XML 37 R24.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivative Instruments (Tables)
 3 Months Ended
Mar. 31, 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 March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
March 31, 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
 
$
1,021,739

 
$
47,303

 
$
152

 
$
996,204

 
$
59,809

 
$
2,372

Financial futures
 
388,874

 
—

 
—

 
412,438

 
—

 
—

Foreign currency forwards
 
6,012

 
48

 
4

 
6,030

 
—

 
28

Consumer price index swaps
 
218,237

 
127

 
427

 
221,932

 
—

 
2,160

Credit default swaps
 
933,200

 
7,279

 
1,058

 
961,200

 
8,319

 
1,651

Equity options
 
639,801

 
33,958

 
—

 
632,251

 
23,271

 
—

Longevity swaps
 
985,920

 
44,011

 
—

 
960,400

 
40,659

 
—

Mortality swaps
 
—

 
—

 
1,683

 
—

 
—

 
1,683

Synthetic guaranteed investment contracts
 
10,866,171

 
—

 
—

 
10,052,576

 
—

 
—

Embedded derivatives in:
 
 
 
 
 
 
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
—

 
135,805

 
—

 
—

 
122,194

 
—

Indexed annuity products
 
—

 
—

 
827,109

 
—

 
—

 
861,758

Variable annuity products
 
—

 
—

 
137,686

 
—

 
—

 
152,470

Total non-hedging derivatives
 
15,059,954

 
268,531

 
968,119

 
14,243,031

 
254,252

 
1,022,122

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

 
(1,119
)
 
16,972

 
435,000

 
—

 
20,389

Foreign currency swaps
 
598,575

 
56,403

 
5,461

 
672,921

 
65,207

 
8,496

Foreign currency forwards
 
698,241

 
7,458

 
225

 
553,175

 
1,265

 
7,720

Total hedging derivatives
 
1,731,816

 
62,742

 
22,658

 
1,661,096

 
66,472

 
36,605

Total derivatives
 
$
16,791,770

 
$
331,273

 
$
990,777

 
$
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 March 31, 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   
March 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
195,468

 
$
(19,262
)
 
$
176,206

 
$
—

 
$
(188,407
)
 
$
(12,201
)
Derivative liabilities
 
25,982

 
(19,262
)
 
6,720

 
(57,456
)
 
(3,470
)
 
(54,206
)
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 March 31, 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   
March 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$
195,468

 
$
(19,262
)
 
$
176,206

 
$
—

 
$
(188,407
)
 
$
(12,201
)
Derivative liabilities
 
25,982

 
(19,262
)
 
6,720

 
(57,456
)
 
(3,470
)
 
(54,206
)
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 March 31, 2018 and 2017, 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)
For the three months ended March 31, 2018:
 
 
 
 
 
 
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
(1,891
)
 
$
1,891

 
$
—

For the three months ended March 31, 2017:
Foreign currency swaps
 
Foreign-denominated fixed maturity securities
 
$
6,536

 
$
(6,536
)
 
$
—
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 months ended March 31, 2018 and 2017 (dollars in thousands):
 
 
Three months ended March 31,
 
 
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
 
17,817

 
10,433

Amounts reclassified to investment income
 
(144
)
 
(247
)
Amounts reclassified to interest expense
 
370

 
—

Balance end of period
 
$
20,662

 
$
7,690
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 months ended March 31, 2018 and 2017 (dollars in thousands):
 
 
Effective Portion
 
 
 
 
Derivative Type
 
Gain (Loss) Deferred in OCI
 
Gain (Loss) Reclassified into Income from OCI
 
 
 
 
Investment Income
 
Interest Expense
For the three months ended March 31, 2018:
 
 
 
 
 
 
Interest rate
 
$
14,986

 
$
—

 
$
(370
)
Currency/Interest rate
 
2,831

 
144

 
—

Forward bond purchase commitments
 
—

 
—

 
—

Total
 
$
17,817

 
$
144

 
$
(370
)
For the three months ended March 31, 2017:
 
 
 
 
 
 
Interest rate
 
$
2,216

 
$
—

 
$
—

Currency/Interest rate
 
8,217

 
197

 
—

Forward bond purchase commitments
 
—

 
50

 
—

Total
 
$
10,433

 
$
247

 
$
—
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 months ended March 31, 2018 and 2017 (dollars in thousands):
 
 
 
Derivative Gains (Losses) Deferred in AOCI     
 
 
For the three months ended March 31,
Type of NIFO Hedge (1) (2)
 
2018
 
2017
Foreign currency swaps
 
$
8,805

 
$
(7,606
)
Foreign currency forwards
 
12,236

 
—

 
(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 months ended March 31, 2018 and 2017 is as follows (dollars in thousands):
 
 
 
 
Gain (Loss) for the three months ended        
March 31,
Type of Non-hedging Derivative
 
Income Statement Location of Gain (Loss)
 
2018
 
2017
Interest rate swaps
 
Investment related gains (losses), net
 
$
(26,571
)
 
$
(2,612
)
Financial futures
 
Investment related gains (losses), net
 
129

 
(12,775
)
Foreign currency forwards
 
Investment related gains (losses), net
 
323

 
904

CPI swaps
 
Investment related gains (losses), net
 
2,186

 
(5
)
Credit default swaps
 
Investment related gains (losses), net
 
(402
)
 
7,358

Equity options
 
Investment related gains (losses), net
 
2,593

 
(17,189
)
Longevity swaps
 
Other revenues
 
2,267

 
1,865

Mortality swaps
 
Other revenues
 
—

 
(395
)
Subtotal
 
 
 
(19,475
)
 
(22,849
)
Embedded derivatives in:
 
 
 
 
 
 
Modified coinsurance or funds withheld arrangements
 
Investment related gains (losses), net
 
13,611

 
68,702

Indexed annuity products
 
Interest credited
 
25,351

 
(16,402
)
Variable annuity products
 
Investment related gains (losses), net
 
14,785

 
22,363

Total non-hedging derivatives
 
 
 
$
34,272

 
$
51,814
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 March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
March 31, 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
 
$
2,761

 
$
152,000

 
3.0
 
$
3,128

 
$
162,000

 
2.9
Subtotal
 
2,761

 
152,000

 
3.0
 
3,128

 
162,000

 
2.9
BBB+/BBB/BBB-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
4,203

 
333,700

 
2.8
 
4,469

 
361,700

 
2.9
Credit default swaps referencing indices
 
156

 
422,600

 
3.7
 
(55
)
 
422,600

 
4.0
Subtotal
 
4,359

 
756,300

 
3.3
 
4,414

 
784,300

 
3.5
BB+/BB/BB-
 
 
 
 
 
 
 
 
 
 
 
 
Single name credit default swaps
 
(25
)
 
15,000

 
1.5
 
30

 
5,000

 
1.5
Subtotal
 
(25
)
 
15,000

 
1.5
 
30

 
5,000

 
1.5
Total
 
$
7,095

 
$
923,300

 
3.2
 
$
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 months ended March 31, 2018 and 2017 are reflected in the following table (dollars in thousands):
 
Three months ended March 31,
 
2018
 
2017
Embedded derivatives in modco or funds withheld arrangements included in investment related gains
$
13,611

 
$
68,702

After the associated amortization of DAC and taxes, the related amounts included in net income
6,850

 
25,844

Embedded derivatives in variable annuity contracts included in investment related gains
14,785

 
22,363

After the associated amortization of DAC and taxes, the related amounts included in net income
11,126

 
28,836

Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses
25,351

 
(16,402
)
After the associated amortization of DAC and taxes, the related amounts included in net income
6,537

 
(21,396
)
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 at March 31, 2018 and December 31, 2017 are reflected in the following table (dollars in thousands):
 
 
March 31, 2018
 
December 31, 2017
Estimated fair value of derivatives in net asset position
 
$
171,169

 
$
155,714

Cash provided as collateral(1)
 
3,470

 
22,221

Securities pledged to counterparties as collateral(2)
 
57,456

 
58,156

Cash pledged from counterparties as collateral(3)
 
(188,407
)
 
(185,900
)
Securities pledged from counterparties as collateral(4)
 
—

 
(862
)
Initial margin for cleared derivatives(2)
 
(57,456
)
 
(58,156
)
Net amount after application of master netting agreements and collateral
 
$
(13,768
)
 
$
(8,827
)
Margin account related to exchange-traded futures(5)
 
$
7,382

 
$
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.