Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 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 notional amounts and gross amounts of derivative fair values contained in the Unaudited Consolidated Balance Sheets at September 30, 2017 and December 31, 2016:

	September 30, 2017								December 31, 2016
(U.S. dollars in thousands)	Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value
Derivatives designated as hedging instruments:
Foreign currency exposure	$	207,028	$	3,834	$	885,957	$	30,460	$	1,396,801	$	85,175	$	583,722	$	25,750
Total derivatives designated as hedging instruments	$	207,028	$	3,834	$	885,957	$	30,460	$	1,396,801	$	85,175	$	583,722	$	25,750
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	—	$	—	$	131,674	$	34	$	—	$	—	$	—	$	—
Foreign currency exposure	64,307		1,170		316,806		3,716		10,049		190		273,767		12,137
Credit exposure	5,000		231		45,000		6,988		32,500		1,077		82,500		6,978
Financial market exposure	—		—		4,607		79		5		5		—		—

	September 30, 2017										December 31, 2016
(U.S. dollars in thousands)	Asset Derivative Notional Amount		Asset Derivative Fair Value			Liability Derivative Notional Amount		Liability Derivative Fair Value			Asset Derivative Notional Amount		Asset Derivative Fair Value			Liability Derivative Notional Amount		Liability Derivative Fair Value
Other Non-Investment Derivatives:
Foreign currency exposure	181,300		393			—		—			181,300		1,208			—		—
Credit exposure	26,159		65			—		—			—		—			24,490		340
Guaranteed minimum income benefit contract	38,746		17,470			38,746		17,470			43,553		19,499			43,553		19,499
Modified coinsurance and funds withheld contracts (1)	52,804		—			4,679,877		19,041			59,775		—			4,048,446		—
Other	5,000		81			—		—			15,000		342			—		—
Total derivatives not designated as hedging instruments	$	373,316	$	19,410		$	5,216,710	$	47,328		$	342,182	$	22,321		$	4,472,756	$	38,954
Total derivatives			$	23,244				$	77,788				$	107,496				$	64,704
Counterparty netting			(3,681		)			(3,681		)			(17,947		)			(17,947		)
Total derivatives net of counterparty netting			19,563					74,107					89,549					46,757
Cash collateral held/paid (2)			—					(25,188		)			(36,980		)			(5,810		)
Total derivatives as recorded in the Unaudited Consolidated Balance Sheets			$	19,563				$	48,919				$	52,569				$	40,947

____________

(1) 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 Unaudited Consolidated 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 and other outward reinsurance contracts under which the Company cedes risk are recorded as liability derivative notional amounts. Included in the liability derivative notional amount at September 30, 2017 is the cumulative net realized and unrealized loss on the life retrocession embedded derivative of $1.0 billion.

(2) At September 30, 2017, the Company held cash collateral related to foreign currency derivative positions and certain other derivative positions of nil for derivatives in an asset position and paid cash collateral of $25.2 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 and nine months ended September 30, 2017 and 2016:

Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation - Summary	Three months ended September 30,					Nine months ended September 30,
(U.S. dollars in thousands)	2017			2016		2017			2016
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,167,395		$	2,575,987	$	1,501,284		$	2,401,640
Derivative gains (losses) (1)	(15,280		)	1,999		$	(94,047	)	$	35,882

____________

(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.    

As described in Note 9, "Notes Payable and Debt and Financing Arrangements," the Company has issued debt denominated in Euros that is designated and qualifies as a nonderivative hedging instrument against an equal amount of the Company's currency exposure to the Euro resulting from net investments in foreign operations. Accordingly, the foreign currency revaluation of this debt is recorded in accumulated other comprehensive income (loss) ("AOCI"), offsetting the foreign currency translation adjustment of the related net investments that is also recorded in AOCI.

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 derivative instruments" in the Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three months ended September 30,						Nine months ended September 30,
(U.S. dollars in thousands)	2017			2016			2017			2016
Investment Related Derivatives:
Interest rate exposure	$	(109	)	$	—		$	49		$	781
Foreign currency exposure	(1,963		)	74			(3,696		)	(592		)
Credit exposure	(289		)	(812		)	(1,668		)	(959		)
Financial market exposure	—			(45		)	185			(2,866		)
Other Non-Investment Derivatives:
Foreign currency exposure	26			(347		)	(1,150		)	(1,345		)
Credit exposure	—			4,477			770			4,424
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative	(17,980		)	2,143			(21,667		)	3,331
Other	(119		)	—			(1,232		)	—
Net realized and unrealized gains (losses) on derivative instruments	$	(20,434	)	$	5,490		$	(28,409	)	$	2,774
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(31,662	)	$	(225,610	)	$	(116,359	)	$	(691,432	)

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 September 30,						Nine months ended September 30,
(U.S. dollars in thousands)	2017			2016			2017			2016
Underwriting profit (loss)	$	—		$	—		$	—		$	—
Net investment income - Life Funds Withheld Assets	30,796			38,937			95,599			119,643
Net realized gains (losses) on investments sold - Life Funds Withheld Assets	18,879			44,011			83,131			108,541
Net unrealized gains (losses) on investments, Trading - Life Funds Withheld Assets	(7,331		)	41,270			(31,056		)	165,653
OTTI on investments - Life Funds Withheld Assets	—			—			—			(2,598		)
Foreign exchange gains (losses)	8,543			1,535			26,801			5,899
Other income and expenses	—			—			(90		)	(170		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	(31,662		)	(225,610		)	(116,359		)	(691,432		)
Net income (loss)	$	19,225		$	(99,857	)	$	58,026		$	(294,464	)
Change in net unrealized gains (losses) on investments - Life Funds Withheld Assets	(14,579		)	77,242			(46,643		)	206,480
Change in adjustments related to future policy benefit reserves	5,412			2,058			13,981			27,820
Change in cumulative translation adjustment - Life Funds Withheld Assets	(10,058		)	20,557			(25,364		)	60,164
Total changes to other comprehensive income as a result of GreyCastle Life Retro Arrangements	$	(19,225	)	$	99,857		$	(58,026	)	$	294,464
Comprehensive income (loss)	$	—		$	—		$	—		$	—

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 September 30, 2017 and 2016 are shown below:

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Structured Indemnity Contracts September 30,
(U.S. dollars in thousands, except years)	2017		2016
Cumulative reduction to interest expense	$	119,591	$	110,914
Remaining balance	$	113,604	$	122,282
Weighted average years remaining to maturity	19.0		20.4

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 September 30, 2017 and December 31, 2016 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	September 30, 2017		December 31, 2016
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	30,197	$	14,130
Collateral posted to counterparty	$	32,400	$	4,630