XML 34 R23.htm IDEA: XBRL DOCUMENT v3.7.0.1
Derivative Instruments (Tables)
 6 Months Ended
Jun. 30, 2017
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 June 30, 2017 and December 31, 2016 (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
 
 
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
 
$
973,825

 
$
63,370

 
$
4,375

 
$
949,556

 
$
78,405

 
$
5,949

Financial futures
 
477,407

 
—

 
—

 
475,968

 
—

 
—

Foreign currency forwards
 
15,000

 
21

 
63

 
25,000

 
—

 
5,070

Consumer price index swaps
 
21,991

 
—

 
187

 
20,615

 
—

 
262

Credit default swaps
 
945,000

 
7,620

 
1,043

 
926,000

 
12,012

 
2,871

Equity options
 
541,532

 
28,301

 
—

 
525,894

 
33,459

 
—

Longevity swaps
 
914,080

 
33,349

 
—

 
841,360

 
26,958

 
—

Mortality swaps
 
50,000

 
—

 
1,552

 
50,000

 
—

 
2,462

Synthetic guaranteed investment contracts
 
9,141,018

 
—

 
—

 
8,834,700

 
—

 
—

Embedded derivatives in:
 
 
 
 
 
 
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
—

 
61,281

 
—

 
—

 
—

 
22,529

Indexed annuity products
 
—

 
—

 
812,718

 
—

 
—

 
805,672

Variable annuity products
 
—

 
—

 
161,913

 
—

 
—

 
184,636

Total non-hedging derivatives
 
13,079,853

 
193,942

 
981,851

 
12,649,093

 
150,834

 
1,029,451

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

 
1,267

 
22,120

 
435,000

 
27,901

 
31,223

Foreign currency swaps
 
896,873

 
86,318

 
7,176

 
928,505

 
104,359

 
734

Foreign currency forwards
 
150,211

 
—

 
4,158

 
—

 
—

 
—

Total hedging derivatives
 
1,482,084

 
87,585

 
33,454

 
1,363,505

 
132,260

 
31,957

Total derivatives
 
$
14,561,937

 
$
281,527

 
$
1,015,305

 
$
14,012,598

 
$
283,094

 
$
1,061,408
Offsetting Assets [Table Text Block]
The following table provides information relating to the Company’s derivative instruments as of June 30, 2017 and December 31, 2016 (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   
June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
220,246

 
$
(28,849
)
 
$
191,397

 
$
(17,847
)
 
$
(183,179
)
 
$
(9,629
)
Derivative liabilities
 
40,674

 
(28,849
)
 
11,825

 
(59,540
)
 
(7,461
)
 
(55,176
)
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
283,094

 
$
(27,028
)
 
$
256,066

 
$
(16,913
)
 
$
(254,498
)
 
$
(15,345
)
Derivative liabilities
 
48,571

 
(27,028
)
 
21,543

 
(95,863
)
 
(1,441
)
 
(75,761
)
Offsetting Liabilities [Table Text Block]
The following table provides information relating to the Company’s derivative instruments as of June 30, 2017 and December 31, 2016 (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   
June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
220,246

 
$
(28,849
)
 
$
191,397

 
$
(17,847
)
 
$
(183,179
)
 
$
(9,629
)
Derivative liabilities
 
40,674

 
(28,849
)
 
11,825

 
(59,540
)
 
(7,461
)
 
(55,176
)
December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
283,094

 
$
(27,028
)
 
$
256,066

 
$
(16,913
)
 
$
(254,498
)
 
$
(15,345
)
Derivative liabilities
 
48,571

 
(27,028
)
 
21,543

 
(95,863
)
 
(1,441
)
 
(75,761
)

(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 June 30, 2017 and 2016, were (dollars in thousands):
Type of Fair Value Hedge
 
Hedged Item
 
Gains (Losses) Recognized for Derivatives
 
Gains (Losses) Recognized for Hedged Items
 
Ineffectiveness Recognized in Investment Related Gains (Losses), net
For the three months ended June 30, 2017:
 
 
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
905

 
$
(905
)
 
$
—

For the three months ended June 30, 2016:
 
 
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
(3,755
)
 
$
3,755

 
$
—

For the six months ended June 30, 2017:
 
 
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
7,441

 
$
(7,441
)
 
$
—

For the six months ended June 30, 2016:
 
 
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
2,112

 
$
(2,112
)
 
$
—
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 six months ended June 30, 2017 and 2016 (dollars in thousands):
 
 
Three months ended June 30,
 
 
2017
 
2016
Balance beginning of period
 
$
7,690

 
$
(21,794
)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges
 
(6,417
)
 
(20,350
)
Amounts reclassified to investment related (gains) losses, net
 
41

 
1,010

Amounts reclassified to investment income
 
(183
)
 
(58
)
Balance end of period
 
$
1,131

 
$
(41,192
)
 
 
 
 
 
 
 
Six months ended June 30,
 
 
2017
 
2016
Balance beginning of period
 
$
(2,496
)
 
$
(29,397
)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges
 
4,016

 
(11,799
)
Amounts reclassified to investment related (gains) losses, net
 
41

 
169

Amounts reclassified to investment income
 
(430
)
 
(165
)
Balance end of period
 
$
1,131

 
$
(41,192
)
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 six months ended June 30, 2017 and 2016 (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
For the three months ended June 30, 2017:
Interest rate
 
$
(7,643
)
 
$
—

 
$
—

Currency/Interest rate
 
1,226

 
—

 
132

Forward bond purchase commitments
 
—

 
(41
)
 
51

Total
 
$
(6,417
)
 
$
(41
)
 
$
183

For the three months ended June 30, 2016:
 
 
 
 
 
 
Interest rate
 
$
(17,464
)
 
$
—

 
$
—

Currency/Interest rate
 
(2,886
)
 
—

 
93

Forward bond purchase commitments
 
—

 
(1,010
)
 
(35
)
Total
 
$
(20,350
)
 
$
(1,010
)
 
$
58

 
 
 
 
 
 
 
For the six months ended June 30, 2017:
 
 
 
 
 
 
Interest rate
 
$
(5,427
)
 
$
—

 
$
—

Currency/Interest rate
 
9,443

 
—

 
329

Forward bond purchase commitments
 
—

 
(41
)
 
101

Total
 
$
4,016

 
$
(41
)
 
$
430

For the six months ended June 30, 2016:
 
 
 
 
 
 
Interest rate
 
$
(12,335
)
 
$
—

 
$
—

Currency/Interest rate
 
536

 
—

 
253

Forward bond purchase commitments
 
—

 
(169
)
 
(88
)
Total
 
$
(11,799
)
 
$
(169
)
 
$
165
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 six months ended June 30, 2017 and 2016 (dollars in thousands):
 
 
 
Derivative Gains (Losses) Deferred in AOCI     
 
 
For the three months ended June 30,
 
For the six months ended June 30,
Type of NIFO Hedge (1) (2)
 
2017
 
2016
 
2017
 
2016
Foreign currency swaps
 
$
(17,919
)
 
$
302

 
$
(25,525
)
 
$
(31,493
)
Foreign currency forwards
 
4,158

 
—

 
4,158

 
—

Total
 
$
(13,761
)
 
$
302

 
$
(21,367
)
 
$
(31,493
)
 
(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.
Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location [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 six months ended June 30, 2017 and 2016 is as follows (dollars in thousands):
 
 
 
 
Gain (Loss) for the three months ended        June 30,
Type of Non-hedging Derivative
 
Income Statement Location of Gain (Loss)
 
2017
 
2016
Interest rate swaps
 
Investment related gains (losses), net
 
$
14,289

 
$
41,500

Financial futures
 
Investment related gains (losses), net
 
(6,442
)
 
(7,557
)
Foreign currency forwards
 
Investment related gains (losses), net
 
(351
)
 
3,577

CPI swaps
 
Investment related gains (losses), net
 
(4
)
 
(520
)
Credit default swaps
 
Investment related gains (losses), net
 
3,879

 
3,518

Equity options
 
Investment related gains (losses), net
 
(9,273
)
 
(3,225
)
Longevity swaps
 
Other revenues
 
1,981

 
2,394

Mortality swaps
 
Other revenues
 
(395
)
 
1,046

Subtotal
 
 
 
3,684

 
40,733

Embedded derivatives in:
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
Investment related gains (losses), net
 
15,108

 
76,966

Indexed annuity products
 
Interest credited
 
(5,955
)
 
(2,019
)
Variable annuity products
 
Investment related gains (losses), net
 
360

 
(28,137
)
Total non-hedging derivatives
 
 
 
$
13,197

 
$
87,543

 
 
 
 
 
 
 
 
 
 
 
Gain (Loss) for the six months ended        
June 30,
Type of Non-hedging Derivative
 
Income Statement Location of Gain (Loss)
 
2017
 
2016
Interest rate swaps
 
Investment related gains (losses), net
 
$
11,677

 
$
104,027

Financial futures
 
Investment related gains (losses), net
 
(19,217
)
 
(18,608
)
Foreign currency forwards
 
Investment related gains (losses), net
 
553

 
6,077

CPI swaps
 
Investment related gains (losses), net
 
(9
)
 
(700
)
Credit default swaps
 
Investment related gains (losses), net
 
11,237

 
6,864

Equity options
 
Investment related gains (losses), net
 
(26,462
)
 
(5,928
)
Longevity swaps
 
Other revenues
 
3,847

 
2,481

Mortality swaps
 
Other revenues
 
(790
)
 
622

Subtotal
 
 
 
(19,164
)
 
94,835

Embedded derivatives in:
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
Investment related gains (losses), net
 
83,810

 
(15,283
)
Indexed annuity products
 
Interest credited
 
(22,357
)
 
(626
)
Variable annuity products
 
Investment related gains (losses), net
 
22,723

 
(91,077
)
Total non-hedging derivatives
 
 
 
$
65,012

 
$
(12,151
)
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 June 30, 2017 and December 31, 2016 (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
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
 
$
2,857

 
$
155,500

 
3.5
 
$
1,726

 
$
150,500

 
3.8
Subtotal
 
2,857

 
155,500

 
3.5
 
1,726

 
150,500

 
3.8
BBB+/BBB/BBB-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
3,351

 
365,200

 
3.3
 
1,426

 
347,200

 
3.7
Credit default swaps referencing indices
 
82

 
416,000

 
4.5
 
6,295

 
416,000

 
5.0
Subtotal
 
3,433

 
781,200

 
3.9
 
7,721

 
763,200

 
4.4
BB+/BB/BB-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
1

 
5,000

 
2.0
 
(477
)
 
9,000

 
3.5
Subtotal
 
1

 
5,000

 
2.0
 
(477
)
 
9,000

 
3.5
Total
 
$
6,291

 
$
941,700

 
3.8
 
$
8,970

 
$
922,700

 
4.3
 
(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 six months ended June 30, 2017 and 2016 are reflected in the following table (dollars in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Embedded derivatives in modco or funds withheld arrangements included in investment related gains
$
15,108

 
$
76,966

 
$
83,810

 
$
(15,283
)
After the associated amortization of DAC and taxes, the related amounts included in net income
2,941

 
18,807

 
28,785

 
(7,970
)
Embedded derivatives in variable annuity contracts included in investment related gains
360

 
(28,137
)
 
22,723

 
(91,077
)
After the associated amortization of DAC and taxes, the related amounts included in net income
3,023

 
(40,167
)
 
31,859

 
(66,010
)
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses
(5,955
)
 
(2,019
)
 
(22,357
)
 
(626
)
After the associated amortization of DAC and taxes, the related amounts included in net income
(6,925
)
 
(7,816
)
 
(28,322
)
 
3,418
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 June 30, 2017 and December 31, 2016 are reflected in the following table (dollars in thousands):
 
 
June 30, 2017
 
December 31, 2016
Estimated fair value of derivatives in net asset position
 
$
181,124

 
$
236,985

Cash provided as collateral(1)
 
7,461

 
1,441

Securities pledged to counterparties as collateral(2)
 
59,540

 
95,863

Cash pledged from counterparties as collateral(3)
 
(183,179
)
 
(254,498
)
Securities pledged from counterparties as collateral(4)
 
(17,847
)
 
(16,913
)
Initial margin for cleared derivatives(2)
 
(58,526
)
 
(73,571
)
Net amount after application of master netting agreements and collateral
 
$
(11,427
)
 
$
(10,693
)
Margin account related to exchange-traded futures(5)
 
$
8,530

 
$
9,687

(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.