Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of location and gross amounts of derivative fair values

The following table summarizes information on the location and gross amounts of derivative fair values contained in the consolidated balance sheet at March 31, 2014 and December 31, 2013:

	March 31, 2014								December 31, 2013
(U.S. dollars in thousands)	Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)		Asset Derivative Notional Amount		Asset Derivative Fair Value (1)		Liability Derivative Notional Amount		Liability Derivative Fair Value (1)
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	337,704	$	7,809	$	3,225,676	$	27,898	$	1,005,610	$	26,098	$	2,572,227	$	70,462
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	520,707	$	213	$	35,704	$	—	$	30,702	$	266	$	10,259	$	8
Foreign exchange exposure	37,996		506		57,771		485		17,497		12		50,614		680
Credit exposure	—		—		18,837		10,456		—		—		340,020		15,128
Financial market exposure	125,419		330		10,606		12		58,232		1,111		14,821		77
Financial Operations Derivatives: (2)
Credit exposure	—		—		43,920		9,200		—		—		44,234		4,190
Other Non-Investment Derivatives:
Guaranteed minimum income benefit contract	—		—		52,367		13,316		—		—		53,564		14,940
Modified coinsurance funds withheld contract	64,583		—		—		—		66,369		—		—		—
Total derivatives not designated as hedging instruments	$	748,705	$	1,049	$	219,205	$	33,469	$	172,800	$	1,389	$	513,512	$	35,023

____________

(1) Derivative instruments in an asset or liability position are included within Other assets or Other liabilities, respectively, in the balance sheet on a net basis where the Company has both a legal right of offset and the intentions to settle the contracts on a net basis.

(2) Financial operations derivatives represent interests in variable interest entities as described in Note 11, “Variable Interest Entities".

Summary of gross and net amounts of derivative fair values and associated collateral received or paid

The following table summarizes information on the gross and net amounts of derivative fair values and associated collateral received related to derivative assets or paid relating to derivative liabilities contained in the consolidated balance sheet at March 31, 2014 and December 31, 2013:

							Gross Amounts Not Offset in the Balance Sheet
March 31, 2014 (U.S. dollars in thousands)	Gross Amounts Recognized in Balance Sheet		Gross Amounts Offset in the Balance Sheet		Net Amounts in the Balance Sheet		Financial Instruments		Cash Collateral		Net Amounts
Derivative Assets	$	8,858	$	—	$	8,858	$	—	$	—	$	8,858
Derivative Liabilities	$	61,367	$	—	$	61,367	$	—	$	1,791	$	59,576
December 31, 2013 (U.S. dollars in thousands)
Derivative Assets	$	27,487	$	1,342	$	26,145	$	—	$	—	$	26,145
Derivative Liabilities	$	105,485	$	1,342	$	104,143	$	—	$	19,847	$	84,296

Gain (loss) recognized in income attributable to risk of hedged items

The following table provides the total impact on earnings relating to derivative instruments formally designated as fair value hedges along with the impacts of the related hedged items for the three months ended March 31, 2014 and 2013:

				Hedged Items - Amount of Gain/(Loss) Recognized in Income Attributable to Risk
Derivatives Designated as Fair Value Hedges: Three Months Ended March 31, 2014 (U.S. dollars in thousands)	Gain/(Loss) Recognized in Income on Derivative				Deposit Liabilities		Fixed Maturity Investments			Ineffective Portion of Hedging Relationship - Gain/(Loss)
Interest rate exposure	$	—
Foreign exchange exposure	(6,531		)
Total	$	(6,531	)		$	—	$	8,325		$	1,794
Three Months Ended March 31, 2013
(U.S. dollars in thousands)
Interest rate exposure	$	—
Foreign exchange exposure	30,245
Total	$	30,245			$	—	$	(28,770	)	$	1,475

Summary of fair value hedges that have been settled and their impact on results

A summary of the fair value hedges that have been settled and their impact on results during the three months ended March 31, 2014 and 2013, as well as the remaining balance of fair value hedges and average years remaining to maturity are shown below:

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Notes Payable and Debt March 31,				Fair Value Hedges - Deposit Liabilities March 31,
(U.S. dollars in thousands, except years)	2014		2013		2014		2013
Cumulative reduction to interest expense	$	19,833	$	15,926	$	41,270	$	25,588
Remaining balance	$	1,791	$	5,698	$	191,925	$	207,607
Weighted average years remaining to maturity	0.5		1.5		22.2		24.7

Summary of hedges of net investment in foreign operation

The following table provides the weighted average U.S. dollar equivalent of foreign denominated net assets that were hedged and the resultant derivative gain (loss) that was recorded in the cumulative translation adjustment account within AOCI for the three months ended March 31, 2014 and 2013:

Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation - Summary	Three months ended March 31,
(U.S. dollars in thousands)	2014		2013
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	2,687,455	$	2,523,821
Derivative gains (losses)	$	960	$	60,614

Summary of net realized and unrealized gains (losses) on derivative instruments

The following table provides the total impact on earnings relating to derivative instruments not formally designated as hedging instruments under authoritative accounting guidance and from the ineffective portion of fair value hedges. The impacts are all recorded through Net realized and unrealized gains (losses) on derivatives in the income statement for the three months ended March 31, 2014 and 2013:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three months ended March 31,
(U.S. dollars in thousands)	2014			2013
Investment Related Derivatives:
Interest rate exposure	$	348		$	200
Foreign exchange exposure	3,288			(1,598		)
Credit exposure	(404		)	(816		)
Financial market exposure	871			5,353
Financial Operations Derivatives:
Credit exposure	(4,800		)	242
Other Non-Investment Derivatives:
Guaranteed minimum income benefit contract	1,624			3,697
Modified coinsurance funds withheld contract	(911		)	(668		)
Total gain (loss) recognized in income from derivatives not designated as hedging instruments	$	16		$	6,410
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges	1,794			1,475
Net realized and unrealized gains (losses) on derivative instruments	$	1,810		$	7,885

Summary of credit derivative exposures

An aggregate summary of the credit derivative exposure at March 31, 2014 and December 31, 2013 is as follows:

Financial Operations Derivatives - Credit Exposure Summary: (U.S. dollars in thousands)	March 31, 2014		December 31, 2013
Principal outstanding	$	42,043	$	42,080
Interest outstanding	1,877		2,154
Aggregate outstanding exposure	$	43,920	$	44,234
Total liability recorded	$	9,200	$	4,190
Weighted average contractual term to maturity	3.5 years		3.7 years
Underlying obligations credit rating	CC		CC

Summary of contingent credit features

The aggregate fair value of all derivative agreements containing such rating downgrade provisions that were in a liability position and any collateral posted under these agreements as of March 31, 2014 and December 31, 2013 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	March 31, 2014		December 31, 2013
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	23,274	$	47,703
Collateral posted to counterparty	$	1,150	$	13,260