On March 13, 2013, CHBL and TGI completed a merger transaction pursuant to which CHBL was re-named Tower Group International, Ltd. and became the parent company of and successor to TGI pursuant to Rule 12g-3(a) under the Exchange Act, with TGI becoming its wholly owned subsidiary. Further details on the merger are discussed in “Part I” and the “Subsequent Event” note included elsewhere in this Form 10-K.
Other reinsurance income-Other reinsurance income of $0.4 million for the year ended December 31, 2012 is associated with a new reinsurance treaty entered into in the third quarter of 2012 which is accounted for using the deposit method of accounting.
The Company is reporting its investments under the “trading” method of accounting. Its investment portfolio is reported at fair value with changes in fair value recognized directly in earnings (i.e. trading portfolio). Accordingly, all unrealized gains and losses are immediately recognized as a component of net investment income. The following tables summarize The Company’s investment portfolio.
Other invested assets by category at December 31, 2012 and December 31, 2011 are as follows. Other investments are recorded at fair value with changes in fair value reported directly in the statement of income.
Interest rate risk is the risk that the Company may incur economic losses due to adverse changes in interest rates. The primary market risk to the investment portfolio is interest rate risk associated with investments in fixed income securities. Fluctuations in interest rates have a direct impact on the market valuation of these securities.
In the second quarter of 2012, the Company loaned approximately $108 million to Canopius Group under which the Company will earn London Interbank Offered Rate (LIBOR) plus 2 percent. The loan is repayable on demand, but in any event by February 28, 2013. However, on July 30, 2012, the Company, Canopius Group and other parties thereto entered into a letter agreement whereby the Company agreed to ensure that all indebtedness for borrowed money between the Company or any of its Subsidiaries, (other than Canopius Underwriting Bermuda Limited (“CUBL”)) or any affiliates thereof, and CUBL
The Company effects derivative contracts to mitigate foreign exchange currency risk, and recognizes derivative financial instruments as either assets or liabilities measured at fair value. Gains and losses resulting from changes in fair value are included in net investment income. None of the derivatives are designated as accounting hedges. The fair value of foreign exchange derivatives described are based on exchange rates provided by independent sources and are subject to the same Company fair value processes as described above.
Other invested assets by category at December 31, 2012 and December 31, 2011 are as follows. Other investments are recorded at fair value with changes in fair value reported directly in the statement of comprehensive income.
unearned premium of $174,447 thousand and $165,170 thousand for 2012 and 2011, respectively;
outstanding losses and loss expenses $713,878 thousand and $696,380 thousand for 2012 and 2011, respectively.
These transactions are consistent with related party transactions for the year ended December 31, 2012 and were entered into on normal commercial terms.
There were no material pending legal proceedings to which the Company or its subsidiary were a party to or of which any of the property was subject.