Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and December 31, 2017:

	June 30, 2018								December 31, 2017
(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	$	953,438	$	60,325	$	166,497	$	4,277	$	580,194	$	5,655	$	339,221	$	3,968
Total derivatives designated as hedging instruments	$	953,438	$	60,325	$	166,497	$	4,277	$	580,194	$	5,655	$	339,221	$	3,968
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	—	$	—	$	239,109	$	387	$	181,975	$	423	$	—	$	—
Foreign currency exposure	126,239		1,958		211,809		6,360		263,722		6,931		141,300		2,256
Credit exposure	5,000		65		45,000		5,730		5,000		187		45,000		6,784
Financial market exposure	34,580		2,317		—		—		30,001		1,271		6,998		42

	June 30, 2018										December 31, 2017
(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	—		—			24,534		468			—		—			—		—
Credit exposure	19,553		57			—		—			—		—			25,526		169
Guaranteed minimum income benefit contract	35,400		17,822			35,400		17,822			36,171		18,136			36,171		18,136
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative (1)	47,351		—			4,456,743		12,607			51,653		—			5,014,284		31,541
Other	—		—			—		—			16,000		191			—		—
Total derivatives not designated as hedging instruments	$	268,123	$	22,219		$	5,012,595	$	43,374		$	584,522	$	27,139		$	5,269,279	$	58,928
Total derivatives			$	82,544				$	47,651				$	32,794				$	62,896
Counterparty netting			(7,627		)			(7,627		)			(3,579		)			(3,579		)
Total derivatives net of counterparty netting			74,917					40,024					29,215					59,317
Cash collateral held/paid (2)			(43,420		)			(3,089		)			(3,920		)			(1,312		)
Total derivatives as recorded in the Unaudited Consolidated Balance Sheets			$	31,497				$	36,935				$	25,295				$	58,005

____________

(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 in 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 June 30, 2018 is the cumulative net realized and unrealized loss on the life retrocession embedded derivative of $0.9 billion.

(2) At June 30, 2018, the Company held cash collateral related to foreign currency derivative positions and certain other derivative positions of $43.4 million for derivatives in an asset position and paid cash collateral of $3.1 million for derivatives in a liability position. At December 31, 2017, the Company held cash collateral related to a foreign currency derivative position 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. 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 six months ended June 30, 2018 and 2017:

Derivative Instruments Designated as Hedges of a Net Investment in a Foreign Operation - Summary	Three months ended June 30,					Six months ended June 30,
(U.S. dollars in thousands)	2018		2017			2018		2017
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	1,119,999	$	1,659,312		$	1,107,105	$	1,668,229
Derivative gains (losses) (1)	48,099		(49,370		)	$	45,776	$	(78,767	)

____________

(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.

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. 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 six months ended June 30, 2018 and 2017:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three months ended June 30,						Six months ended June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Investment Related Derivatives:
Interest rate exposure	$	(1,317	)	$	372		$	(320	)	$	158
Foreign currency exposure	3,378			(988		)	60			(1,733		)
Credit exposure	(38		)	(525		)	(79		)	(1,379		)
Financial market exposure	7,492			—			6,144			185
Other Non-Investment Derivatives:
Foreign currency exposure	—			34			—			(1,176		)
Credit exposure	—			138			615			770
Modified coinsurance and funds withheld contracts, including life retrocession embedded derivative	6,611			238			9,103			(3,687		)
Other	—			(175		)	4,824			(1,113		)
Net realized and unrealized gains (losses) on derivative instruments	$	16,126		$	(906	)	$	20,347		$	(7,975	)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	$	(36,120	)	$	(34,596	)	$	(13,199	)	$	(84,697	)

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 June 30,						Six months ended June 30,
(U.S. dollars in thousands)	2018			2017			2018			2017
Underwriting profit (loss)	$	—		$	—		$	—		$	—
Net investment income - Life Funds Withheld Assets	30,252			31,439			60,650			64,803
Net realized gains (losses) on investments, trading - Life Funds Withheld Assets	65,305			29,778			75,663			64,252
Net unrealized gains (losses) on investments, trading - Life Funds Withheld Assets	(1,896		)	(22,319		)	(33,563		)	(23,725		)
OTTI - Life Funds Withheld Assets	—			—			(1,203		)	—
Foreign exchange gains (losses)	(14,794		)	14,964			(4,074		)	18,259
Other income and expenses	(80		)	(19		)	(116		)	(90		)
Net realized and unrealized gains (losses) on life retrocession embedded derivative and derivative instruments - Life Funds Withheld Assets	(36,120		)	(34,596		)	(13,199		)	(84,697		)
Net income (loss)	$	42,667		$	19,247		$	84,158		$	38,802
Change in net unrealized gains (losses) on investments AFS - Life Funds Withheld Assets	(99,031		)	(11,956		)	(134,785		)	(32,064		)
Change in adjustments related to future policy benefit reserves	42,314			3,437			46,478			8,569
Change in cumulative translation adjustment - Life Funds Withheld Assets	14,050			(10,728		)	4,149			(15,307		)
Total changes to other comprehensive income as a result of GreyCastle Life Retro Arrangements	$	(42,667	)	$	(19,247	)	$	(84,158	)	$	(38,802	)
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 up to the indicated periods, as well as the remaining balance of the fair value hedges and average years remaining to maturity at June 30, 2018 and 2017, are shown below:

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Structured Indemnity Contracts June 30,
(U.S. dollars in thousands, except years)	2018		2017
Cumulative reduction to interest expense	$	125,935	$	117,818
Remaining balance	$	107,260	$	115,377
Weighted average years remaining to maturity	18.0		19.4

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 June 30, 2018 and December 31, 2017 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	June 30, 2018		December 31, 2017
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	—	$	7,464
Collateral posted to counterparty	$	—	$	40