4. Financial Derivatives

Gains and losses on the Company's derivative contracts for the three and six month periods ended June 30, 2012 and 2011 are summarized in the tables below:

June 30, 2012:


						Change in Net						Change in Net
			Net Realized			Unrealized			Net Realized			Unrealized
			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for
			the Three Month			the Three Month			the Six Month			the Six Month
	Primary Risk		Period Ended			Period Ended			Period Ended			Period Ended
Derivative Type	Exposure		June 30, 2012			June 30, 2012			June 30, 2012			June 30, 2012
(In thousands)
Financial derivatives - assets
Credit default swaps on asset-backed securities	Credit	$	(734	)	$	1,308		$	(5,477	)	$	8,107
Credit default swaps on asset-backed indices	Credit		(1,573	)		1,522			(7,066	)		(2,268	)
Credit default swaps on corporate bond indices	Credit		(12	)		602			(1,560	)		1,173
Interest rate swaps	Interest Rates		49			(69	)		49			(78	)
Eurodollar futures	Interest Rates		(9	)		0			(17	)		(12	)
			(2,279	)		3,363			(14,071	)		6,922

Financial derivatives - liabilities
Credit default swaps on asset-backed indices	Credit		253			(927	)		4,562			(893	)
Credit default swaps on corporate bond indices	Credit		301			(66	)		304			0
Total return swaps	Equity Market		(1,273	)		(4	)		(3,328	)		21
Interest rate swaps	Interest Rates		(5,548	)		562			(15,948	)		11,683
Eurodollar futures	Interest Rates		0			(2	)		0			(54	)
			(6,267	)		(437	)		(14,410	)		10,757
Total		$	(8,546	)	$	2,926		$	(28,481	)	$	17,679

June 30, 2011:


						Change in Net						Change in Net
			Net Realized			Unrealized			Net Realized			Unrealized
			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for
			the Three Month			the Three Month			the Six Month			the Six Month
	Primary Risk		Period Ended			Period Ended			Period Ended			Period Ended
Derivative Type	Exposure		June 30, 2011			June 30, 2011			June 30, 2011			June 30, 2011
(In thousands)
Financial derivatives - assets
Credit default swaps on asset-backed securities	Credit	$	2,628		$	(1,490	)	$	5,308		$	(4,740	)
Credit default swaps on asset-backed indices	Credit		3,820			1,096			(1,226	)		1,974
Interest rate swaps	Interest Rates		(385	)		(1,637	)		(652	)		(835	)
			6,063			(2,031	)		3,430			(3,601	)
Financial derivatives - liabilities
Credit default swaps on asset-backed indices	Credit		2,442			(208	)		8,863			(217	)
Credit default swaps on corporate bond indices	Credit		(50	)		0			(100	)		(34	)
Interest rate swaps	Interest Rates		(1,002	)		(3,141	)		(1,001	)		(3,691	)
Eurodollar futures	Interest Rates		(348	)		202			(719	)		521
			1,042			(3,147	)		7,043			(3,421	)
Total		$	7,105		$	(5,178	)	$	10,473		$	(7,022	)

As of June 30, 2012, the Company is party to credit derivatives contracts in the form of credit default swaps on mortgage/asset-backed indices (ABS index or ABS indices). As a seller of credit protection via ABS indices, the Company receives periodic payments at fixed rates from protection buyers, and is obligated to make payments to the protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets. Written credit derivatives held by the Company at June 30, 2012 and December 31, 2011, respectively, are summarized below:


		Amount at			Amount at
Credit Default Swaps on Asset Backed Indices		June 30, 2012			December 31, 2011
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	(21,942	)	$	(9,548	)
Fair Value of Purchased Credit Derivatives Offsetting Written
Credit Derivatives with Third Parties⁽¹⁾	$	4,297			0
Notional Amount of Written Credit Derivatives⁽²⁾	$	(77,167	)	$	(22,615	)
Notional Amount of Purchased Credit Derivatives Offsetting
Written Credit Derivatives with Third Parties⁽¹⁾	$	25,719			0

(1) Offsetting transactions with third parties include purchased credit derivatives which have the same reference obligation.

(2) The notional value is the maximum amount that a seller of ABS indices would be obligated to pay, and a buyer of credit protection would receive upon occurrence of a "credit event." Movements in the value of credit default swap transactions may require the Company or the counterparty to post or receive collateral. Amounts due or owed under an ABS index contract may be offset against amounts due or owed on another ABS index contract with the same ISDA counterparty.

Unless terminated by mutual agreement by both the buyer and seller, ABS index contracts typically terminate at the date that all of the underlying reference assets are paid off in full, retired or otherwise cease to exist. Implied credit spreads may be used to determine the market value of swap contracts and are reflective of the cost of buying/selling protection. Higher spreads would indicate a greater likelihood that a seller will be obligated to perform (i.e., make payment) under the swap contract. In situations where the credit quality of the underlying reference assets have deteriorated, the percentage of notional values paid up front ("points up front") is frequently used as an indication of ABS index risk. ABS index credit protection sellers entering the market would expect to be paid points up front corresponding to the approximate fair value of the contract in order to write protection on the reference assets underlying the Company's ABS index contracts. Periodic payment rates at June 30, 2012 on ABS index contracts where the Company wrote protection range between 8 and 458 basis points on contracts that were outstanding at this date. Periodic payment rates at December 31, 2011 on ABS index contracts where the Company wrote protection range between 350 and 442 basis points on contracts that were outstanding at this date. However, participants entering the market at June 30, 2012 and December 31, 2011 would likely transact on similar contracts with material points upfront given these spreads. Total net up-front payments received relating to ABS index contracts outstanding at June 30, 2012 and December 31, 2011 were $21.2 million and $9.6 million, respectively.