v3.25.1
Derivatives and Hedging Instruments
 3 Months Ended
Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES AND HEDGING INSTRUMENTS
6. DERIVATIVES AND HEDGING INSTRUMENTS
Accounting for Derivatives
Freestanding Derivatives
Freestanding derivatives are recorded on trade-dates and carried on the consolidated balance sheet either as assets within other assets or as liabilities within other liabilities at estimated fair value. We do not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are reported in fair value changes in trading securities, funds held and other investments included in our consolidated statements of operations.
Hedge Accounting
To qualify for hedge accounting, at the inception of the hedging relationship, we formally document the risk management objective and strategy for undertaking the hedging transaction, as well as the designation of the hedge.
We have qualifying net investment in foreign operation (“NIFO”) hedges. We recognize changes in the estimated fair value of the hedging derivatives within OCI, consistent with the translation adjustment for the hedged net investment in the foreign operation.
Our documentation sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and also sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and at least quarterly throughout the life of the designated hedging relationship. Assessments of hedge effectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
When hedge accounting is discontinued pursuant to a NIFO hedge (due to a revaluation, payment of a dividend or the disposal of our investment in a foreign operation), the derivative continues to be carried on the balance sheet at
its estimated fair value. Deferred gains and losses recorded in OCI pursuant to a discontinued NIFO hedge are recognized immediately in net foreign exchange losses (gains) in our consolidated statements of operations.
Embedded Derivatives
We are party to certain reinsurance agreements that have embedded derivatives. We also have embedded derivatives on our convertible bond portfolio, recorded within fixed maturities, trading on the consolidated balance sheets. We assess each identified embedded derivative to determine whether it is required to be bifurcated. The embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative if:
•the combined instrument is not accounted for in its entirety at estimated fair value with changes in estimated fair value recorded in net income;
•the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and
•a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument.
Such embedded derivatives are carried on the consolidated balance sheet at estimated fair value with the host contract and changes in their estimated fair value are generally reported within fair value changes in trading securities, funds held and other investments.
Derivative Strategies
We are exposed to various risks relating to our ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity price risks. We use a variety of strategies to manage these risks, including the use of derivatives.
Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. The types of derivatives we use include swaps and forwards.
Foreign Currency Derivatives
We use foreign currency exchange rate derivatives, including foreign currency forwards, to reduce the risk from fluctuations in foreign currency exchange rates associated with our assets and liabilities denominated in foreign currencies. We also use foreign currency derivatives to hedge the foreign currency exchange rate risk associated with certain of our net investments in foreign operations.
In a foreign currency forward transaction, we agree with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. We utilize foreign currency forwards in fair value, NIFO hedges and nonqualifying hedging relationships.
Interest Rate Derivatives
We use interest rate derivatives, specifically interest rate swaps, to reduce our exposure to changes in interest rates.
Interest rate swaps are used by us primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, we agree with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. We utilize interest rate swaps in nonqualifying hedging relationships.
In June 2024, we entered into four one-month forward interest rate swaps each with a different underlying swap term of 2 to 5 years, receiving a fixed rate and paying a floating rate with a notional value of $125 million to (1) partially mitigate the risk that interest rates could decrease prior to our receipt of the premium consideration and (2) reduce asset and liability mismatch risk driven by investment restrictions for the LPT transaction related to property catastrophe and COVID-19 exposures that was signed and closed in June 2024.
In December 2024, we entered into three three-month forward interest rate swaps, receiving a fixed rate and paying a floating rate with a notional value of $823 million, £252 million, and €383 million to partially mitigate the risk that interest rates could decrease prior to our receipt of the consideration for the LPT transaction related to a diversified mix of business including liability, professional risk, and motor signed in December, 2024. As the transaction had not yet closed prior to the expiration of the forward starting period, the three forward interest rate swaps were
terminated in March 2025 and three new three-month forward interest rate swaps were entered into, receiving a fixed rate and paying a floating rate with the same notional values and for the same purpose as the terminated forward interest rate swaps. For the three months ended March 31, 2025, we recognized a gain from fair value changes of $4 million related to the terminated interest rate swaps.
The following table presents the gross notional amounts and estimated fair values of our derivatives recorded within other assets and other liabilities on the consolidated balance sheets as of March 31, 2025 and December 31, 2024:
March 31, 2025December 31, 2024
Gross Notional Amount
Fair Value (1)
Gross Notional Amount Fair Value
AssetsLiabilities AssetsLiabilities
(in millions of U.S. dollars)
Derivatives designated as hedging instruments
Foreign currency forward contracts$237 $1 $5 $227 $2 $— 
Derivatives not designated as hedging instruments
Foreign currency forward contracts399 4 3 282 3 1 
Interest rate swaps1,687 7 — 1,660 — 6 
Others3 — — — — — 
Total$2,326 $12 $8 $2,169 $5 $7 
(1) Refer to Note 10 for additional information regarding the fair value of our derivatives.
The following table presents the net gains and losses relating to our derivative instruments for the three months ended March 31, 2025 and 2024:
Amount of Net Gains (Losses)
Financial statement line item where gain (loss) is recognized on derivativesThree Months Ended
20252024
(in millions of U.S. dollars)
Derivatives designated as hedging instruments
Foreign currency forward contractsAccumulated other comprehensive loss$(7)$7 
Derivatives not designated as hedging instruments
Foreign currency forward contractsNet foreign exchange (loss) gains3 2 
Interest rate swapsFair value changes in trading securities, funds held and other investments11 —