XML 36 R25.htm IDEA: XBRL DOCUMENT v3.10.0.1
Derivative Instruments (Tables)
 9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule Of Derivative Instruments In Statement Of Financial Position Fair Value
The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
Notional
 
Carrying Value/Fair Value
 
Notional
 
Carrying Value/Fair Value
 
 
Amount
 
Assets
 
Liabilities
 
Amount
 
Assets
 
Liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
1,074,173

 
$
37,238

 
$
1,818

 
$
996,204

 
$
59,809

 
$
2,372

Financial futures
 
347,916

 
—

 
—

 
412,438

 
—

 
—

Foreign currency forwards
 
—

 
—

 
—

 
6,030

 
—

 
28

Consumer price index swaps
 
409,023

 
127

 
2,836

 
221,932

 
—

 
2,160

Credit default swaps
 
1,373,300

 
6,759

 
114

 
961,200

 
8,319

 
1,651

Equity options
 
571,845

 
19,372

 
—

 
632,251

 
23,271

 
—

Longevity swaps
 
928,320

 
46,090

 
—

 
960,400

 
40,659

 
—

Mortality swaps
 
25,000

 
—

 
308

 
—

 
—

 
1,683

Synthetic guaranteed investment contracts
 
10,844,558

 
—

 
—

 
10,052,576

 
—

 
—

Embedded derivatives in:
 
 
 
 
 
 
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
—

 
142,529

 
—

 
—

 
122,194

 
—

Indexed annuity products
 
—

 
—

 
815,970

 
—

 
—

 
861,758

Variable annuity products
 
—

 
—

 
90,229

 
—

 
—

 
152,470

Total non-hedging derivatives
 
15,574,135

 
252,115

 
911,275

 
14,243,031

 
254,252

 
1,022,122

Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
435,000

 
99

 
20,579

 
435,000

 
—

 
20,389

Foreign currency swaps
 
537,249

 
46,141

 
3,770

 
672,921

 
65,207

 
8,496

Foreign currency forwards
 
834,238

 
8,948

 
2,067

 
553,175

 
1,265

 
7,720

Total hedging derivatives
 
1,806,487

 
55,188

 
26,416

 
1,661,096

 
66,472

 
36,605

Total derivatives
 
$
17,380,622

 
$
307,303

 
$
937,691

 
$
15,904,127

 
$
320,724

 
$
1,058,727
Offsetting Assets [Table Text Block]
The following table provides information relating to the Company’s derivative instruments as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
Gross Amounts Not
Offset in the Balance Sheet
 
 
 
 
Gross Amounts   
Recognized
 
Gross Amounts
Offset in the
Balance Sheet   
 
Net Amounts
Presented in the
Balance Sheet   
 
Financial Instruments (1)    
 
Cash Collateral   
Pledged/
Received
 
Net Amount   
September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
164,774

 
$
(17,560
)
 
$
147,214

 
$
—

 
$
(159,194
)
 
$
(11,980
)
Derivative liabilities
 
31,492

 
(17,560
)
 
13,932

 
(61,293
)
 
(13,400
)
 
(60,761
)
December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
198,530

 
$
(20,258
)
 
$
178,272

 
$
(862
)
 
$
(185,900
)
 
$
(8,490
)
Derivative liabilities
 
44,499

 
(20,258
)
 
24,241

 
(58,156
)
 
(22,221
)
 
(56,136
)

(1)
Includes initial margin posted to a central clearing partner.
Offsetting Liabilities [Table Text Block]
The following table provides information relating to the Company’s derivative instruments as of September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
Gross Amounts Not
Offset in the Balance Sheet
 
 
 
 
Gross Amounts   
Recognized
 
Gross Amounts
Offset in the
Balance Sheet   
 
Net Amounts
Presented in the
Balance Sheet   
 
Financial Instruments (1)    
 
Cash Collateral   
Pledged/
Received
 
Net Amount   
September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
164,774

 
$
(17,560
)
 
$
147,214

 
$
—

 
$
(159,194
)
 
$
(11,980
)
Derivative liabilities
 
31,492

 
(17,560
)
 
13,932

 
(61,293
)
 
(13,400
)
 
(60,761
)
December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
198,530

 
$
(20,258
)
 
$
178,272

 
$
(862
)
 
$
(185,900
)
 
$
(8,490
)
Derivative liabilities
 
44,499

 
(20,258
)
 
24,241

 
(58,156
)
 
(22,221
)
 
(56,136
)

(1)
Includes initial margin posted to a central clearing partner.
Schedule of Fair Value Hedging Instruments, Statements of Financial Performance and Financial Position, Location [Table Text Block]
The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of September 30, 2018 and 2017, were (dollars in thousands):
Type of Fair Value Hedge
 
Hedged Item
 
Gains (Losses) Recognized for Derivatives (1)
 
Gains (Losses) Recognized for Hedged Items (1)
For the three months ended September 30, 2018:
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
(2,258
)
 
$
2,832

For the three months ended September 30, 2017:
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
2,100

 
$
(2,100
)
For the nine months ended September 30, 2018:
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
(5,284
)
 
$
9,666

For the nine months ended September 30, 2017:
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
9,541

 
$
(9,541
)
Schedule of Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) [Table Text Block]
The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
 
 
Three months ended September 30,
 
 
2018
 
2017
Balance beginning of period
 
$
22,656

 
$
7,690

Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges
 
6,671

 
(6,889
)
Amounts reclassified to investment related (gains) losses, net
 
—

 
(183
)
Amounts reclassified to investment income
 
(50
)
 
(271
)
Amounts reclassified to interest expense
 
(234
)
 
—

Balance end of period
 
$
29,043

 
$
347

 
 
 
 
 
 
 
Nine months ended September 30,
 
 
2018
 
2017
Balance beginning of period
 
$
2,619

 
$
(2,496
)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges
 
26,586

 
3,689

Amounts reclassified to investment related (gains) losses, net
 
—

 
(142
)
Amounts reclassified to investment income
 
(270
)
 
(704
)
Amounts reclassified to interest expense
 
108

 
—

Balance end of period
 
$
29,043

 
$
347
Schedule of Cash Flow Hedging Instruments, Statements of Financial Performance and Financial Position, Location [Table Text Block]
The following table presents the effective portion of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
 
 
Effective Portion
Derivative Type
 
Gain (Loss) Deferred in OCI
 
Gain (Loss) Reclassified into Income from OCI
 
 
 
 
Investment Related Gains (Losses)
 
Investment Income
 
Interest Expense
For the three months ended September 30, 2018:
 
 
 
 
 
 
 
 
Interest rate
 
$
7,490

 
$
—

 
$
—

 
$
234

Currency/Interest rate
 
(819
)
 
—

 
50

 
—

Total
 
$
6,671

 
$
—

 
$
50

 
$
234

For the three months ended September 30, 2017:
 
 
 
 
 
 
 
 
Interest rate
 
$
(8,421
)
 
$
—

 
$
—

 
$
—

Currency/Interest rate
 
1,544

 
—

 
230

 
—

Forward bond purchase commitments
 
(12
)
 
183

 
41

 
—

Total
 
$
(6,889
)
 
$
183

 
$
271

 
$
—

 
 
 
 
 
 
 
 
 
For the nine months ended September 30, 2018:
 
 
 
 
 
 
 
 
Interest rate
 
$
27,217

 
$
—

 
$
—

 
$
(108
)
Currency/Interest rate
 
(631
)
 
—

 
270

 
—

Total
 
$
26,586

 
$
—

 
$
270

 
$
(108
)
For the nine months ended September 30, 2017:
 
 
 
 
 
 
 
 
Interest rate
 
$
(6,205
)
 
$
—

 
$
—

 
$
—

Currency/Interest rate
 
9,894

 
—

 
560

 
—

Forward bond purchase commitments
 
—

 
142

 
144

 
—

Total
 
$
3,689

 
$
142

 
$
704

 
$
—
Schedule of Net Investment Hedges, Statements of Financial Performance and Financial Position, Location [Table Text Block]
The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands):
 
 
 
Derivative Gains (Losses) Deferred in AOCI     
 
 
For the three months ended September 30,
 
For the nine months ended September 30,
Type of NIFO Hedge (1) (2)
 
2018
 
2017
 
2018
 
2017
Foreign currency swaps
 
$
(5,877
)
 
$
(35,198
)
 
$
11,125

 
$
(60,723
)
Foreign currency forwards
 
(11,562
)
 
4,627

 
11,737

 
8,785

Total
 
$
(17,439
)
 
$
(30,571
)
 
$
22,862

 
$
(51,938
)
 
(1)
There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented.
(2)
There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations.
Derivatives Not Designated as Hedging Instruments [Table Text Block]
A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2018 and 2017 is as follows (dollars in thousands):
 
 
 
 
Gain (Loss) for the three months ended
September 30,
Type of Non-hedging Derivative
 
Income Statement Location of Gain (Loss)
 
2018
 
2017
Interest rate swaps
 
Investment related gains (losses), net
 
$
(12,228
)
 
$
641

Financial futures
 
Investment related gains (losses), net
 
(6,544
)
 
(8,890
)
Foreign currency forwards
 
Investment related gains (losses), net
 
(58
)
 
24

CPI swaps
 
Investment related gains (losses), net
 
(4,223
)
 
220

Credit default swaps
 
Investment related gains (losses), net
 
4,689

 
4,137

Equity options
 
Investment related gains (losses), net
 
(9,793
)
 
(8,295
)
Longevity swaps
 
Other revenues
 
2,426

 
3,334

Mortality swaps
 
Other revenues
 
473

 
(132
)
Subtotal
 
 
 
(25,258
)
 
(8,961
)
Embedded derivatives in:
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
Investment related gains (losses), net
 
(2,081
)
 
23,044

Indexed annuity products
 
Interest credited
 
(25,347
)
 
(13,133
)
Variable annuity products
 
Investment related gains (losses), net
 
32,133

 
(6,205
)
Total non-hedging derivatives
 
 
 
$
(20,553
)
 
$
(5,255
)
 
 
 
 
 
 
 
 
 
 
 
Gain (Loss) for the nine months ended        
September 30,
Type of Non-hedging Derivative
 
Income Statement Location of Gain (Loss)
 
2018
 
2017
Interest rate swaps
 
Investment related gains (losses), net
 
$
(47,399
)
 
$
12,318

Financial futures
 
Investment related gains (losses), net
 
(7,312
)
 
(28,107
)
Foreign currency forwards
 
Investment related gains (losses), net
 
3

 
577

CPI swaps
 
Investment related gains (losses), net
 
(996
)
 
211

Credit default swaps
 
Investment related gains (losses), net
 
5,371

 
15,374

Equity options
 
Investment related gains (losses), net
 
(15,207
)
 
(34,757
)
Longevity swaps
 
Other revenues
 
6,983

 
7,180

Mortality swaps
 
Other revenues
 
(326
)
 
(921
)
Subtotal
 
 
 
(58,883
)
 
(28,125
)
Embedded derivatives in:
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
Investment related gains (losses), net
 
20,335

 
106,854

Indexed annuity products
 
Interest credited
 
6,523

 
(35,490
)
Variable annuity products
 
Investment related gains (losses), net
 
62,242

 
16,518

Total non-hedging derivatives
 
 
 
$
30,217

 
$
59,757
Disclosure Of Credit Derivatives
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at September 30, 2018 and December 31, 2017 (dollars in thousands):
 
 
September 30, 2018
 
December 31, 2017
Rating Agency Designation of Referenced Credit Obligations(1)
 
Estimated Fair
Value of Credit  
Default Swaps
 
Maximum
Amount of Future
Payments under
Credit Default
Swaps(2)
 
Weighted
Average
Years to
Maturity(3)
 
Estimated Fair
Value of Credit  
Default Swaps
 
Maximum
Amount of Future
Payments under
Credit Default
Swaps(2)
 
Weighted
Average
Years to
Maturity(3)  
AAA/AA+/AA/AA-/A+/A/A-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
$
2,470

 
$
152,000

 
2.5
 
$
3,128

 
$
162,000

 
2.9
Subtotal
 
2,470

 
152,000

 
2.5
 
3,128

 
162,000

 
2.9
BBB+/BBB/BBB-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
4,220

 
343,700

 
2.4
 
4,469

 
361,700

 
2.9
Credit default swaps referencing indices
 
(80
)
 
642,600

 
3.4
 
(55
)
 
422,600

 
4.0
Subtotal
 
4,140

 
986,300

 
3.1
 
4,414

 
784,300

 
3.5
BB+/BB/BB-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
32

 
15,000

 
1.0
 
30

 
5,000

 
1.5
Subtotal
 
32

 
15,000

 
1.0
 
30

 
5,000

 
1.5
Total
 
$
6,642

 
$
1,153,300

 
3.0
 
$
7,572

 
$
951,300

 
3.4
 
(1)
The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).
(2)
Assumes the value of the referenced credit obligations is zero.
(3)
The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.
Changes In Estimated Fair Value Related To Embedded Derivatives
The related gains (losses) and the effect on net income after amortization of deferred acquisition costs (“DAC”) and income taxes for the three and nine months ended September 30, 2018 and 2017 are reflected in the following table (dollars in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Embedded derivatives in modco or funds withheld arrangements included in investment related gains
$
(2,081
)
 
$
23,044

 
$
20,335

 
$
106,854

After the associated amortization of DAC and taxes, the related amounts included in net income
(1,320
)
 
7,515

 
11,517

 
36,300

Embedded derivatives in variable annuity contracts included in investment related gains
32,133

 
(6,205
)
 
62,242

 
16,518

After the associated amortization of DAC and taxes, the related amounts included in net income
9,463

 
(1,074
)
 
33,061

 
30,785

Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses
(25,347
)
 
(13,133
)
 
6,523

 
(35,490
)
After the associated amortization of DAC and taxes, the related amounts included in net income
(17,311
)
 
(9,737
)
 
(6,808
)
 
(38,059
)
Credit Risk
Information regarding the Company’s credit exposure related to its over-the-counter derivative contracts, centrally cleared derivative contracts and margin account for exchange-traded futures, excluding mortality swaps, at September 30, 2018 and December 31, 2017 are reflected in the following table (dollars in thousands):
 
 
September 30, 2018
 
December 31, 2017
Estimated fair value of derivatives in net asset position
 
$
133,590

 
$
155,714

Cash provided as collateral(1)
 
13,400

 
22,221

Securities pledged to counterparties as collateral(2)
 
61,293

 
58,156

Cash pledged from counterparties as collateral(3)
 
(159,194
)
 
(185,900
)
Securities pledged from counterparties as collateral(4)
 
—

 
(862
)
Initial margin for cleared derivatives(2)
 
(61,293
)
 
(58,156
)
Net amount after application of master netting agreements and collateral
 
$
(12,204
)
 
$
(8,827
)
Margin account related to exchange-traded futures(5)
 
$
8,348

 
$
6,538

(1)
Consists of receivable from counterparty, included in other assets.
(2)
Included in available-for-sale securities, primarily consists of U.S. Treasury and government agency securities.
(3)
Included in cash and cash equivalents, with obligation to return cash collateral recorded in other liabilities.
(4)
Consists of U.S. Treasury and government securities.
(5)
Included in other assets.