XML 42 R12.htm IDEA: XBRL DOCUMENT
v3.20.4

Derivatives | 12 Months Ended
--- | ---
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | The Company offers FIA products, which are deferred fixed annuities that guarantee the return of principal to the contractholder and credit interest based on a percentage of the gain in a specified market index. The Company also offers IUL products which credit interest based on a percentage of the gain in a specified market index. When deposits are received for FIA and IUL contracts, a portion is used to purchase derivatives consisting of call options on the applicable market indices to fund the index credits due to FIA and IUL policyholders. For the Company, substantially all such call options are one-year options purchased to match the funding requirements of the underlying contracts. The call options are carried at fair value with changes in fair value included in Net investment gains (losses), a component of revenues, in the Consolidated Statements of Operations. The change in fair value of derivatives includes the gains or losses recognized at the expiration of the option term or early termination and the changes in fair value for open positions. Call options are not purchased to fund the index liabilities that may arise after the next deposit anniversary date. On the respective anniversary dates of the indexed deposits, the index used to compute the annual index credit is reset and new one-year call options are purchased to fund the next annual index credit. The cost of these purchases is managed through the terms of the FIA and IUL contracts, which permit changes to index return caps, participation rates and/or asset fees, subject to guaranteed minimums on each contract's anniversary date. By adjusting the index return caps, participation rates or asset fees, crediting rates generally can be managed except in cases where the contractual features would prevent further modifications. The future annual index credits on FIA are accounted for as a "series of embedded derivatives" over the expected life of the applicable contract with a corresponding reserve recognized. For IUL, the embedded derivative represents a single year liability for the index return. The Company carries all derivatives at fair value in the Consolidated Balance Sheets. The Company elected to not use hedge accounting for derivative transactions related to the FIA and IUL products. As a result, the Company recognizes the purchased call options and the embedded derivatives related to the provision of a contingent return at fair value, with changes in the fair value of the derivatives recognized immediately as Net investment gains (losses) in the Consolidated Statements of Operations. The fair values of derivatives, including derivatives embedded in FIA and IUL contracts, are presented in the Consolidated Balance Sheets as follows:
($ in thousands) |  | December 31,
|  | 2020 |  | 2019
Assets |  |  |  |
Derivatives, reported in Short-term and other investments |  | $ | 16,805 |  |  | $ | 13,239 |
Liabilities |  |  |  |
FIA - embedded derivatives, reported in Other policyholder funds |  | 104,488 |  |  | 93,733 |
IUL - embedded derivatives, reported in Investment contract and policy reserves |  | 2,474 |  |  | 1,314 |
In general, the change in the fair value of the embedded derivatives related to FIA will not correspond to the change in fair value of the purchased call options because the purchased call options are one-year options while the options valued in the embedded derivatives represent the rights of the policyholder to receive index credits over the entire period the FIA contracts are expected to be in force, which typically exceeds 10 years. The changes in fair value of derivatives included in the Consolidated Statements of Operations were as follows:
($ in thousands) |  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Change in fair value of derivatives: (1) |  |  |  |  |  |
Revenues |  |  |  |  |  |
Net investment gains (losses) |  | $ | 248 |  |  | $ | 9,493 |  |  | $ | (4,112) |
Change in fair value of embedded derivatives: |  |  |  |  |  |
Revenues |  |  |  |  |  |
Net investment gains (losses) |  | (12,055) |  |  | (13,576) |  |  | 7,931 |
(1) Includes gains or losses recognized at option expiration or early termination and changes in fair value for open positions. The Company's strategy attempts to mitigate potential risk of loss under these agreements through a regular monitoring process, which evaluates the program's effectiveness. The Company is exposed to risk of loss in the event of nonperformance by the counterparties and, accordingly, option contracts are purchased from multiple counterparties, which are evaluated for creditworthiness prior to purchase of the contracts. All of these options have been purchased from nationally recognized financial institutions with a S&P/Moody's Investors Service, Inc. (Moody's) long-term credit rating of "BBB+/A3" or higher at the time of purchase and the maximum credit exposure to any single counterparty is subject to concentration limits. The Company also obtains credit support agreements that allow it to request the counterparty to provide cash collateral when the fair value of the exposure to the counterparty exceeds specified amounts. The notional amount and fair value of call options by counterparty and each counterparty's long-term credit ratings were as follows:
($ in thousands) |  | December 31, 2020 |  | December 31, 2019
|  | Credit Rating |  | Notional |  | Fair |  | Notional |  | Fair
Counterparty |  | S&P |  | Moody's |  | Amount |  | Value |  | Amount |  | Value
Bank of America, N.A. |  | A+ |  | Aa2 |  | $ | 205,200 |  |  | $ | 14,006 |  |  | $ | 174,900 |  |  | $ | 8,523 |
Barclays Bank PLC |  | A |  | A1 |  | 81,900 |  |  | 2,799 |  |  | 115,300 |  |  | 3,347 |
Citigroup Inc. |  | BBB+ |  | A3 |  | — |  |  | — |  |  | — |  |  | — |
Credit Suisse International |  | A+ |  | Aa3 |  | — |  |  | — |  |  | — |  |  | — |
Societe Generale |  | A |  | A1 |  | — |  |  | — |  |  | 27,800 |  |  | 1,369 |
Total |  |  |  |  |  | $ | 287,100 |  |  | $ | 16,805 |  |  | $ | 318,000 |  |  | $ | 13,239 |
As of December 31, 2020 and 2019, the Company held $16.3 million and $14.3 million, respectively, of cash and financial instruments received from counterparties for derivative collateral, which is included in Other liabilities on the Consolidated Balance Sheets. This derivative collateral limits the Company's maximum amount of economic loss due to credit risk that would be incurred if parties to the call options failed completely to perform according to the terms of the contracts to $0.3 million per counterparty.

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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration