Goldman Sachs 2013 Annual Report Download - page 121

Notes to Consolidated Financial Statements
Offsetting Assets and Liabilities
To reduce credit exposures on derivatives and securities
financing transactions, the firm may enter into master
netting agreements or similar arrangements (collectively,
netting agreements) with counterparties that permit it to
offset receivables and payables with such counterparties. A
netting agreement is a contract with a counterparty that
permits net settlement of multiple transactions with that
counterparty, including upon the exercise of termination
rights by a non-defaulting party. Upon exercise of such
termination rights, all transactions governed by the netting
agreement are terminated and a net settlement amount is
calculated. In addition, the firm receives and posts cash and
securities collateral with respect to its derivatives and
securities financing transactions, subject to the terms of the
related credit support agreements or similar arrangements
(collectively, credit support agreements). An enforceable
credit support agreement grants the non-defaulting party
exercising termination rights the right to liquidate the
collateral and apply the proceeds to any amounts owed. In
order to assess enforceability of the firm’s right of setoff
under netting and credit support agreements, the firm
evaluates various factors including applicable bankruptcy
laws, local statutes and regulatory provisions in the
jurisdiction of the parties to the agreement.
Derivatives are reported on a net-by-counterparty basis
(i.e., the net payable or receivable for derivative assets and
liabilities for a given counterparty) in the consolidated
statements of financial condition when a legal right of setoff
exists under an enforceable netting agreement. Resale and
repurchase agreements and securities borrowed and loaned
transactions with the same term and currency are presented
on a net-by-counterparty basis in the consolidated
statements of financial condition when such transactions
meet certain settlement criteria and are subject to
netting agreements.
In the consolidated statements of financial condition,
derivatives are reported net of cash collateral received and
posted under enforceable credit support agreements, when
transacted under an enforceable netting agreement. In the
consolidated statements of financial condition, resale and
repurchase agreements, and securities borrowed and loaned
are not reported net of the related cash and securities
received or posted as collateral. See Note 9 for further
information about collateral received and pledged,
including rights to deliver or repledge collateral. See
Notes 7 and 9 for further information about offsetting.
Insurance Activities
The firm sold a majority stake in each of its Americas
reinsurance business (April 2013) and its European
insurance business (December 2013). As a result, the firm
no longer consolidates these businesses. The remaining
investments of approximately 20% in the Americas
reinsurance business and approximately 36% in the
European insurance business are accounted for at fair value
under the fair value option and are included in “Financial
instruments owned, at fair value” as of December 2013.
Results from these remaining investments are included in
the Investing & Lending segment.
Prior to the sales, certain of the firm’s insurance contracts
were accounted for at fair value under the fair value option,
with changes in fair value included in “Market making”
revenues. See Note 8 for further information about the fair
values of these insurance contracts. Revenues from variable
annuity and life insurance and reinsurance contracts not
accounted for at fair value generally consisted of fees
assessed on contract holder account balances for mortality
charges, policy administration fees and surrender charges.
These revenues were recognized in earnings over the period
that services were provided and were included in “Market
making” revenues. Changes in reserves, including interest
credited to policyholder account balances, were recognized
in “Insurance reserves.” Premiums earned for underwriting
property catastrophe reinsurance were recognized in
earnings over the coverage period, net of premiums ceded
for the cost of reinsurance, and were included in “Market
making” revenues. Expenses for liabilities related to
property catastrophe reinsurance claims, including
estimates of losses that have been incurred but not reported,
were included in “Insurance reserves.”
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