At September 30, 2013, the Company held $153.7 million (December 31, 2012 - $74.8 million) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of short term investments on the Company's consolidated balance sheets. The required collateral for these loans typically include high-quality, readily marketable instruments at a minimum rate of 102% of the loan principal. Upon maturity, the Company receives principal and interest income.

14


Net Investment Income, Net Realized and Unrealized Gains on Investments and Net Other-Than-Temporary Impairments
The components of net investment income are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
Fixed maturity investments
$
24,423

 
$
25,741

 
$
71,148

 
$
75,934

 
 
Short term investments
563

 
236

 
1,318

 
1,006

 
 
Equity investments
706

 
181

 
1,050

 
532

 
 
Other investments
 
 
 
 
 
 
 
 
 
Hedge funds and private equity investments
14,179

 
10,383

 
31,296

 
28,443

 
 
Other
22,735

 
12,735

 
32,874

 
29,295

 
 
Cash and cash equivalents
47

 
63

 
108

 
143

 
 
 
62,653

 
49,339

 
137,794

 
135,353

 
 
Investment expenses
(2,722
)
 
(3,204
)
 
(8,498
)
 
(8,628
)
 
 
Net investment income
$
59,931

 
$
46,135

 
$
129,296

 
$
126,725

 
 
 
 
 
 
 
 
 
 
 
Net realized and unrealized gains on investments and net other-than-temporary impairments are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
Gross realized gains
$
8,813

 
$
19,891

 
$
60,437

 
$
75,635

 
 
Gross realized losses
(22,241
)
 
(2,811
)
 
(41,396
)
 
(13,055
)
 
 
Net realized (losses) gains on fixed maturity investments
(13,428
)
 
17,080

 
19,041

 
62,580

 
 
Net unrealized gains (losses) on fixed maturity investments trading
33,405

 
56,936

 
(85,338
)
 
83,735

 
 
Net realized and unrealized gains (losses) on investments-related derivatives
3,557

 
(955
)
 
24,488

 
(2,390
)
 
 
Net realized gains on equity investments trading
560

 
—

 
18,195

 
—

 
 
Net unrealized gains (losses) on equity investments trading
4,378

 
2,236

 
(3,174
)
 
7,057

 
 
Net realized and unrealized gains (losses) on investments
$
28,472

 
$
75,297

 
$
(26,788
)
 
$
150,982

 
 
Total other-than-temporary impairments
$
—

 
$
—

 
$
—

 
$
(395
)
 
 
Portion recognized in other comprehensive income, before taxes
—

 
—

 
—

 
52

 
 
Net other-than-temporary impairments
$
—

 
$
—

 
$
—

 
$
(343
)
 
 
 
 
 
 
 
 
 
 
 

15


The following table provides an analysis of the components of other comprehensive income and reclassifications out of accumulated other comprehensive income.
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2013
 
 
 
Investments in other ventures
 
Fixed maturity investments available for sale
 
Total
 
 
Beginning balance
$
218

 
$
4,691

 
$
4,909

 
 
Other comprehensive (loss) income before reclassifications
(91
)
 
116

 
25

 
 
Amounts reclassified from accumulated other comprehensive income by statement of operations line item:
 
 
 
 
 
 
 
Realized gains reclassified from accumulated other comprehensive income to net realized and unrealized gains (losses) on investments
—

 
(368
)
 
(368
)
 
 
Net current-period other comprehensive loss
(91
)
 
(252
)
 
(343
)
 
 
Ending balance
$
127

 
$
4,439

 
$
4,566

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2013
 
 
 
Investments in other ventures
 
Fixed maturity investments available for sale
 
Total
 
 
Beginning balance
$
1,625

 
$
11,997

 
$
13,622

 
 
Other comprehensive loss before reclassifications
(1,498
)
 
(10
)
 
(1,508
)
 
 
Amounts reclassified from accumulated other comprehensive income by statement of operations line item:
 
 
 
 
 
 
 
Realized gains reclassified from accumulated other comprehensive income to net realized and unrealized gains (losses) on investments
—

 
(7,548
)
 
(7,548
)
 
 
Net current-period other comprehensive loss
(1,498
)
 
(7,558
)
 
(9,056
)
 
 
Ending balance
$
127

 
$
4,439

 
$
4,566

 
 
 
 
 
 
 
 
 
The following table provides an analysis of the length of time the Company’s fixed maturity investments available for sale in an unrealized loss have been in a continual unrealized loss position.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
 
At September 30, 2013
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
 
Corporate
$
297

 
$
(22
)
 
$
41

 
$
(8
)
 
$
338

 
$
(30
)
 
 
Agency mortgage-backed
754

 
(17
)
 
—

 
—

 
754

 
(17
)
 
 
Non-agency mortgage-backed
—

 
—

 
94

 
(7
)
 
94

 
(7
)
 
 
Total
$
1,051

 
$
(39
)
 
$
135

 
$
(15
)
 
$
1,186

 
$
(54
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
 
At December 31, 2012
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
 
Corporate
$
598

 
$
(30
)
 
$
440

 
$
(63
)
 
$
1,038

 
$
(93
)
 
 
Non-agency mortgage-backed
—

 
—

 
101

 
(10
)
 
101

 
(10
)
 
 
Total
$
598

 
$
(30
)
 
$
541

 
$
(73
)
 
$
1,139

 
$
(103
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

16


At September 30, 2013, the Company held 11 fixed maturity investments available for sale securities that were in an unrealized loss position (December 31, 2012 - 28), including five fixed maturity investments available for sale securities that were in an unrealized loss position for twelve months or greater (December 31, 2012 - 11). The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. The Company performed reviews of its fixed maturity investments available for sale for the nine months ended September 30, 2013 and 2012, respectively, in order to determine whether declines in the fair value below the amortized cost basis were considered other-than-temporary in accordance with the applicable guidance, as discussed below.
Other-Than-Temporary Impairment Process
The Company's process for assessing whether declines in the fair value of its fixed maturity investments available for sale represent impairments that are other-than-temporary includes reviewing each fixed maturity investment available for sale that is impaired and determining: (i) if the Company has the intent to sell the debt security or (ii) if it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery; and (iii) whether a credit loss exists, that is, where the Company expects that the present value of the cash flows expected to be collected from the security are less than the amortized cost basis of the security.
In assessing the Company’s intent to sell securities, the Company’s procedures may include actions such as discussing planned sales with its third party investment managers, reviewing sales that have occurred shortly after the balance sheet date, and consideration of other qualitative factors that may be indicative of the Company’s intent to sell or hold the relevant securities. For the nine months ended September 30, 2013, the Company recognized $Nil other-than-temporary impairments due to the Company’s intent to sell these securities as of September 30, 2013 (2012 – $Nil).
In assessing whether it is more likely than not that the Company will be required to sell a security before its anticipated recovery, the Company considers various factors including its future cash flow forecasts and requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short term investments, fixed maturity investments trading and fixed maturity investments available for sale in an unrealized gain position, and other relevant factors. For the nine months ended September 30, 2013, the Company recognized $Nil of other-than-temporary impairments due to required sales (2012 – $Nil).
In evaluating credit losses, the Company considers a variety of factors in the assessment of a security including: (i) the time period during which there has been a significant decline below cost; (ii) the extent of the decline below cost and par; (iii) the potential for the security to recover in value; (iv) an analysis of the financial condition of the issuer; (v) the rating of the issuer; (vi) the implied rating of the issuer based on an analysis of option adjusted spreads; (vii) the absolute level of the option adjusted spread for the issuer; and (viii) an analysis of the collateral structure and credit support of the security, if applicable.
Once the Company determines that it is possible that a credit loss may exist for a security, the Company performs a detailed review of the cash flows expected to be collected from the issuer. The Company estimates expected cash flows by applying estimated default probabilities and recovery rates to the contractual cash flows of the issuer, with such default and recovery rates reflecting long-term historical averages adjusted to reflect current credit, economic and market conditions, giving due consideration to collateral and credit support, if applicable, and discounting the expected cash flows at the purchase yield on the security. In instances in which a determination is made that an impairment exists but the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, the impairment is separated into: (i) the amount of the total other-than-temporary impairment related to the credit loss; and (ii) the amount of the total other-than-temporary impairment related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the other-than-temporary impairment related to all other factors is recognized in other comprehensive income. For the nine months ended September 30, 2013, the Company recognized $Nil of other-than-temporary impairments which were recognized in earnings and $Nil related to other factors which were recognized in other comprehensive income (2012 – $0.3 million and $52 thousand, respectively).

17


The following table provides a rollforward of the amount of other-than-temporary impairments related to credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Three months ended September 30,
 
 
 
2013
 
2012
 
 
Beginning balance
$
791

 
$
1,404

 
 
Additions:
 
 
 
 
 
Amount related to credit loss for which an other-than-temporary impairment was not previously recognized
—

 
—

 
 
Amount related to credit loss for which an other-than-temporary impairment was previously recognized
—

 
—

 
 
Reductions:
 
 
 
 
 
Securities sold during the period
(38
)
 
(546
)
 
 
Securities for which the amount previously recognized in other comprehensive income was recognized in earnings, because the Company intends to sell the security or is more likely than not the Company will be required to sell the security
—

 
—

 
 
Increases in cash flows expected to be collected that are recognized over the remaining life of the security
—

 
—

 
 
Ending balance
$
753

 
$
858

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
 
 
 
2013
 
2012
 
 
Beginning balance
$
838

 
$
2,370

 
 
Additions:
 
 
 
 
 
Amount related to credit loss for which an other-than-temporary impairment was not previously recognized
—

 
8

 
 
Amount related to credit loss for which an other-than-temporary impairment was previously recognized
—

 
110

 
 
Reductions:
 
 
 
 
 
Securities sold during the period
(85
)
 
(1,630
)
 
 
Securities for which the amount previously recognized in other comprehensive income was recognized in earnings, because the Company intends to sell the security or is more likely than not the Company will be required to sell the security
—

 
—

 
 
Increases in cash flows expected to be collected that are recognized over the remaining life of the security
—

 
—

 
 
Ending balance
$
753

 
$
858

 
 
 
 
 
 
 


18


NOTE 5. FAIR VALUE MEASUREMENTS
The use of fair value to measure certain assets and liabilities with resulting unrealized gains or losses is pervasive within the Company's financial statements. Fair value is defined under accounting guidance currently applicable to the Company to be the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between open market participants at the measurement date. The Company recognizes the change in unrealized gains and losses arising from changes in fair value in its consolidated statements of operations, with the exception of changes in unrealized gains and losses on its fixed maturity investments available for sale, which are recognized as a component of accumulated other comprehensive income in shareholders' equity.
FASB ASC Topic Fair Value Measurements and Disclosures prescribes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to valuation techniques that use at least one significant input that is unobservable (Level 3). The three levels of the fair value hierarchy are described below:
•
Fair values determined by Level 1 inputs utilize unadjusted quoted prices obtained from active markets for identical assets or liabilities for which the Company has access. The fair value is determined by multiplying the quoted price by the quantity held by the Company;
•
Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals, broker quotes and certain pricing indices; and
•
Level 3 inputs are based all or in part on significant unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In these cases, significant management assumptions can be used to establish management's best estimate of the assumptions used by other market participants in determining the fair value of the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement of the asset or liability. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the asset or liability.
In order to determine if a market is active or inactive for a security, the Company considers a number of factors, including, but not limited to, the spread between what a seller is asking for a security and what a buyer is bidding for the same security, the volume of trading activity for the security in question, the price of the security compared to its par value (for fixed maturity investments), and other factors that may be indicative of market activity. 
There have been no material changes in the Company's valuation techniques, nor have there been any transfers between Level 1 and Level 2, or Level 2 and Level 3, respectively, during the periods represented by these consolidated financial statements.

19


Below is a summary of the assets and liabilities that are measured at fair value on a recurring basis and also represents the carrying amount on the Company’s consolidated balance sheet:
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2013
Total
 
Quoted
Prices in Active
Markets for
Identical 
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
Fixed maturity investments
 
 
 
 
 
 
 
 
 
U.S. treasuries
$
1,322,367

 
$
1,322,367

 
$
—

 
$
—

 
 
Agencies
197,047

 
—

 
197,047

 
—

 
 
Non-U.S. government (Sovereign debt)
353,810

 
—

 
353,810

 
—

 
 
Non-U.S. government-backed corporate
229,687

 
—

 
229,687

 
—

 
 
Corporate
1,687,118

 
—

 
1,661,748

 
25,370

 
 
Agency mortgage-backed
436,024

 
—

 
436,024

 
—

 
 
Non-agency mortgage-backed
246,163

 
—

 
246,163

 
—

 
 
Commercial mortgage-backed
302,803

 
—

 
302,803

 
—

 
 
Asset-backed
14,748

 
—

 
14,748

 
—

 
 
Total fixed maturity investments
4,789,767

 
1,322,367

 
3,442,030

 
25,370

 
 
Short term investments
925,329

 
—

 
925,329

 
—

 
 
Equity investments trading
113,986

 
113,986

 
—

 
—

 
 
Other investments
 
 
 
 
 
 
 
 
 
Private equity partnerships
327,245

 
—

 
—

 
327,245

 
 
Senior secured bank loan funds
19,395

 
—

 
—

 
19,395

 
 
Catastrophe bonds
102,141

 
—

 
102,141

 
—

 
 
Hedge funds
4,022

 
—

 
—

 
4,022

 
 
Miscellaneous other investment
47,967

 
—

 
—

 
47,967

 
 
Total other investments
500,770

 
—

 
102,141

 
398,629

 
 
Other assets and (liabilities)
 
 
 
 
 
 
 
 
 
Derivatives (1)
3,159

 
127

 
3,314

 
(282
)
 
 
Other
(8,801
)
 
—

 
(8,801
)
 
—

 
 
Total other assets and (liabilities)
(5,642
)
 
127

 
(5,487
)
 
(282
)
 
 
 
$
6,324,210

 
$
1,436,480

 
$
4,464,013

 
$
423,717

 
 
 
 
 
 
 
 
 
 
 
(1) See "Note 12. Derivative Instruments" for additional information related to the fair value by type of contract, of derivatives entered into by the Company.


20


 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
Total
 
Quoted
Prices in Active
Markets for
Identical
 Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
Fixed maturity investments
 
 
 
 
 
 
 
 
 
U.S. treasuries
$
1,254,547

 
$
1,254,547

 
$
—

 
$
—

 
 
Agencies
315,154

 
—

 
315,154

 
—

 
 
Non-U.S. government (Sovereign debt)
133,198

 
—

 
133,198

 
—

 
 
Non-U.S. government-backed corporate
349,514

 
—

 
349,514

 
—

 
 
Corporate
1,615,207

 
—

 
1,587,415