Derivative Instruments

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed products are exposed. These options are not designated as hedging instruments for accounting purposes under U.S. GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):

Derivatives Not Designated as Hedging Instruments	Location in the Consolidated Statements of Financial Position	June 30, 2019					December 31, 2018
		Number of Instruments	Notional Amounts		Estimated Fair Value		Number of Instruments	Notional Amounts		Estimated Fair Value
Equity-indexed options	Other invested assets	484	$	2,498,744	$	231,044	493	$	2,391,000	$	148,006
Equity-indexed embedded derivative	Policyholders’ account balances	96,014	2,455,001		695,676		90,440	2,327,769		596,075

Derivatives Not Designated as Hedging Instruments	Location in the Consolidated Statements of Operations	Gains (Losses) Recognized in Income on Derivatives
		Three months ended June 30,						Six months ended June 30,
		2019			2018			2019			2018
Equity-indexed options	Net investment income	$	23,125		$	21,778		$	89,610		$	7,633
Equity-indexed embedded derivative	Interest credited to policyholders’  account balances	(36,255		)	(17,599		)	(94,411		)	(4,163		)

The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by the counterparties. The Company has a policy of only dealing with counterparties it believes are creditworthy and obtaining sufficient collateral where appropriate, as a means of mitigating the financial loss from defaults. The Company holds collateral in cash and notes secured by U.S. government backed assets. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts, less the fair value of collateral held. The Company maintains master netting agreements with its current active trading partners. As such, a right of offset has been applied to collateral that supports credit risk and has been recorded in the consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.

Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):

		June 30, 2019
Counterparty	Moody/S&P Rating	Options Fair Value		Collateral  Held in Cash		Collateral Held in Invested Assets		Total Collateral Held		Collateral Amounts used to Offset Exposure		Excess Collateral		Exposure Net of Collateral
Barclays	Baa3/BBB	$	53,790	$	25,393	$	28,000	$	53,393	$	53,393	$	—	$	397
Credit Suisse	Baa2/BBB+	1,223		1,150		—		1,150		1,150		—		73
Goldman-Sachs	A3/BBB+	909		670		—		670		670		—		239
ING	Baa1/A-	28,382		12,830		16,000		28,830		28,382		448		—
Morgan Stanley	A3/BBB+	26,538		17,516		9,000		26,516		26,516		—		22
NATIXIS*	A1/A+	38,289		38,700		—		38,700		38,289		411		—
SunTrust	Baa1/BBB+	48,347		32,350		17,000		49,350		48,320		1,030		27
Wells Fargo	A2/A-	33,566		18,550		15,000		33,550		33,313		237		253
Total		$	231,044	$	147,159	$	85,000	$	232,159	$	230,033	$	2,126	$	1,011

		December 31, 2018
Counterparty	Moody/S&P Rating	Options Fair Value		Collateral  Held in Cash		Collateral Held in Invested Assets		Total Collateral Held		Collateral Amounts used to Offset Exposure		Excess Collateral		Exposure Net of Collateral
Barclays	Baa3/BBB	$	38,905	$	11,063	$	28,041	$	39,104	$	38,905	$	199	$	—
Goldman-Sachs	A3/BBB+	615		670		—		670		615		55		—
ING	Baa1/A-	24,183		7,960		16,023		23,983		23,983		—		200
Morgan Stanley	A3/BBB+	11,649		2,046		9,013		11,059		11,059		—		590
NATIXIS*	A1/A+	26,786		27,610		—		27,610		26,786		824		—
SunTrust	Baa1/BBB+	23,488		6,520		17,025		23,545		23,464		81		24
Wells Fargo	A2/A-	22,380		7,030		15,022		22,052		22,052		—		328
Total		$	148,006	$	62,899	$	85,124	$	148,023	$	146,864	$	1,159	$	1,142

* Includes collateral restrictions.