XML 27 R17.htm IDEA: XBRL DOCUMENT v3.24.2.u1

DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company manages risks associated with certain assets and liabilities by using derivative financial instruments. Derivative financial instruments are financial contracts whose value is derived from underlying interest rates, exchange rates or other financial instruments. The Company does not invest in derivatives for speculative purposes.

Foreign exchange forwards, options, cross currency swaps, interest rate swaps and interest rate options are over-the-counter contractual agreements negotiated between counterparties. The Company purchases equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed products are exposed. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. Futures contracts are traded in an organized market and are contractual obligations to buy or sell a financial instrument at a predetermined future time at a given price.

The notional principal represents the amount to which a rate or price is applied to determine the cash flows to be exchanged periodically and does not represent credit exposure. Maximum credit risk is the estimated cost of replacing derivative financial instruments which have a positive value, should the counterparty default.

Derivatives, except for embedded derivatives, are included in “Other invested assets” or “Other liabilities”, at fair value in the statements of financial position. Embedded derivatives on Modco arrangements, embedded derivatives on indexed annuity and variable annuity products and embedded derivatives on funds withheld arrangements are included in the statements of financial position within the “Reinsurance funds withheld”, “Policyholders’ account balances” and “Funds withheld for reinsurance liabilities” lines respectively, at fair value.

The notional and fair values of freestanding derivative instruments, presented in the statements of financial position, are shown below:

AS OF US$ MILLIONS						Primary underlying risk						Location in the statements of financial position						June 30, 2024																		December 31, 2023
																		Notional Amount						Carrying Amount / Fair Value												Notional Amount						Carrying Amount / Fair Value
																								Assets						Liabilities												Assets						Liabilities
Derivatives designated as hedging instruments:
Foreign exchange forwards						Foreign currency						Other invested assets, Other liabilities						$	1,472					$	—					$	(10)					$	1,532					$	11					$	—
Derivatives not designated as hedging instruments:
Equity-indexed options						Equity						Other invested assets						$	45,871					$	1,611					$	—					$	8,795					$	322					$	—
Foreign exchange forwards						Foreign currency						Other invested assets, Other liabilities						983						4						(1)						1,362						1						(4)
Bond futures						Interest rate						Other liabilities						1,507						—						(3)						1,652						—						(8)
Cross currency swaps						Foreign currency						Other invested assets, Other liabilities						—						—						—						8						—						—
Interest rate swaps						Interest rate						Other invested assets						84						5						—						87						8						—
																		$	49,917					$	1,620					$	(14)					$	13,436					$	342					$	(12)

Derivatives Designated as Hedging Instruments

Starting in the third quarter of 2023, the Company has designated and accounted for certain foreign exchange forwards as fair value hedges to protect a portion of the available-for-sale fixed maturity securities against changes in fair value due to changes in exchange rates.

For derivative financial instruments that were designated and qualified as fair value hedges, the gain or loss on the portion of the derivative instrument included in the assessment of hedge effectiveness and the offsetting gain or loss on the hedged item attributable to the hedged risk were recognized in the same line item in the statements of operations. The unrealized gain or loss attributable to changes in exchange rates on the available-for-sale fixed maturity securities that were designated as part of the hedge were reclassified out of OCI into “Investment related gains (losses)” in the statements of operations. The remaining change in unrealized gain or loss on the hedged item not associated with the risk being hedged remained as a component of OCI.

The following represents the financial statement location and amount of gains (losses) related to the derivatives and hedged items that qualify for fair value hedge accounting:

						Three Months Ended												Six Months Ended
FOR THE PERIODS ENDED JUN. 30 US$ MILLIONS						2024						2023						2024						2023
Hedged items						$	15					$	—					$	56					$	—
Derivatives designated as hedging instruments						(14)						—						(55)						—
Investment related gains (losses)						$	1					$	—					$	1					$	—

Derivatives Not Designated as Hedging Instruments

The following represents the amount of gains (losses) related to the derivatives not designated as hedging instruments, recognized in “Investment related gains (losses)” on the statements of operations, except for equity-indexed options which are recognized in “Change in fair value of insurance-related derivatives and embedded derivatives”:

FOR THE PERIODS ENDED JUN. 30 US$ MILLIONS						Three Months Ended												Six Months Ended
						2024						2023						2024						2023
Equity-indexed options						$	285					$	68					$	385					$	93
Foreign exchange forwards						(6)						41						(2)						37
Bond futures						9						(24)						5						(9)
Interest rate swaps						—						—						(3)						—
Interest rate options						1						—						1						—
						$	289					$	85					$	386					$	121

Derivative Exposure

The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by counterparties. The Company has a policy of only dealing with counterparties it believes are creditworthy and obtaining sufficient collateral where appropriate, as a means to mitigating the financial loss from defaults. The minimum credit rating of our counterparties is A- as of June 30, 2024 (December 31, 2023 – BBB), and all derivatives have been appropriately collateralized by the Company and the counterparties in accordance with the terms of the derivative agreements. 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 fair value of open contracts less fair value of collateral held. The Company maintains master netting agreements with its current active trading partners. A right of offset has been applied to cash collateral that supports credit risk and has been recorded in the statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for non-cash and excess collateral. A right of offset has also been applied to derivative assets and liabilities with the same counterparty under the same master netting agreement, and such derivative instruments are presented on a net basis in the statements of financial position.

Information regarding the Company’s exposure to credit loss on the derivatives it holds, including the effect of rights of offset, is presented below:

AS OF JUN. 30, 2024 US$ MILLIONS						Gross amount of derivative instruments1						Gross amounts offset in the statements of financial position2						Net amount presented on the statements of financial position						Collateral (received) pledged in cash3						Collateral (received) pledged in invested assets3						Exposure net of collateral
Derivative assets:
Equity-indexed options						$	1,619					$	(8)					$	1,611					$	(1,587)					$	(21)					$	3
Foreign exchange forwards						11						(7)						4						—						—						4
Bond futures						10						(10)						—						—						—						—
Cross currency swaps						12						(12)						—						—						—						—
Interest rate swaps						27						(22)						5						—						—						5
Total derivative assets						$	1,679					$	(59)					$	1,620					$	(1,587)					$	(21)					$	12
Derivative liabilities:
Equity-indexed options						$	(8)					$	8					$	—					$	—					$	—					$	—
Foreign exchange forwards						(18)						7						(11)						—						—						(11)
Bond futures						(13)						10						(3)						3						—						—
Cross currency swaps						(12)						12						—						—						—						—
Interest rate swaps						(22)						22						—						—						—						—
Total derivative liabilities						$	(73)					$	59					$	(14)					$	3					$	—					$	(11)
1. Represents derivative assets and liabilities on a gross basis, which are not offset under enforceable master netting agreements that meet all offsetting criteria.
2. Represents netting of derivative exposures covered by qualifying master netting agreements.
3. Excludes a portion of collaterals held in cash and invested assets that are excess collateral. As of June 30, 2024, the Company held excess collateral of $52 million.

AS OF DEC. 31, 2023 US$ MILLIONS						Gross amount of derivative instruments1						Gross amounts offset in the statements of financial position2						Net amount presented on the statements of financial position						Collateral (received) pledged in cash3						Collateral (received) pledged in invested assets3						Exposure net of collateral
Derivative assets:
Equity-indexed options						$	322					$	—					$	322					$	(209)					$	(17)					$	96
Foreign exchange forwards						16						(4)						12						—						—						12
Bond futures						65						(65)						—						—						—						—
Cross currency swaps						12						(12)						—						—						—						—
Interest rate swaps						29						(21)						8						—						—						8
Total derivative assets						$	444					$	(102)					$	342					$	(209)					$	(17)					$	116
Derivative liabilities:
Foreign exchange forwards						(8)						4						(4)						—						—						(4)
Bond futures						(73)						65						(8)						—						—						(8)
Cross currency swaps						(12)						12						—						—						—						—
Interest rate swaps						(21)						21						—						—						—						—
Total derivative liabilities						$	(114)					$	102					$	(12)					$	—					$	—					$	(12)
1. Represents derivative assets and liabilities on a gross basis, which are not offset under enforceable master netting agreements that meet all offsetting criteria.
2. Represents netting of derivative exposures covered by qualifying master netting agreements.
3. Excludes a portion of collaterals held in cash and invested assets that are excess collateral. As of December 31, 2023, the Company held excess collateral of $4 million.

Embedded Derivatives

The fair values of embedded derivatives that have been separated from their host contracts, presented in the statements of financial position, are shown below:

AS OF US$ MILLIONS						Location in the statements of financial position						June 30, 2024												December 31, 2023
												Carrying Amount / Fair Value												Carrying Amount / Fair Value
												Assets						Liabilities						Assets						Liabilities
Modco arrangement						Reinsurance funds withheld						$	34					$	—					$	(46)					$	—
Indexed annuity and variable annuity product						Policyholders’ account balances						—						(1,196)						—						(1,104)
Funds withheld arrangement						Funds withheld for reinsurance liabilities						—						(34)						—						—
												$	34					$	(1,230)					$	(46)					$	(1,104)

The following represents the amount of gains (losses) related to embedded derivatives recorded in the statements of operations:

FOR THE PERIODS ENDED JUN. 30 US$ MILLIONS						Location in the statements of operations						Three Months Ended												Six Months Ended
												2024						2023						2024						2023
Modco arrangement						Net investment results from reinsurance funds withheld						$	141					$	27					$	276					$	(10)
Indexed annuity and variable annuity product						Change in fair value of insurance-related derivatives and embedded derivatives						(237)						(39)						(294)						(134)
Funds withheld arrangement						Change in fair value of insurance-related derivatives and embedded derivatives						(35)						—						(34)						—
												$	(131)					$	(12)					$	(52)					$	(144)

X

- References

No definition available.

+ Details

Name:	us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix:	us-gaap_
Data Type:	xbrli:stringItemType
Balance Type:	na
Period Type:	duration

X

- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 40
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Subparagraph (f)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480237/815-40-50-5

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 5C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 815
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org/815/tableOfContent

+ Details

Name:	us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix:	us-gaap_
Data Type:	dtr-types:textBlockItemType
Balance Type:	na
Period Type:	duration