Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2017

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

	2017								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	$	580,194	$	5,655	$	339,221	$	3,968	$	1,396,801	$	85,175	$	583,722	$	25,750
Total derivatives designated as hedging instruments	$	580,194	$	5,655	$	339,221	$	3,968	$	1,396,801	$	85,175	$	583,722	$	25,750
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	181,975	$	423	$	—	$	—	$	—	$	—	$	—	$	—
Foreign currency exposure	263,722		6,931		141,300		2,256		10,049		190		273,767		12,137
Credit exposure	5,000		187		45,000		6,784		32,500		1,077		82,500		6,978
Financial market exposure	30,001		1,271		6,998		42		5		5		—		—
Other Non-Investment Derivatives:
Foreign currency exposure	—		—		—		—		181,300		1,208		—		—
Credit exposure	—		—		25,526		169		—		—		24,490		340
Guaranteed minimum income benefit contract	36,171		18,136		36,171		18,136		43,553		19,499		43,553		19,499
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative (1)	51,653		—		5,014,284		31,541		59,775		—		4,048,446		—
Other	16,000		191		—		—		15,000		342		—		—
Total derivatives not designated as hedging instruments	$	584,522	$	27,139	$	5,269,279	$	58,928	$	342,182	$	22,321	$	4,472,756	$	38,954

	2017								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
Total derivatives		$	32,794			$	62,896			$	107,496			$	64,704
Counterparty netting		(3,579		)		(3,579		)		(17,947		)		(17,947		)
Total derivatives net of counterparty netting		29,215				59,317				89,549				46,757
Cash collateral held/paid (2)		(3,920		)		(1,312		)		(36,980		)		(5,810		)
Total derivatives as recorded in the Consolidated Balance Sheets		$	25,295			$	58,005			$	52,569			$	40,947

____________

(1) The fair value movements in derivative assets and liabilities relating to modified coinsurance and funds withheld contracts are included within the associated asset or liability at each period end on the face of the 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 as of December 31, 2017 is the cumulative net realized and unrealized loss on the life retrocession embedded derivative of $1.1 billion.

(2) At December 31, 2017, the Company held cash collateral related to foreign currency derivative positions and certain other derivative positions of $3.9 million for derivatives in an asset position and paid cash collateral of $1.3 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 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, 2017, 2016 and 2015.

Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation – Summary (U.S. dollars in thousands)	2017			2016		2015
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,361,477		$	2,316,538	$	1,769,106
Derivative gains (losses) (1)	$	(87,954	)	$	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 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. The impacts are all recorded through "Net realized and unrealized gains (losses) on derivative instruments" in the Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments (U.S. dollars in thousands)	2017			2016			2015
Investment Related Derivatives:
Interest rate exposure	$	(213	)	$	781		$	(2,347	)
Foreign currency exposure	(4,384		)	(592		)	(1,542		)
Credit exposure	(553		)	(1,539		)	(2,537		)
Financial market exposure	264			(2,494		)	(2,190		)
Other Non-Investment Derivatives:
Foreign currency exposure	(1,542		)	(1,701		)	60,319
Credit exposure	770			4,424			1,375
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative	(34,133		)	3,300			45
Other	(1,941		)	342			—
Net realized and unrealized gains (losses) on derivative instruments	$	(41,732	)	$	2,521		$	53,123
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(206,015	)	$	(540,090	)	$	(151,691	)

Impact of Life Retro arrangements

The impact of the GreyCastle Life Retro Arrangements on the Company's results for the years ended December 31, 2017, 2016 and 2015 was as follows:

Impact of GreyCastle Life Retro Arrangements (U.S. dollars in thousands)	2017			2016			2015
Underwriting profit (loss) (1)	$	—		$	—		$	605
Net investment income - Life Funds Withheld Assets	127,047			154,751			187,489
Net realized gains (losses) on investments sold - Life Funds Withheld Assets	115,911			152,589			223,272
Net unrealized gains (losses) on investments, Trading - Life Funds Withheld Assets	(14,805		)	109,458			(27,734		)
OTTI on investments - Life Funds Withheld Assets	(1,434		)	(2,598		)	(13,357		)
Foreign exchange (gains) losses	30,711			(8,988		)	4,788
Other income and expenses	(108		)	(154		)	2,280
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	(206,015		)	(540,090		)	(151,691		)
Net income (loss)	$	51,307		$	(135,032	)	$	225,652
Change in net unrealized gains (losses) on investments - Life Funds Withheld Assets	(51,983		)	(4,502		)	(421,604		)
Change in adjustments related to future policy benefit reserves	27,184			62,295			170,688
Change in cumulative translation adjustment - Life Funds Withheld Assets	(26,508		)	77,239			25,869
Total changes to other comprehensive income as a result of GreyCastle Life Retro Arrangements	$	(51,307	)	$	135,032		$	(225,047	)
Comprehensive income (loss)	$	—		$	—		$	605

____________

(1) The underwriting profit of $0.6 million in 2015 relates to premium adjustments relating to the GreyCastle Life Retro Arrangements transaction. Excluding these transactions, the impact to comprehensive income relating to the GreyCastle Life Retro Arrangements was nil for the years ended December 31, 2017 and 2016.

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

Settlement of Fair Value Hedges – Summary (U.S. dollars in thousands, except years)	Fair Value Hedges – Structured Indemnity Contracts December 31,
	2017		2016
Cumulative reduction to interest expense	$	122,118	$	113,292
Remaining balance	$	111,077	$	119,903
Weighted average years remaining to maturity	18.7		20.1

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, 2017 and 2016 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	2017		2016
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	7,464	$	14,130
Collateral posted to counterparty	$	40	$	4,630