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Derivative Financial Instruments (Tables)
 9 Months Ended
Sep. 30, 2015
Derivative Financial Instruments  
Derivative Financial Instruments, Exposure (Table)

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

(in millions)

 

Notional amounts of derivative instruments

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

Interest rate swaps

 

$
21,931.0 

 

$
19,182.6 

 

Interest rate options

 
4,900.0 

 
4,900.0 

 

Swaptions

 
159.0 

 
260.0 

 

Interest rate futures

 
173.5 

 
147.5 

 

Foreign exchange contracts:

 

 

 

 

 

Currency swaps

 
1,831.6 

 
1,975.5 

 

Currency forwards

 
963.0 

 
270.7 

 

Equity contracts:

 

 

 

 

 

Equity options

 
3,558.2 

 
3,293.4 

 

Equity futures

 
563.4 

 
498.1 

 

Credit contracts:

 

 

 

 

 

Credit default swaps

 
1,095.9 

 
1,234.5 

 

Total return swaps

 
90.0 

 
90.0 

 

Futures

 
15.6 

 
10.5 

 

Other contracts:

 

 

 

 

 

Embedded derivatives

 
9,773.2 

 
9,235.7 

 

 

 

 

 

 

 

Total notional amounts at end of period

 

$
45,054.4 

 

$
41,098.5 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit exposure of derivative instruments

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

Interest rate swaps

 

$
632.9 

 

$
510.8 

 

Interest rate options

 
40.1 

 
41.0 

 

Foreign exchange contracts:

 

 

 

 

 

Currency swaps

 
112.6 

 
97.1 

 

Currency forwards

 
3.9 

 
1.4 

 

Equity contracts:

 

 

 

 

 

Equity options

 
72.4 

 
30.2 

 

Credit contracts:

 

 

 

 

 

Credit default swaps

 
13.1 

 
13.3 

 

 

 

 

 

 

 

Total gross credit exposure

 
875.0 

 
693.8 

 

Less: collateral received

 
308.4 

 
183.5 

 

 

 

 

 

 

 

Net credit exposure

 

$
566.6 

 

$
510.3 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instruments, Fair Value Disclosures (Table)

 

 

 

 

Derivative assets (1)

 

Derivative liabilities (2)

 

 

 

September 30, 2015

 

December 31, 2014

 

September 30, 2015

 

December 31, 2014

 

 

 

(in millions)

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$
15.7 

 

$
8.8 

 

$
162.2 

 

$
193.9 

 

Foreign exchange contracts

 
105.0 

 
80.0 

 
146.5 

 
69.1 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

$
120.7 

 

$
88.8 

 

$
308.7 

 

$
263.0 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$
597.8 

 

$
508.7 

 

$
314.1 

 

$
321.4 

 

Foreign exchange contracts

 
17.2 

 
20.8 

 
63.8 

 
40.1 

 

Equity contracts

 
72.5 

 
30.2 

 
91.7 

 
131.7 

 

Credit contracts

 
13.1 

 
13.3 

 
38.7 

 
35.6 

 

Other contracts

 

—

 

—

 
446.9 

 
415.5 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives not designated as hedging instruments

 
700.6 

 
573.0 

 
955.2 

 
944.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivative instruments

 

$
821.3 

 

$
661.8 

 

$
1,263.9 

 

$
1,207.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The fair value of derivative assets is reported with other investments on the consolidated statements of financial position.

(2)

The fair value of derivative liabilities is reported with other liabilities on the consolidated statements of financial position, with the exception of certain embedded derivative liabilities. Embedded derivative liabilities with a fair value of $210.3 million and $176.4 million as of September 30, 2015 and December 31, 2014, respectively, are reported with contractholder funds on the consolidated statements of financial position.

 

Credit Derivatives Sold (Table)

 

 

 

September 30, 2015

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Maximum

 

average

 

 

 

Notional

 

Fair

 

future

 

expected life

 

 

 

amount

 

value

 

payments

 

(in years)

 

 

 

(in millions)

 

Single name credit default swaps

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

 

 

 

 

 

 

 

AAA

 

$
30.0

 

$
0.8

 

$
30.0

 
3.5

 

AA

 
74.0

 
1.2

 
74.0

 
2.5

 

A

 
204.5

 
2.9

 
204.5

 
2.4

 

BBB

 
340.0

 
(1.3

)
340.0

 
3.2

 

BB

 
10.0

 
(2.1

)
10.0

 
4.2

 

Government/municipalities

 

 

 

 

 

 

 

 

 

AA

 
30.0

 
0.6

 
30.0

 
3.6

 

Sovereign

 

 

 

 

 

 

 

 

 

AA

 
10.0

 
(0.1

)
10.0

 
4.0

 

BBB

 
40.0

 
(1.1

)
40.0

 
4.0

 

 

 

 

 

 

 

 

 

 

 

Total single name credit default swaps

 
738.5

 
0.9

 
738.5

 
3.0

 

 

 

 

 

 

 

 

 

 

 

Basket and index credit default swaps

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

 

 

 

 

 

 

 

Near default (1)

 
100.4

 
(22.5

)
100.4

 
1.5

 

Government/municipalities

 

 

 

 

 

 

 

 

 

AA

 
30.0

 
(1.2

)
30.0

 
2.0

 

Structured finance

 

 

 

 

 

 

 

 

 

AAA

 
13.8

 
0.1

 
13.8

 
0.9

 

 

 

 

 

 

 

 

 

 

 

Total basket and index credit default swaps

 
144.2

 
(23.6

)
144.2

 
1.5

 

 

 

 

 

 

 

 

 

 

 

Total credit default swap protection sold

 

$
882.7

 

$
(22.7

)

$
882.7

 
2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Maximum

 

average

 

 

 

Notional

 

Fair

 

future

 

expected life

 

 

 

amount

 

value

 

payments

 

(in years)

 

 

 

(in millions)

 

Single name credit default swaps

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

 

 

 

 

 

 

 

AAA

 

$
30.0

 

$
1.0

 

$
30.0

 
4.2

 

AA

 
79.0

 
1.6

 
79.0

 
3.3

 

A

 
254.5

 
3.3

 
254.5

 
2.8

 

BBB

 
345.0

 
1.2

 
345.0

 
3.6

 

BB

 
10.0

 
0.9

 
10.0

 
5.0

 

Government/municipalities

 

 

 

 

 

 

 

 

 

AA

 
30.0

 
0.6

 
30.0

 
4.3

 

Sovereign

 

 

 

 

 

 

 

 

 

AA

 
10.0

 
0.1

 
10.0

 
4.7

 

BBB

 
40.0

 
(0.1

)
40.0

 
4.7

 

 

 

 

 

 

 

 

 

 

 

Total single name credit default swaps

 
798.5

 
8.6

 
798.5

 
3.5

 

 

 

 

 

 

 

 

 

 

 

Basket and index credit default swaps

 

 

 

 

 

 

 

 

 

Corporate debt

 

 

 

 

 

 

 

 

 

Near default (1)

 
100.4

 
(19.1

)
100.4

 
2.2

 

Government/municipalities

 

 

 

 

 

 

 

 

 

AA

 
30.0

 
(1.8

)
30.0

 
2.7

 

Structured finance

 

 

 

 

 

 

 

 

 

BBB

 
16.9

 
0.1

 
16.9

 
3.5

 

 

 

 

 

 

 

 

 

 

 

Total basket and index credit default swaps

 
147.3

 
(20.8

)
147.3

 
2.5

 

 

 

 

 

 

 

 

 

 

 

Total credit default swap protection sold

 

$
945.8

 

$
(12.2

)

$
945.8

 
3.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes $78.0 million as of both September 30, 2015 and December 31, 2014, notional of derivatives in consolidated collateralized private investment vehicle VIEs where the credit risk is borne by third party investors.

 

Hybrid Instruments (Table)

 

 

September 30, 2015

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

average

 

 

 

Amortized

 

Carrying

 

expected life

 

 

 

cost

 

value

 

(in years)

 

 

 

(in millions)

 

Corporate debt

 

 

 

 

 

 

 

A

 

$
24.4 

 

$
24.4 

 
1.3 

 

 

 

 

 

 

 

 

 

 

 

Total corporate debt

 
24.4 

 
24.4 

 
1.3 

 

 

 

 

 

 

 

 

 

Structured finance

 

 

 

 

 

 

 

A

 
62.1 

 
62.1 

 
1.1 

 

BB

 
5.8 

 
5.8 

 
1.6 

 

CCC

 
8.4 

 
8.4 

 
4.8 

 

 

 

 

 

 

 

 

 

Total structured finance

 
76.3 

 
76.3 

 
1.5 

 

 

 

 

 

 

 

 

 

Total fixed maturities with credit derivatives

 

$
100.7 

 

$
100.7 

 
1.5 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

average

 

 

 

Amortized

 

Carrying

 

expected life

 

 

 

cost

 

value

 

(in years)

 

 

 

(in millions)

 

Corporate debt

 

 

 

 

 

 

 

A

 

$
24.1 

 

$
24.1 

 
2.0 

 

 

 

 

 

 

 

 

 

 

 

Total corporate debt

 
24.1 

 
24.1 

 
2.0 

 

 

 

 

 

 

 

 

 

Structured finance

 

 

 

 

 

 

 

A

 
56.1 

 
56.1 

 
1.5 

 

BB

 
5.8 

 
5.8 

 
2.7 

 

CCC

 
9.5 

 
9.5 

 
4.7 

 

 

 

 

 

 

 

 

 

Total structured finance

 
71.4 

 
71.4 

 
2.1 

 

 

 

 

 

 

 

 

 

Total fixed maturities with credit derivatives

 

$
95.5 

 

$
95.5 

 
2.0 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Hedges (Table)

 

 

 

 

 

 

 

Amount of gain (loss)

 

 

 

Amount of gain (loss)

 

 

 

recognized in net income on

 

 

 

recognized in net income on

 

 

 

related hedged item for the

 

 

 

derivatives for the three months

 

 

 

three months ended

 

Derivatives in fair value hedging

 

ended September 30, (1)

 

Hedged items in fair value

 

September 30, (1)

 

relationships

 

2015

 

2014

 

hedging relationships

 

2015

 

2014

 

 

 

(in millions)

 

 

 

(in millions)

 

Interest rate contracts

 

$
(7.0

)

$
18.5

 

Fixed maturities, available-for-sale

 

$
6.7

 

$
(18.3

)

Interest rate contracts

 
2.4

 
(2.4

)

Investment-type insurance contracts

 
(2.4

)
2.4

 

Foreign exchange contracts

 

—

 
3.0

 

Fixed maturities, available-for-sale

 

—

 
(3.1

)

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
(4.6

)

$
19.1

 

Total

 

$
4.3

 

$
(19.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of loss

 

 

 

Amount of gain

 

 

 

recognized in net income on

 

 

 

recognized in net income on

 

 

 

related hedged item for the

 

 

 

derivatives for the nine months

 

 

 

for the nine months

 

Derivatives in fair value hedging

 

ended September 30, (1)

 

Hedged items in fair value

 

ended September 30, (1)

 

relationships

 

2015

 

2014

 

hedging relationships

 

2015

 

2014

 

 

 

(in millions)

 

 

 

(in millions)

 

Interest rate contracts

 

$
11.1

 

$
27.2

 

Fixed maturities, available-for-sale

 

$
(11.0

)

$
(28.4

)

Interest rate contracts

 
3.9

 
0.2

 

Investment-type insurance contracts

 
(3.8

)
(0.1

)

Foreign exchange contracts

 
3.8

 
3.8

 

Fixed maturities, available-for-sale

 
(3.8

)
(3.8

)

Foreign exchange contracts

 

—

 
0.2

 

Investment-type insurance contracts

 

—

 
(0.2

)

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
18.8

 

$
31.4

 

Total

 

$
(18.6

)

$
(32.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The gain (loss) on both derivatives and hedged items in fair value relationships is reported in net realized capital gains (losses) on the consolidated statements of operations. The net amount represents the ineffective portion of our fair value hedges.
Fair Value Hedges, Periodic Settlements Disclosures (Table)

 

 

 

 

Amount of gain (loss) for the three

 

Amount of gain (loss) for the

 

 

 

months ended September 30,

 

nine months ended September 30,

 

Hedged item

 

2015

 

2014

 

2015

 

2014

 

 

 

(in millions)

 

Fixed maturities, available-for-sale (1)

 

$
(17.6

)

$
(22.2

)

$
(56.9

)

$
(71.5

)

Investment-type insurance contracts (2)

 
0.9

 
1.0

 
2.8

 
3.4

 

 

 

(1)

Reported in net investment income on the consolidated statements of operations.

(2)

Reported in benefits, claims and settlement expenses on the consolidated statements of operations.
Cash Flow Hedges (Table)

 

 

 

 

 

 

Amount of gain (loss)

 

 

 

Amount of gain (loss)

 

 

 

 

 

recognized in AOCI on

 

 

 

reclassified from AOCI on

 

 

 

 

 

derivatives (effective portion)

 

Location of gain (loss)

 

derivatives (effective portion)

 

Derivatives in cash

 

 

 

for the three months ended

 

reclassified from AOCI

 

for the three months ended

 

flow hedging

 

 

 

September 30,

 

into net income

 

September 30,

 

relationships

 

Related hedged item

 

2015

 

2014

 

(effective portion)

 

2015

 

2014

 

 

 

 

 

(in millions)

 

 

 

(in millions)

 

Interest rate contracts

 

Fixed maturities, available-for-sale

 

$
12.6

 

$
8.8

 

Net investment income

 

$
4.4

 

$
3.5

 

Interest rate contracts

 

Investment-type insurance contracts

 
1.1

 
0.2

 

Benefits, claims and settlement expenses

 

—

 

—

 

Interest rate contracts

 

Debt

 

—

 

—

 

Operating expense

 
(2.1

)
(1.9

)

Foreign exchange contracts

 

Fixed maturities, available-for-sale

 
11.4

 
44.6

 

Net realized capital gains

 
2.0

 
0.2

 

Foreign exchange contracts

 

Investment-type insurance contracts

 
(0.5

)
1.3

 

Benefits, claims and settlement expenses

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
24.6

 

$
54.9

 

Total

 

$
4.3

 

$
1.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss)

 

 

 

Amount of gain (loss)

 

 

 

 

 

recognized in AOCI on

 

 

 

reclassified from AOCI on

 

 

 

 

 

derivatives (effective portion)

 

Location of gain (loss)

 

derivatives (effective portion)

 

Derivatives in cash

 

 

 

for the nine months ended

 

reclassified from AOCI

 

for the nine months ended

 

flow hedging

 

 

 

September 30,

 

into net income

 

September 30,

 

relationships

 

Related hedged item

 

2015

 

2014

 

(effective portion)

 

2015

 

2014

 

 

 

 

 

(in millions)

 

 

 

(in millions)

 

Interest rate contracts

 

Fixed maturities, available-for-sale

 

$
23.7

 

$
10.8

 

Net investment income

 

$
12.3

 

$
10.1

 

Interest rate contracts

 

Investment-type insurance contracts

 
3.4

 
2.6

 

Benefits, claims and settlement expenses

 

—

 

—

 

Interest rate contracts

 

Debt

 

—

 

—

 

Operating expense

 
(6.1

)
(5.5

)

Foreign exchange contracts

 

Fixed maturities, available-for-sale

 
24.9

 
44.4

 

Net realized capital gains (losses)

 
15.9

 
(10.9

)

Foreign exchange contracts

 

Investment-type insurance contracts

 
(1.7

)
9.8

 

Benefits, claims and settlement expenses

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$
50.3

 

$
67.6

 

Total

 

$
22.1

 

$
(6.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Hedges, Periodic Settlements Disclosures (Table)

 

 

 

 

Amount of gain (loss) for the

 

Amount of gain (loss) for the

 

 

 

three months ended September 30,

 

nine months ended September 30,

 

Hedged item

 

2015

 

2014

 

2015

 

2014

 

 

 

(in millions)

 

Fixed maturities, available-for-sale (1)

 

$
1.5

 

$
1.1

 

$
4.6

 

$
3.9

 

Investment-type insurance contracts (2)

 
(4.8

)
(2.6

)
(13.5

)
(8.4

)

 

 

(1)

Reported in net investment income on the consolidated statements of operations.

(2)

Reported in benefits, claims and settlement expenses on the consolidated statements of operations.

 

Net Investment Hedges (Table)

 

 

 

 

Amount of gain

 

Amount of gain

 

 

 

recognized in AOCI on

 

recognized in AOCI on

 

 

 

derivatives (effective portion)

 

derivatives (effective portion)

 

 

 

for the three months ended

 

for the nine months ended

 

 

 

September 30,

 

September 30,

 

Derivatives in net investment hedging relationships

 

2015

 

2014

 

2015

 

2014

 

 

 

(in millions)

 

Foreign exchange contracts

 

$
1.7 

 

$

—

 

$
1.7 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
1.7 

 

$

—

 

$
1.7 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments (Table)

 

 

 

 

Amount of gain (loss) recognized in

 

Amount of gain (loss) recognized in

 

 

 

net income on derivatives for the

 

net income on derivatives for the

 

 

 

three months ended September 30,

 

nine months ended September 30,

 

Derivatives not designated as hedging instruments

 

2015

 

2014

 

2015

 

2014

 

 

 

(in millions)

 

Interest rate contracts

 

$
150.8

 

$
38.3

 

$
84.7

 

$
134.7

 

Foreign exchange contracts

 
(27.0

)
(43.7

)
(39.2

)
(56.6

)

Equity contracts

 
39.7

 
37.7

 
7.5

 
0.1

 

Credit contracts

 
(11.0

)
(21.7

)
2.4

 
(10.8

)

Other contracts

 
(97.9

)
(62.0

)
(39.0

)
(108.5

)

 

 

 

 

 

 

 

 

 

 

Total

 

$
54.6

 

$
(51.4

)

$
16.4

 

$
(41.1

)