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Derivative Instruments (Tables)
 9 Months Ended
Sep. 30, 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 sheets at September 30, 2014 and December 31, 2013:
 
September 30, 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
$
1,688,527

 
$
68,095

 
$
340,822

 
$
2,309

 
$
1,005,610

 
$
26,098

 
$
2,572,227

 
$
70,462

Derivatives not designated as hedging instruments:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Investment Related Derivatives:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate exposure
$
741,062

 
$
245

 
$
27,690

 
$
9

 
$
30,702

 
$
266

 
$
10,259

 
$
8

Foreign exchange exposure
119,272

 
1,693

 
225,757

 
7,754

 
17,497

 
12

 
50,614

 
680

Credit exposure
2,221

 
198

 
14,270

 
9,997

 
—

 
—

 
340,020

 
15,128

Financial market exposure
36,974

 
222

 
46,282

 
537

 
58,232

 
1,111

 
14,821

 
77

Financial Operations Derivatives: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit exposure
—

 
—

 
37,188

 
8,220

 
—

 
—

 
44,234

 
4,190

Other Non-Investment Derivatives:
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Guaranteed minimum income benefit contract
48,327

 
11,597

 
48,327

 
11,597

 
—

 
—

 
53,564

 
14,940

Modified coinsurance funds withheld contracts (3)
65,868

 
—

 
5,470,711

 
—

 
66,369

 
—

 
—

 
—

Total derivatives not designated as hedging instruments
$
1,013,724

 
$
13,955

 
$
5,870,225

 
$
38,114

 
$
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 sheets on a net basis where the Company has both a legal right of offset and the intention to settle the contracts on a net basis.
(2)
Financial operations derivatives represent interests in variable interest entities as described in Note 12, “Variable Interest Entities."
(3)
The fair value movements in derivative assets and liabilities relating to modified coinsurance funds withheld contracts are included within the associated asset or liability at each period end on the face of the balance sheets. Notional amounts associated with reinsurance agreements under which the Company assumes reinsurance risk are recorded as asset derivative notional amounts. Notional amounts associated with the Life Retro Arrangements under which the Company cedes reinsurance risk are recorded as liability derivative notional amounts. Included in the liability derivative notional amount at September 30, 2014 is the year to date net realized and unrealized loss on life retrocession embedded derivative of $189.6 million.

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 sheets at September 30, 2014 and December 31, 2013:
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheets
 
 
September 30, 2014
(U.S. dollars in thousands)
Gross Amounts Recognized in the Balance Sheets
 
Gross Amounts Offset in the Balance Sheets
 
Net Amounts in the Balance Sheets
 
Financial Instruments
 
Cash Collateral
 
Net Amounts
Derivative Assets
$
82,050

 
$
7,579

 
$
74,471

 
$
—

 
$
35,490

 
$
38,981

Derivative Liabilities
$
40,423

 
$
7,579

 
$
32,844

 
$
—

 
$
—

 
$
32,844

 
 
 
 
 
 
 
 
 
 
 
 
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 and nine months ended September 30, 2014 and 2013:
 
 
Hedged Items - Amount of Gain/(Loss) Recognized in Income Attributable to Risk
 
Derivatives Designated as Fair Value Hedges:
Three Months Ended September 30, 2014
(U.S. dollars in thousands)
Gain/(Loss)
Recognized
in Income on
Derivative
 
Fixed Maturity
Investments
 
Ineffective
Portion of
Hedging
Relationship -
Gain/(Loss)
Interest rate exposure
$
—

 
 

 
 

Foreign exchange exposure
—

 
 

 
 

Total
$
—

 
$
—

 
$
—

 
 

 
 

 
 

Three Months Ended September 30, 2013
 

 
 

 
 

(U.S. dollars in thousands)
 

 
 

 
 

Interest rate exposure
$
—

 
 

 
 

Foreign exchange exposure
(29,523
)
 
 

 
 

Total
$
(29,523
)
 
$
29,263

 
$
(260
)
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 

 
 

 
 

(U.S. dollars in thousands)
 

 
 

 
 

Interest rate exposure
$
—

 
 

 
 

Foreign exchange exposure
(15,663
)
 
 

 
 

Total
$
(15,663
)
 
$
15,407

 
$
(256
)
 
 
 
 
 
 
Nine Months Ended September 30, 2013
 

 
 

 
 

(U.S. dollars in thousands)
 

 
 

 
 

Interest rate exposure
$
—

 
 

 
 

Foreign exchange exposure
(4,280
)
 
 

 
 

Total
$
(4,280
)
 
$
4,989

 
$
709
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, their cumulative reduction to interest expense, the remaining balance of the fair value hedges and the average years remaining to maturity at September 30, 2014 and 2013 are shown below:
Settlement of Fair Value Hedges - Summary
Fair Value Hedges - Notes
Payable and Debt
September 30,
 
Fair Value Hedges - Deposit
Liabilities
September 30,
(U.S. dollars in thousands, except years)
2014
 
2013
 
2014
 
2013
Cumulative reduction to interest expense
$
21,624

 
$
17,879

 
$
93,042

 
$
33,379

Remaining balance
$
—

 
$
3,744

 
$
140,153

 
$
199,816

Weighted average years remaining to maturity
0.0

 
1.0

 
23.6

 
23.9
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 resulting derivative gain (loss) that was recorded in the Foreign currency translation adjustment, net of tax, account within AOCI for the three and nine months ended September 30, 2014 and 2013:
Derivative Instruments Designated as Hedges of the
Net Investment in a Foreign Operation - Summary
Three months ended September 30,
 
Nine months ended September 30,
(U.S. dollars in thousands)
2014
 
2013
 
2014
 
2013
Weighted average of U.S. dollar equivalent of foreign denominated net assets
$
2,052,469

 
$
2,758,577

 
$
2,336,671

 
$
2,623,594

Derivative gains (losses)
$
64,593

 
$
(58,852
)
 
$
63,383

 
$
(4,373
)
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 and nine months ended September 30, 2014 and 2013:
Net Realized and Unrealized Gains (Losses) on Derivative Instruments
Three months ended September 30,
 
Nine months ended September 30,
(U.S. dollars in thousands)
2014
 
2013
 
2014
 
2013
Investment Related Derivatives:
 

 
 

 
 

 
 

Interest rate exposure
$
3,987

 
$
4,334

 
$
13,313

 
$
4,822

Foreign exchange exposure
(576
)
 
3,710

 
1,222

 
(578
)
Credit exposure
384

 
(956
)
 
391

 
(2,950
)
Financial market exposure
(912
)
 
1,553

 
2,467

 
4,170

Financial Operations Derivatives:
 

 
 
 
 

 
 
Credit exposure
915

 
(3,980
)
 
(3,438
)
 
(2,651
)
Other Non-Investment Derivatives:
 

 
 
 
 

 
 
Guaranteed minimum income benefit contract
—

 
175

 
2,257

 
6,178

Modified coinsurance funds withheld contract
1,333

 
(3,696
)
 
2,584

 
(6,040
)
Total gain (loss) recognized in income from derivatives not designated as hedging instruments
$
5,131

 
$
1,140

 
$
18,796

 
$
2,951

Amount of gain (loss) recognized in income from ineffective
portion of fair value hedges
—

 
(260
)
 
(256
)
 
709

Net realized and unrealized gains (losses) on derivative instruments
$
5,131

 
$
880

 
$
18,540

 
$
3,660

 
 
 
 
 
 
 
 
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets
$
(201,264
)
 
$
—

 
$
(218,810
)
 
$
—
Summary of credit derivative exposures
An aggregate summary of the credit derivative exposure at September 30, 2014 and December 31, 2013 is as follows:
Financial Operations Derivatives - Credit Exposure Summary:
(U.S. dollars in thousands)
September 30, 2014
 
December 31, 2013
Principal outstanding
$
35,789

 
$
42,080

Interest outstanding
1,399

 
2,154

Aggregate outstanding exposure
$
37,188

 
$
44,234

Total liability recorded
$
8,220

 
$
4,190

Weighted average contractual term to maturity
3.0 years

 
3.7 years

Underlying obligations credit rating
CC

 
CC
Components of Life Retrocession Embedded Derivatives [Table Text Block]
The value of the life retrocession embedded derivative includes the interest income, realized and unrealized gains and losses on Life Funds Withheld Assets and certain related expenses subsequent to May 30, 2014 as follows:
Components of Life Retrocession Embedded Derivative and Derivative Instruments - Life Funds Withheld Assets:
Three months ended September 30,
 
May 30 to September 30
(U.S. dollars in thousands)
2014
 
2013
 
2014
 
2013
Interest income
$
(59,424
)
 
—

 
(79,368
)
 
—

Realized and unrealized gains (losses) on Life Funds Withheld Assets
(113,916
)
 
—

 
(112,023
)
 
—

Other
1,263

 
—

 
1,768

 
—

Net realized and unrealized gains (losses) on life retrocession embedded derivative
$
(172,077
)
 
$
—

 
$
(189,623
)
 
$
—

Net adjustments related to future policy benefit reserves, net of tax
$
(18,376
)
 
$
—

 
$
(18,376
)
 
$
—

Net realized and unrealized gains (losses) on derivative instruments - Life Funds Withheld Assets
$
(10,811
)
 
$
—

 
$
(10,811
)
 
$
—

Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets
$
(201,264
)
 
$
—

 
$
(218,810
)
 
$
—
Summary of contingent credit features
The aggregate fair value of all derivative agreements containing such credit rating downgrade provisions that were in a liability position and any collateral posted under these agreements as of September 30, 2014 and December 31, 2013 were as follows:
Contingent Credit Features - Summary:
(U.S. dollars in thousands)
September 30, 2014
 
December 31, 2013
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position
$
10,477

 
$
47,703

Collateral posted to counterparty
$
—

 
$
13,260