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Financial Derivatives
3 Months Ended
Mar. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Derivatives
Financial Derivatives
Gains and losses on the Company's derivative contracts for the three month periods ended March 31, 2014 and 2013 are summarized in the tables below:
March 31, 2014:
Derivative Type
 
Primary Risk
Exposure
 
Net Realized
Gain/(Loss) for
the Three Month Period Ended
March 31, 2014
 
Change in Net
Unrealized
Gain/(Loss) for
the Three Month Period Ended
March 31, 2014
(In thousands)
 
 
 
 
 
 
Financial derivatives–assets
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
Credit
 
$
1,190

 
$
(1,210
)
Credit default swaps on asset-backed indices
 
Credit
 
(1,302
)
 
145

Credit default swaps on corporate bond indices
 
Credit
 
652

 
(315
)
Total return swaps
 
Equity Market
 
5,925

 
10

Interest rate swaps
 
Interest Rates
 
1,472

 
(6,080
)
Futures
 
Interest Rates
 
41

 
2,435

Forwards
 
Currency
 
10

 
167

Other
 
Credit/
Interest Rates
 
53

 
288

 
 
 
 
8,041

 
(4,560
)
Financial derivatives–liabilities
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
Credit
 
(19
)
 

Credit default swaps on asset-backed indices
 
Credit
 
2,603

 
(1,486
)
Credit default swaps on corporate bond indices
 
Credit
 
(3,804
)
 
4,571

Total return swaps
 
Equity Market
 
(1,417
)
 
36

Interest rate swaps
 
Interest Rates
 
(3,765
)
 
(468
)
Futures
 
Interest Rates
 
128

 
(139
)
Forwards
 
Currency
 
(492
)
 
(4
)
Other
 
Interest Rates
 
(57
)
 
(389
)
 
 
 
 
(6,823
)
 
2,121

Total
 
 
 
$
1,218

 
$
(2,439
)
March 31, 2013:
Derivative Type
 
Primary Risk
Exposure
 
Net Realized
Gain/(Loss) for
the Three Month Period Ended
March 31, 2013
 
Change in Net
Unrealized
Gain/(Loss) for
the Three Month Period Ended
March 31, 2013
(In thousands)
 
 
 
 
 
 
Financial derivatives–assets
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
Credit
 
$
3,251

 
$
(5,599
)
Credit default swaps on asset-backed indices
 
Credit
 
(1,487
)
 
25

Total return swaps
 
Equity Market
 
(38
)
 
61

Interest rate swaps
 
Interest Rates
 
(217
)
 
380

 
 
 
 
1,509

 
(5,133
)
Financial derivatives–liabilities
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
Credit
 
(28
)
 
(1
)
Credit default swaps on asset-backed indices
 
Credit
 
178

 
359

Credit default swaps on corporate bond indices
 
Credit
 
(3,627
)
 
(178
)
Total return swaps
 
Equity Market
 
(32
)
 
37

Interest rate swaps
 
Interest Rates
 
617

 
(360
)
Futures
 
Interest Rates
 
(22
)
 
22

 
 
 
 
(2,914
)
 
(121
)
Total
 
 
 
$
(1,405
)
 
$
(5,254
)

From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives"). As of March 31, 2014 and December 31, 2013, all of the Company's open written credit derivatives were credit default swaps on either mortgage/asset-backed indices (ABX and CMBX indices) or on corporate bond indices (CDX), collectively referred to as credit indices, for which the Company receives periodic payments at fixed rates from credit protection buyers, and is obligated to make payments to the credit protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets. Written credit derivatives held by the Company at March 31, 2014 and December 31, 2013, are summarized below:
Credit Default Swaps on Credit Indices
 
Amount at
March 31, 2014
 
Amount at
December 31, 2013
(In thousands)
 
 
 
 
Fair Value of Written Credit Derivatives, Net
 
$
10,940

 
$
1,421

Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties (1)
 
$
375

 
$
57

Notional Amount of Written Credit Derivatives (2)
 
$
(133,107
)
 
$
(120,497
)
Notional Amount of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties (1)
 
$
3,784

 
$
249

(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 credit protection 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 credit derivative contracts with an International Swaps and Derivatives Association, or "ISDA," counterparty may be offset against amounts due or owed on other credit derivative contracts with the same ISDA counterparty. As a result, the notional amount of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional amount of any contracts where the Company has purchased credit protection on the same reference asset or index with the same ISDA counterparty.
A credit default swap on a credit index typically terminates at the stated maturity date in the case of corporate indices, or, in the case of ABX and CMBX indices, the date that all of the reference assets underlying the index are paid off in full, retired, or otherwise cease to exist. Implied credit spreads may be used to determine the market value of such contracts and are reflective of the cost of buying/selling credit protection. Higher spreads would indicate a greater likelihood that a seller will be obligated to perform (i.e., make payment) under the 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 credit risk. Credit protection sellers entering the market would expect to be paid points up front corresponding to the approximate fair value of the contract. Total net up-front payments received relating to written credit derivatives outstanding at March 31, 2014 and December 31, 2013 were $9.0 million and $2.5 million, respectively.