Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2016

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, 2016 and 2015:

	2016										2015
(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	$	1,396,801	$	85,175		$	583,722	$	25,750		$	1,667,585	$	64,289		$	674,976	$	11,941
Total derivatives designated as hedging instruments	$	1,396,801	$	85,175		$	583,722	$	25,750		$	1,667,585	$	64,289		$	674,976	$	11,941
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Foreign exchange exposure	10,049		190			273,767		12,137			102,234		2,888			144,707		1,702
Credit exposure	32,500		1,077			82,500		6,978			8,433		652			71,614		12,067
Financial market exposure	5		5			—		—			37		77			26,500		417
Other Non-Investment Derivatives:
Foreign exchange contracts	181,300		1,208			—		—			194,566		2,009			—		—
Credit exposure	—		—			24,490		340			29,874		31			—		—
Guaranteed minimum income benefit contract	43,553		19,499			43,553		19,499			46,032		19,368			46,032		19,368
Modified coinsurance funds withheld contracts including life retrocession embedded derivative (2)	59,775		—			4,048,446		—			60,667		—			4,620,879		—
Other	15,000		342			—		—			—		—			—		—
Total derivatives not designated as hedging instruments	$	342,182	$	22,321		$	4,472,756	$	38,954		$	441,843	$	25,025		$	4,909,732	$	33,554
Total derivatives			$	107,496				$	64,704				$	89,314				$	45,495
Counterparty netting			(17,947		)			(17,947		)			(3,087		)			(3,087		)
Total derivatives net of counterparty netting (1)			89,549					46,757					86,227					42,408
Cash collateral held/paid (3)			(36,980		)			(5,810		)			(30,958		)			—
Total derivatives as recorded in the balance sheets			$	52,569				$	40,947				$	55,269				$	42,408

____________

(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. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under netting agreements.

(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. Included in the liability derivative notional amount as of December 31, 2016 is the cumulative net realized and unrealized loss on the life retrocession embedded derivative of $937.7 million.

(3) As of December 31, 2016, the Company held cash collateral related to foreign currency derivative positions and certain other derivative positions of $37.0 million for derivatives in an asset position and paid cash collateral of $5.8 million for derivatives in a liability position. As of December 31, 2015, the Company held cash collateral related to a foreign currency derivative position and certain other derivative positions of $31.0 million for derivatives in an asset position and paid cash collateral of nil for derivatives in a liability position. The assets and liabilities related to the net collateral paid or held were recorded as Other assets and Other liabilities within the Consolidated Balance Sheets as the collateral and derivative positions are not intended to be settled on a net basis.

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, 2016 and 2015.

Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation – Summary (U.S. dollars in thousands)	2016		2015
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	2,316,538	$	1,769,106
Derivative gains (losses) (1)	$	130,365	$	106,876

____________

(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 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			Fixed Maturity Investments		Ineffective Portion of Hedging Relationship – Gain/(Loss)
Year Ended December 31, 2016
Interest rate exposure	$	—
Foreign exchange exposure	—
Total	$	—		$	—	$	—
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	)

Impact of Life Retro arrangements

The impact of the GreyCastle Life Retro Arrangements on the Company's results for the years ended December 31, 2016 and 2015 and the period beginning from the completion of the transaction on May 30, 2014 through December 31, 2014 was as follows:

Impact of GreyCastle Life Retro Arrangements (U.S. dollars in thousands)	2016			2015			2014
Underwriting profit (loss) (1)	$	—		$	605		$	11,649
Net investment income - Life Funds Withheld Assets	154,751			187,489			129,575
Net realized gains (losses) on investments sold - Life Funds Withheld Assets	152,589			223,272			5,067
Net unrealized gains (losses) on investments, Trading - Life Funds Withheld Assets	109,458			(27,734		)	(9		)
OTTI on investments - Life Funds Withheld Assets	(2,598		)	(13,357		)	(20,587		)
Exchange (gains) losses	(8,988		)	4,788			10,099
Other income and expenses	(154		)	2,280			(1,610		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	(540,090		)	(151,691		)	(488,222		)
Net income (loss)	$	(135,032	)	$	225,652		$	(354,038	)
Change in net unrealized gains (losses) on investments - Life Funds Withheld Assets	(4,502		)	(421,604		)	274,083
Change in adjustments related to future policy benefit reserves	62,295			170,688			74,009
Change in cumulative translation adjustment - Life Funds Withheld Assets	77,239			25,869			17,595
Total changes to other comprehensive income as a result of GreyCastle Life Retro Arrangements	$	135,032		$	(225,047	)	$	365,687
Comprehensive income (loss)	$	—		$	605		$	11,649

____________

(1) The underwriting profit of $0.6 million in 2015 and $11.6 million in 2014 relate to premium adjustments relating to the GreyCastle Life Retro Arrangements transaction, which was completed on May 30, 2014. Excluding these transactions, the impact to comprehensive income relating to the GreyCastle Life Retro Arrangements was nil for the years ended December 31, 2016, 2015 and 2014.

Components of life retrocession embedded derivatives

The change in the value of the life retrocession embedded derivative, which includes the interest income, realized and unrealized gains and losses on Life Funds Withheld Assets and certain related expenses, is as follows:

Components of Life Retrocession Embedded Derivative and Derivative Instruments - Life Funds Withheld Assets:
(U.S. dollars in thousands)	2016			2015
Interest income - Life Funds Withheld Assets	$	(161,887	)	$	(193,569	)
Realized and unrealized gains (losses) on Life Funds Withheld Assets	(312,074		)	180,134
Other	155			351
Net realized and unrealized gains (losses) on life retrocession embedded derivative	$	(473,806	)	$	(13,084	)
Net adjustments related to future policy benefit reserves, net of tax	$	(51,100	)	$	(125,747	)
Net realized and unrealized gains (losses) on derivative instruments - Life Funds Withheld Assets	$	(15,184	)	$	(12,860	)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(540,090	)	$	(151,691	)

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. The impacts are all recorded through Net realized and unrealized gains (losses) on derivatives in the income statement for the years ended December 31, 2016, 2015 and 2014:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments (U.S. dollars in thousands)	2016			2015			2014
Investment Related Derivatives:
Interest rate exposure	$	781		$	(2,347	)	$	15,959
Foreign exchange exposure	(592		)	(1,542		)	3,351
Credit exposure	(1,539		)	(2,537		)	400
Financial market exposure	(2,494		)	(2,190		)	411
Financial Operations Derivatives:
Credit exposure	—			—			5,023
Other Non-Investment Derivatives:
Foreign exchange exposure	(1,701		)	60,319			—
Credit exposure	4,424			1,375			—
Guaranteed minimum income benefit contract	—			—			2,257
Modified coinsurance funds withheld contract, including life retrocession embedded derivative	3,300			45			2,741
Other	342			—			—
Total derivatives not designated as hedging instruments	$	2,521		$	53,123		$	30,142
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges	—			—			(256		)
Net realized and unrealized gains (losses) on derivative instruments	$	2,521		$	53,123		$	29,886
Net realized and unrealized gains (losses on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(540,090	)	$	(151,691	)	$	(488,222	)

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

A summary of these fair value hedges that have been terminated and their cumulative impact on results up to the indicated years ended December 31 as well as the remaining balance of the 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 – Structured Indemnity Contracts December 31,
	2016		2015
Cumulative reduction to interest expense	$	113,292	$	103,742
Remaining balance	$	119,903	$	129,454
Weighted average years remaining to maturity	20.1		21.6

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 December 31 for the years indicated were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	2016		2015
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	14,130	$	5,827
Collateral posted to counterparty	$	4,630	$	—