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Derivative Instruments (Tables)
 12 Months Ended
Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Summary of location and gross amounts of derivative fair values in the consolidated balance sheets
The following table summarizes information on the location and gross amounts of derivative fair values contained in the consolidated balance sheet as at December 31, 2013 and 2012:
(U.S. dollars in thousands)
2013
 
2012
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
$
1,005,610

 
$
26,098

 
$
2,572,227

 
$
70,462

 
$
670,751

 
$
12,511

 
$
2,382,507

 
$
23,715

Total derivatives designated as hedging instruments
$
1,005,610

 
$
26,098

 
$
2,572,227

 
$
70,462

 
$
670,751

 
$
12,511

 
$
2,382,507

 
$
23,715

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Related Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate exposure
$
30,702

 
$
266

 
$
10,259

 
$
8

 
$
45,604

 
$
2,060

 
$
26,139

 
$
253

Foreign exchange exposure
17,497

 
12

 
50,614

 
680

 
33,007

 
226

 
54,449

 
1,790

Credit exposure
—

 
—

 
340,020

 
15,128

 
25,000

 
486

 
436,959

 
15,472

Financial market exposure
58,232

 
1,111

 
14,821

 
77

 
72,597

 
9,559

 
16,910

 
—

Financial Operations Derivatives: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit exposure
—

 
—

 
44,234

 
4,190

 
—

 
—

 
46,903

 
—

Other Non-Investment Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guaranteed minimum income benefit contract
—

 
—

 
53,564

 
14,940

 
—

 
—

 
69,051

 
25,396

Modified coinsurance funds withheld contract
66,369

 
—

 
—

 
—

 
76,975

 
—

 
—

 
—

Total derivatives not designated as hedging instruments
$
172,800

 
$
1,389

 
$
513,512

 
$
35,023

 
$
253,183

 
$
12,331

 
$
650,411

 
$
42,911

____________
(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 16, “Variable Interest Entities".
Summary of gross and net amounts of derivative fair values and associated collateral
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 December 31, 2013 and 2012:
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheet
 
 
December 31, 2013
(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
$
27,487

 
$
1,342

 
$
26,145

 
$
—

 
$
—

 
$
26,145

Derivative Liabilities
$
105,485

 
$
1,342

 
$
104,143

 
$
—

 
$
19,847

 
$
84,296

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
(U.S. dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets
$
24,842

 
$
1,327

 
$
23,515

 
$
—

 
$
—

 
$
23,515

Derivative Liabilities
$
66,626

 
$
1,327

 
$
65,299

 
$
—

 
$
12,130

 
$
53,169
Total impact on earnings related to derivative instruments
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 years indicated:
Derivatives Designated as Fair Value Hedges
(U.S. dollars in thousands)
Hedged Items – Amount of Gain/(Loss)
Recognized in Income Attributable to Risk
Gain/(Loss)
Recognized
in Income on
Derivative
 
Deposit
Liabilities
 
Fixed
Maturity
Investments
 
Ineffective
Portion of
Hedging
Relationship –
Gain/(Loss)
Year Ended December 31, 2013
 
 
 
 
 
 
 
Interest rate exposure
$
—

 
 
 
 
 
 
Foreign exchange exposure
(22,568
)
 
 
 
 
 
 
Total
$
(22,568
)
 
$
—

 
$
23,065

 
$
497

Year Ended December 31, 2012
 
 
 
 
 
 
 
Interest rate exposure
$
1,813

 
 
 
 
 
 
Foreign exchange exposure
(24,183
)
 
 
 
 
 
 
Total
$
(22,370
)
 
$
(6,182
)
 
$
23,967

 
$
(4,585
)
Year Ended December 31, 2011
 
 
 
 
 
 
 
Interest rate exposure
$
25,680

 
 
 
 
 
 
Foreign exchange exposure
15,135

 
 
 
 
 
 
Total
$
40,815

 
$
(27,391
)
 
$
(15,299
)
 
$
(1,875
)
Summary of fair value hedges that have been settled and their impact on results during the year
A summary of the fair value hedges that have been settled and their impact on results during the indicated years ended December 31 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
(U.S. dollars in thousands, except years)
Fair Value Hedges –
Notes Payable and Debt
December 31,
 
Fair Value Hedges –
Deposit Liabilities
December 31,
2013
 
2012
 
2013
 
2012
Cumulative reduction to interest expense
$
18,856

 
$
14,949

 
$
37,382

 
$
21,395

Remaining balance
$
2,768

 
$
6,675

 
$
195,814

 
$
211,800

Weighted average years remaining to maturity
0.7

 
1.7

 
22.7

 
25.3
Weighted average US dollar equivalent of foreign denominated net assets that were hedge and resultant gain (loss)
The following table provides the weighted average U.S. dollar equivalent of foreign denominated net assets that were hedged and the resultant gain (loss) that was recorded in the cumulative translation adjustment account within AOCI for the year ended December 31, 2013 and 2012.
Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation – Summary
(U.S. dollars in thousands)
2013
 
2012
Weighted average of U.S. dollar equivalent of foreign denominated net assets
$
2,648,137

 
$
1,962,076

Derivative gains (losses) (1)
$
(27,392
)
 
$
(36,649
)
 
____________
(1)
Derivative gains (losses) from derivative instruments designated as hedges of the net investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.
Total impact on earnings relating to derivative instruments not formally designated as hedging
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 years ended December 31, 2013, 2012 and 2011:
Net Realized and Unrealized Gains (Losses) on Derivative Instruments
(U.S. dollars in thousands)
2013
 
2012
 
2011
Investment Related Derivatives:
 
 
 
 
 
Interest rate exposure
$
5,065

 
$
4,394

 
$
(1,021
)
Foreign exchange exposure
(948
)
 
(1,084
)
 
(302
)
Credit exposure
(4,052
)
 
(7,611
)
 
(16,527
)
Financial market exposure
6,302

 
3,073

 
(5,131
)
Financial Operations Derivatives:
 
 
 
 
 
Credit exposure
(2,437
)
 
10,511

 
16,976

Other Non-Investment Derivatives:
 
 
 
 
 
Contingent credit facility
—

 
—

 
(6,068
)
Guaranteed minimum income benefit contract
10,457

 
(2,906
)
 
(1,300
)
Modified coinsurance funds withheld contract
(7,086
)
 
3,429

 
4,510

Total derivatives not designated as hedging instruments
$
7,301

 
$
9,806

 
$
(8,863
)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges
497

 
(4,585
)
 
(1,875
)
Net realized and unrealized gains (losses) on derivative instruments
$
7,798

 
$
5,221

 
$
(10,738
)
Summary of credit derivative exposure
An aggregate summary of the credit derivative exposure at December 31 for the years indicated is as follows:
Financial Operations Derivatives - Credit Exposure Summary:
(U.S. dollars in thousands, except term to maturity)
2013
 
2012
Principal outstanding
$
42,080

 
$
44,281

Interest outstanding
2,154

 
2,622

Aggregate outstanding exposure
$
44,234

 
$
46,903

Total liability recorded
$
4,190

 
$
—

Weighted average contractual term to maturity
3.7 years

 
4.7 years

Underlying obligations credit rating
CC

 
BB
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 the collateral posted under any of these agreements at December 31 for the years indicated were as follows:
Contingent Credit Features - Summary:
(U.S. dollars in thousands)
2013
 
2012
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position
$
47,703

 
$
20,366

Collateral posted to counterparty
$
13,260

 
$
5,490