Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2017

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 March 31, 2017 and December 31, 2016:

	March 31, 2017								December 31, 2016
(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 currency exposure	$	775,340	$	10,906	$	856,298	$	19,316	$	1,396,801	$	85,175	$	583,722	$	25,750
Total derivatives designated as hedging instruments	$	775,340	$	10,906	$	856,298	$	19,316	$	1,396,801	$	85,175	$	583,722	$	25,750
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	—	$	—	$	1,282	$	—	$	—	$	—	$	—	$	—
Foreign currency exposure	79,971		433		311,054		2,392		10,049		190		273,767		12,137
Credit exposure	32,500		717		72,500		7,682		32,500		1,077		82,500		6,978
Financial market exposure	5		2		—		—		5		5		—		—

	March 31, 2017										December 31, 2016
(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)
Other Non-Investment Derivatives:
Foreign currency exposure	181,300		367			—		—			181,300		1,208			—		—
Credit exposure	24,978		163			—		—			—		—			24,490		340
Guaranteed minimum income benefit contract	40,516		18,397			40,516		18,397			43,553		19,499			43,553		19,499
Modified coinsurance funds withheld contracts (2)	54,281		—			4,042,040		—			59,775		—			4,048,446		—
Other	—		—			—		—			15,000		342			—		—
Total derivatives not designated as hedging instruments	$	413,551	$	20,079		$	4,467,392	$	28,471		$	342,182	$	22,321		$	4,472,756	$	38,954
Total derivatives			$	30,985				$	47,787				$	107,496				$	64,704
Counterparty netting			(8,565		)			(8,565		)			(17,947		)			(17,947		)
Total derivatives net of counterparty netting (1)			22,420					39,222					89,549					46,757
Cash collateral held/paid (3)			(200		)			(6,940		)			(36,980		)			(5,810		)
Total derivatives as recorded in the balance sheets			$	22,220				$	32,282				$	52,569				$	40,947

____________

(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. 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 March 31, 2017 is the cumulative net realized and unrealized loss on the life retrocession embedded derivative of $977.9 million.

(3) At March 31, 2017, the Company held cash collateral related to foreign currency derivative positions and certain other derivative positions of $0.2 million for derivatives in an asset position and paid cash collateral of $6.9 million for derivatives in a liability position. At December 31, 2016, the Company held cash collateral related to a foreign currency derivative position 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. The assets and liabilities related to the net collateral paid or held were recorded as Other assets and Other liabilities within the unaudited consolidated balance sheets as the collateral and derivative positions are not intended to be settled on a net basis.

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 months ended March 31, 2017 and 2016:

Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation - Summary	Three months ended March 31,
(U.S. dollars in thousands)	2017		2016
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,677,145	$	2,234,748
Derivative gains (losses) (1)	$	29,398	$	(11,515	)

____________

(1) Derivative gains (losses) from derivative instruments designated as hedges of an investment in a foreign operation are recorded in the cumulative translation adjustment account within AOCI for each period.    

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. 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, 2017 and 2016:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three months ended March 31,
(U.S. dollars in thousands)	2017			2016
Investment Related Derivatives:
Interest rate exposure	$	(214	)	$	781
Foreign currency exposure	(745		)	(670		)
Credit exposure	(854		)	(163		)
Financial market exposure	185			(1,010		)
Other Non-Investment Derivatives:
Foreign currency exposure	(1,210		)	(1,181		)
Credit exposure	632			(303		)
Modified coinsurance funds withheld contract, including life retrocession embedded derivative	(3,925		)	(1,076		)
Other	(938		)	—
Net realized and unrealized gains (losses) on derivative instruments	$	(7,069	)	$	(3,622	)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(50,101	)	$	(236,080	)

Summary of impact of Life Retro Arrangements

The impact of the GreyCastle Life Retro Arrangements on the Company's results was as follows:

Impact of GreyCastle Life Retro Arrangements	Three months ended March 31,
(U.S. dollars in thousands)	2017			2016
Underwriting profit (loss)	$	—		$	—
Net investment income - Life Funds Withheld Assets	33,364			41,560
Net realized gains (losses) on investments sold - Life Funds Withheld Assets	34,474			34,416
Net unrealized gains (losses) on investments, Trading - Life Funds Withheld Assets	(1,406		)	69,096
OTTI on investments - Life Funds Withheld Assets	—			(2,346		)
Exchange gains (losses)	3,294			11,119
Other income and expenses	(70		)	(146		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	(50,101		)	(236,080		)
Net income (loss)	$	19,555		$	(82,381	)
Change in net unrealized gains (losses) on investments - Life Funds Withheld Assets	(20,108		)	51,990
Change in adjustments related to future policy benefit reserves	5,132			17,035
Change in cumulative translation adjustment - Life Funds Withheld Assets	(4,579		)	13,356
Total changes to other comprehensive income as a result of GreyCastle Life Retro Arrangements	$	(19,555	)	$	82,381
Comprehensive income (loss)	$	—		$	—

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:	Three months ended March 31,
(U.S. dollars in thousands)	2017			2016
Interest (income) expense - Life Funds Withheld Assets	$	(34,341	)	$	(43,110	)
Realized and unrealized (gains) losses - Life Funds Withheld Assets	(5,949		)	(174,932		)
Other	70			146
Net realized and unrealized (gains) losses on life retrocession embedded derivative	$	(40,220	)	$	(217,896	)
Net adjustments related to future policy benefit reserves, net of tax	(12,408		)	(22,053		)
Net realized and unrealized (gains) losses on derivative instruments - Life Funds Withheld Assets	2,527			3,869
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(50,101	)	$	(236,080	)

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 indicated periods as well as the remaining balance of fair value hedges and average years remaining to maturity at March 31, 2017 and 2016 are shown below:

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Structured Indemnity Contracts March 31,
(U.S. dollars in thousands, except years)	2017		2016
Cumulative reduction to interest expense	$	115,323	$	106,056
Remaining balance	$	117,872	$	127,139
Weighted average years remaining to maturity	20.1		21.2

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 March 31, 2017 and December 31, 2016 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	March 31, 2017		December 31, 2016
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	18,551	$	14,130
Collateral posted to counterparty	$	6,740	$	4,630