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Derivative Instruments (Tables)
 12 Months Ended
Dec. 31, 2015
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 sheets at December 31, 2015 and 2014:
(U.S. dollars in thousands)
2015
 
2014
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
$
1,667,585

 
$
64,289

 
$
674,976

 
$
11,941

 
$
2,300,609

 
$
121,862

 
$
302,211

 
$
2,936

Total derivatives designated as hedging instruments
$
1,667,585

 
$
64,289

 
$
674,976

 
$
11,941

 
$
2,300,609

 
$
121,862

 
$
302,211

 
$
2,936

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Related Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate exposure
$
—

 
$
—

 
$
—

 
$
—

 
$
394,597

 
$
206

 
$
20,782

 
$
51

Foreign exchange exposure
102,234

 
2,888

 
144,707

 
1,702

 
7,385

 
403

 
207,182

 
4,442

Credit exposure
8,433

 
652

 
71,614

 
12,067

 
2,408

 
165

 
14,270

 
9,836

Financial market exposure
37

 
77

 
26,500

 
417

 
46,145

 
360

 
33,670

 
34

Financial Operations Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit exposure
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Other Non-Investment Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
194,566

 
2,009

 
—

 
—

 
—

 
—

 
81,194

 
282

Credit exposure
29,874

 
31

 
—

 
—

 
31,060

 
60

 
—

 
—

Guaranteed minimum income benefit contract
46,032

 
19,368

 
46,032

 
19,368

 
46,249

 
13,603

 
46,249

 
13,603

Modified coinsurance funds withheld contract (2)
60,667

 
—

 
4,620,879

 
—

 
64,947

 
—

 
5,401,278

 
—

Total derivatives not designated as hedging instruments
$
441,843

 
$
25,025

 
$
4,909,732

 
$
33,554

 
$
592,791

 
$
14,797

 
$
5,804,625

 
$
28,248

____________
(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)
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 GreyCastle 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 December 31, 2015 is the cumulative net realized and unrealized loss on life retrocession embedded derivative of $463.9 million.
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 collateral provided relating to derivative liabilities reported in other assets and other liabilities within the consolidated balance sheets at December 31, 2015 and 2014:
 
 
 
 
 
Gross Amounts Not Offset in the Balance Sheets
 
 
December 31, 2015
(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
$
89,314

 
$
3,087

 
$
86,227

 
$
—

 
$
30,958

 
$
55,269

Derivative Liabilities
$
45,495

 
$
3,087

 
$
42,408

 
$
—

 
$
—

 
$
42,408

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
(U.S. dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets
$
136,659

 
$
696

 
$
135,963

 
$
—

 
$
78,580

 
$
57,383

Derivative Liabilities
$
31,184

 
$
696

 
$
30,488

 
$
—

 
$
—

 
$
30,488
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, 2015
 
 
 
 
 
 
 
Interest rate exposure
$
—

 
 
 
 
 
 
Foreign exchange exposure
—

 
 
 
 
 
 
Total
$
—

 
$
—

 
$
—

 
$
—

Year Ended December 31, 2014
 
 
 
 
 
 
 
Interest rate exposure
$
—

 
 
 
 
 
 
Foreign exchange exposure
(15,663
)
 
 
 
 
 
 
Total
$
(15,663
)
 
$
—

 
$
15,407

 
$
(256
)
Year Ended December 31, 2013
 
 
 
 
 
 
 
Interest rate exposure
$
—

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

 
$
23,065

 
$
497
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,
2015
 
2014
 
2015
 
2014
Cumulative reduction to interest expense
$
—

 
$
21,624

 
$
103,742

 
$
95,333

Remaining balance
$
—

 
$
—

 
$
129,454

 
$
137,862

Weighted average years remaining to maturity
0.0

 
0.0

 
21.6

 
23.2
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 resulting derivative gain (loss) that was recorded in the foreign currency translation adjustment, net of tax, account within AOCI for the years ended December 31, 2015 and 2014.
Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation – Summary
(U.S. dollars in thousands)
2015
 
2014
Weighted average of U.S. dollar equivalent of foreign denominated net assets
$
1,769,106

 
$
2,384,508

Derivative gains (losses) (1)
$
106,876

 
$
120,643

 
____________
(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 GAAP 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, 2015, 2014 and 2013:
Net Realized and Unrealized Gains (Losses) on Derivative Instruments
(U.S. dollars in thousands)
2015
 
2014
 
2013
Investment Related Derivatives:
 
 
 
 
 
Interest rate exposure
$
(2,347
)
 
$
15,959

 
$
5,065

Foreign exchange exposure
(1,542
)
 
3,351

 
(948
)
Credit exposure
(2,537
)
 
400

 
(4,052
)
Financial market exposure
(2,190
)
 
411

 
6,302

Financial Operations Derivatives:
 
 
 
 
 
Credit exposure
—

 
5,023

 
(2,437
)
Other Non-Investment Derivatives:
 
 
 
 
 
Foreign exchange exposure
60,319

 
—

 
—

Credit exposure
1,375

 
—

 
—

Guaranteed minimum income benefit contract
—

 
2,257

 
10,457

Modified coinsurance funds withheld contract
45

 
2,741

 
(7,086
)
Total derivatives not designated as hedging instruments
$
53,123

 
$
30,142

 
$
7,301

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

 
(256
)
 
497

Net realized and unrealized gains (losses) on derivative instruments
$
53,123

 
$
29,886

 
$
7,798

Net realized and unrealized gains (losses on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets
$
(151,691
)
 
$
(488,222
)
 
$
—
Components of life retrocession embedded derivatives
The change in 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:
 
(U.S. dollars in thousands)
2015
 
2014
Interest income - Life Funds Withheld Assets
$
(193,568
)
 
$
(134,634
)
Realized and unrealized gains (losses) on Life Funds Withheld Assets
180,134

 
(318,065
)
Other
351

 
1,868

Net realized and unrealized gains (losses) on life retrocession embedded derivative
$
(13,083
)
 
$
(450,831
)
Net adjustments related to future policy benefit reserves, net of tax
$
(125,747
)
 
$
(21,786
)
Net realized and unrealized gains (losses) on derivative instruments - Life Funds Withheld Assets
$
(12,861
)
 
$
(15,605
)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets
$
(151,691
)
 
$
(488,222
)
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 at December 31 for the years indicated were as follows:
Contingent Credit Features - Summary:
(U.S. dollars in thousands)
2015
 
2014
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position
$
5,827

 
$
5,770

Collateral posted to counterparty
$
—

 
$
—