XML 35 R18.htm IDEA: XBRL DOCUMENT v3.6.0.2
Derivative instruments
 12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative instruments
Derivative instruments
The Company enters into derivative instruments for risk management purposes, specifically to hedge unmatched foreign currency exposures and interest rate exposures.
(a) Derivatives not designated as hedging instruments
The following table summarizes information on the classification and amount of the fair value of derivatives not designated as hedging instruments for accounting purposes within the Company’s Consolidated Balance Sheets as at December 31, 2016 and December 31, 2015:
 
 
December 31, 2016
 
December 31, 2015
Derivatives not designated as hedging instruments
 
Notional Exposure
 
Asset Derivative at Fair Value (a)
 
Liability Derivative at Fair Value (a)
 
Notional Exposure
 
Asset Derivative at Fair Value (a)
 
Liability Derivative at Fair Value (a)
Foreign currency forward contracts
 
$
181,375

 
$
2,351

 
$
3,421

 
$
255,840

 
$
2,601

 
$
3,211

(a)
Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s Consolidated Balance Sheets.
The following table summarizes information on the classification and net impact on earnings, recognized in the Company’s Consolidated Statements of Income and Comprehensive Income relating to the foreign currency forward and interest rate swap contracts that were not designated as hedging instruments for accounting purposes during the years ended December 31, 2016, 2015 and 2014:
Derivatives not designated as hedging instruments
 
Classification of gains (losses) recognized in earnings
 
Years Ended December 31,
 
 
2016
 
2015
 
2014
Foreign currency forward contracts
 
Foreign exchange gains losses
 
$
(1,667
)
 
$
(610
)
 
$
—

Foreign currency forward contracts
 
Other insurance related income and other income
 
$
142

 
$
139

 
$
(133
)
Interest rate swap contracts (a)
 
Net realized gains on investments
 
$
8,518

 
$
—

 
$
—


(a)
Relates to net realized gains on two interest rate swap contracts which were entered into and terminated during the year ended December 31, 2016 to partially offset the impact of interest rate increases on the Company’s fixed maturity investment portfolio.
(b) Derivatives designated as hedging instruments
The following table summarizes information on the classification and amount of the fair value of derivatives designated as hedging instruments for accounting purposes on the Consolidated Balance Sheets as at December 31, 2016 and 2015:
 
 
December 31, 2016
 
December 31, 2015
Derivatives designated as hedging instruments
 
Notional Exposure
 
Asset Derivative at Fair Value (a)
 
Liability Derivative at Fair Value (a)
 
Notional Exposure
 
Asset Derivative at Fair Value (a)
 
Liability Derivative at Fair Value (a)
Interest rate swap contracts
 
$
552,263

 
$
20

 
$
1,479

 
$
552,263

 
$
21

 
$
1,942

(a)
Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s Consolidated Balance Sheets.
Derivative instruments designated as a fair value hedge
Up to September 30, 2015, the Company had designated certain foreign currency derivative instruments as fair value hedges for accounting purposes and formally and contemporaneously documented all relationships between the derivative instruments and hedged items and linked the derivative instruments to specific assets and liabilities. The Company assessed the effectiveness of these hedges, both at inception and on an on-going basis to determine whether the hedges were highly effective in offsetting changes in fair value of the linked hedged items.
The following table provides the net impact on earnings, recognized in income within foreign exchange gains (losses), relating to the derivative instruments formally designated as fair value hedges for accounting purposes along with the impact of the related hedged items for the years ended December 31, 2016, 2015 and 2014:
 
 
Years Ended December 31,
Foreign currency forward contracts
 
2016
 
2015
 
2014
Amount of loss recognized in income on derivative
 
$
—

 
$
(12,279
)
 
$
(9,651
)
Amount of gain on hedged item recognized in income attributable to risk being hedged
 
$
—

 
$
12,279

 
$
9,651

Amount of gain recognized in income on derivative (ineffective portion)
 
$
—

 
$
—

 
$
—

Derivative instruments designated as a cash flow hedge
The Company designates its interest rate derivative instruments as cash flow hedges for accounting purposes and formally and contemporaneously documents all relationships between the hedging instruments and hedged items and links the derivative instruments to specific assets and liabilities. The Company assesses the effectiveness of the hedges, both at inception and on an on-going basis and determines whether the hedges are highly effective in offsetting changes in fair value of the linked hedged items. The Company currently applies the long haul method when assessing the hedge’s effectiveness.
The following table provides the total impact on other comprehensive income (loss) and earnings relating to the derivative instruments formally designated as cash flow hedges along with the impact of the related hedged items for the years ended December 31, 2016, 2015 and 2014:

 
 
Years Ended December 31,
Interest rate swap contracts
 
2016
 
2015
 
2014
Amount of effective portion recognized in other comprehensive income
 
$
10,584

 
$
13,740

 
$
13,302

Amount of effective portion subsequently reclassified to earnings
 
$
(10,861
)
 
$
(12,899
)
 
$
(13,074
)
Amount of ineffective portion excluded from effectiveness testing
 
$
277

 
$
(841
)
 
$
(228
)

The above balances relate to interest payments and have therefore been classified as finance expenses in the Consolidated Statements of Income and Comprehensive Income.
(c) Classification within the fair value hierarchy
As described in Note 8, “Fair value measurements,” a company must determine the appropriate level in the fair value hierarchy for each fair value measurement. The assumptions used within the valuation of the Company’s derivative instruments are observable in the marketplace, can be derived from observable data or are supported by observable levels at which other similar transactions are executed in the marketplace. Accordingly, these derivatives were classified within Level 2 of the fair value hierarchy.
(d) Balance sheet offsetting
There was no balance sheet offsetting activity as at December 31, 2016 or December 31, 2015.
The Company currently provides cash collateral as security for interest rate swap contracts. The Company does not provide cash collateral or financial instruments as security for foreign currency forward contracts. Our derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements, which establish terms that apply to all transactions. On a periodic basis, the amounts receivable from or payable to the counterparties are settled in cash.
The Company has not elected to settle multiple transactions with an individual counterparty on a net basis.