Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2013

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 sheet at March 31, 2013 and December 31, 2012:

	March 31, 2013								December 31, 2012
(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	2,731,749		104,733		615,505		23,291		670,751		12,511		2,382,507		23,715
Total derivatives designated as hedging instruments	$	2,731,749	$	104,733	$	615,505	$	23,291	$	670,751	$	12,511	$	2,382,507	$	23,715
Derivatives not designated as hedging instruments:
Investment Related Derivatives:
Interest rate exposure	$	30,009	$	2,177	$	4,446	$	46	$	45,604	$	2,060	$	26,139	$	253
Foreign exchange exposure	62,824		735		14,266		608		33,007		226		54,449		1,790
Credit exposure	13,000		23		438,959		15,749		25,000		486		436,959		15,472
Financial market exposure	83,627		1,077		15,562		1		72,597		9,559		16,910		—
Financial Operations Derivatives: (2)
Credit exposure	—		—		43,419		—		—		—		46,903		—
Other Non-Investment Derivatives:
Guaranteed minimum income benefit contract	—		—		62,553		21,699		—		—		69,051		25,396
Modified coinsurance funds withheld contract	75,441		—		—		—		76,975		—		—		—
Total derivatives not designated as hedging instruments	$	264,901	$	4,012	$	579,205	$	38,103	$	253,183	$	12,331	$	650,411	$	42,911

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(1) Derivative instruments in an asset or liability position are included within Other assets or Other liabilities, respectively, in the balance sheet on a net basis where the Company has both a legal right of offset and the intentions to settle the contracts on a net basis.

(2) Financial operations derivatives represent interests in variable interest entities as described in Note 10, “Variable Interest Entities".

Summary of gross and net amounts of derivative fair values and associated collateral received or paid

The following table summarizes information on the gross and net amounts of derivative fair values and associated collateral received related to derivative assets or paid relating to derivative liabilities contained in the consolidated balance sheet at March 31, 2013 and December 31, 2012:

							Gross Amounts Not Offset in the Balance Sheet
March 31, 2013 (U.S. dollars in thousands)	Gross Amounts Recognized in Balance Sheet		Gross Amounts Offset in the Balance Sheet		Net Amounts in the Balance Sheet		Financial Instruments		Cash Collateral		Net Amounts
Derivative Assets	$	108,745	$	680	$	108,065	$	—	$	46,720	$	61,345
Derivative Liabilities	$	61,394	$	680	$	60,714	$	—	$	—	$	60,714
December 31, 2012 (U.S. dollars in thousands)
Derivative Assets	$	24,842	$	1,327	$	23,515	$	—	$	—	$	23,515
Derivative Liabilities	$	66,626	$	1,327	$	65,299	$	—	$	12,130	$	53,169

Gain (loss) recognized in income attributable to risk of hedged items

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 three months ended March 31, 2013 and 2012:

				Hedged Items - Amount of Gain/(Loss) Recognized in Income Attributable to Risk
Derivatives Designated as Fair Value Hedges: Three Months Ended March 31, 2013 (U.S. dollars in thousands)	Gain/(Loss) Recognized in Income on Derivative				Deposit Liabilities		Fixed Maturity Investments			Ineffective Portion of Hedging Relationship - Gain/(Loss)
Interest rate exposure	$	—
Foreign exchange exposure	30,245
Total	$	30,245			$	—	$	(28,770	)	$	1,475
Three Months Ended March 31, 2012 (U.S. dollars in thousands)
Interest rate exposure	$	(5,457	)
Foreign exchange exposure	(15,100		)
Total	$	(20,557	)		$	3,607	$	14,511		$	(2,439	)

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 three months ended March 31, 2013 and 2012 is shown below:

Settlement of Fair Value Hedges - Summary	Fair Value Hedges - Notes Payable and Debt March 31,				Fair Value Hedges - Deposit Liabilities March 31,
(U.S. dollars in thousands, except years)	2013		2012		2013		2012
Cumulative reduction to interest expense	$	15,926	$	12,019	$	25,588	$	11,070
Remaining balance	$	5,698	$	9,605	$	207,607	$	138,415
Weighted average years remaining to maturity	1.5		2.5		24.7		33.0

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 resultant gain (loss) that was recorded in the cumulative translation adjustment account within AOCI for the three months ended March 31, 2013 and 2012.

Derivative Instruments Designated as Hedges of the Net Investment in a Foreign Operation - Summary	Three Months Ended March 31,
(U.S. dollars in thousands)	2013		2012
Weighted average of U.S. dollar equivalent of foreign denominated net assets	$	2,523,821	$	1,893,401
Derivative gains (losses) (1)	$	62,639	$	(37,872	)

____________

(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 under authoritative accounting guidance and from the ineffective portion of fair value hedges. 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, 2013 and 2012:

Net Realized and Unrealized Gains (Losses) on Derivative Instruments	Three Months Ended March 31,
(U.S. dollars in thousands)	2013			2012
Investment Related Derivatives:
Interest rate exposure	$	200		$	700
Foreign exchange exposure	(1,598		)	(354		)
Credit exposure	(816		)	(3,699		)
Financial market exposure	5,353			3,944
Financial Operations Derivatives:
Credit exposure	242			143
Other Non-Investment Derivatives:
Guaranteed minimum income benefit contract	3,697			2,015
Modified coinsurance funds withheld contract	(668		)	392
Total derivatives not designated as hedging instruments	$	6,410		$	3,141
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges	1,475			(2,439		)
Net realized and unrealized gains (losses) on derivative instruments	$	7,885		$	702

Summary of credit derivative exposures

An aggregate summary of the credit derivative exposures at March 31, 2013 and December 31, 2012 is as follows:

Financial Operations Derivatives - Credit Exposure Summary: (U.S. dollars in thousands, except term to maturity)	March 31, 2013		December 31, 2012
Principal outstanding	$	41,142	$	44,281
Interest outstanding	2,277		2,622
Aggregate outstanding exposure	$	43,419	$	46,903
Total liability recorded	$	—	$	—
Weighted average contractual term to maturity	4.5 years		4.7 years
Underlying obligations credit rating	BB		BB

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 the collateral posted under any of these agreements as of March 31, 2013 and December 31, 2012 were as follows:

Contingent Credit Features - Summary: (U.S. dollars in thousands)	March 31, 2013		December 31, 2012
Aggregate fair value of derivative agreements with downgrade provisions in a net liability position	$	12,607	$	20,366
Collateral posted to counterparty	$	—	$	5,490