Financial Derivatives

Gains and losses on the Company's derivative contracts for the years ended December 31, 2014, 2013, and 2012 are summarized in the tables below:

December 31, 2014:



Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss) for the Year Ended December 31, 2014			Change in Net Unrealized Gain/(Loss) for the Year Ended December 31, 2014
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	(4,596	)	$	4,547
Credit default swaps on asset-backed indices	Credit	(4,662		)	2,059
Credit default swaps on corporate bond indices	Credit	1,938			(2,589		)
Total return swaps	Equity Market	12,975			3
Interest rate swaps	Interest Rates	10,610			5,101
Futures	Interest Rates/Equity Market	4,841			261
Forwards	Currency	3,845			884
Other	Credit/ Interest Rates	1,147			(928		)
		26,098			9,338
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(78		)	111
Credit default swaps on asset-backed indices	Credit	3,111			(1,743		)
Credit default swaps on corporate bond indices	Credit	(6,242		)	6,926
Credit default swaps on corporate bonds	Credit	270			(782		)
Total return swaps	Equity Market	(5,671		)	46
Interest rate swaps	Interest Rates	(23,939		)	(24,318		)
Futures	Interest Rates/Equity Market	(252		)	2,291
Forwards	Currency	(2,215		)	(98		)
Other	Credit/ Interest Rates/Equity Market	(2,293		)	(43		)
		(37,309		)	(17,610		)
Total		$	(11,211	)	$	(8,272	)

December 31, 2013:



Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss) for the Year Ended December 31, 2013			Change in Net Unrealized Gain/(Loss) for the Year Ended December 31, 2013
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	(2,826	)	$	1,070
Credit default swaps on asset-backed indices	Credit	(5,954		)	1,082
Credit default swaps on corporate bond indices	Credit	626			1,026
Total return swaps	Equity Market	2,992			4
Interest rate swaps	Interest Rates	(2,829		)	23,548
Other	Credit/ Interest Rates	115			(244		)
		(7,876		)	26,486
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(78		)	(349		)
Credit default swaps on asset-backed indices	Credit	1,870			2,869
Credit default swaps on corporate bond indices	Credit	(9,573		)	(9,157		)
Total return swaps	Equity Market	(5,260		)	(3		)
Interest rate swaps	Interest Rates	319			(3,940		)
Futures	Interest Rates	(795		)	(2,302		)
Forwards	Currency	—			(38		)
Other	Interest Rates/ Equity Market	(86		)	(84		)
		(13,603		)	(13,004		)
Total		$	(21,479	)	$	13,482

December 31, 2012:



Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss) for the Year Ended December 31, 2012			Change in Net Unrealized Gain/(Loss) for the Year Ended December 31, 2012
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	(1,164	)	$	3,218
Credit default swaps on asset-backed indices	Credit	(14,870		)	(5,887		)
Credit default swaps on corporate bond indices	Credit	(1,548		)	570
Interest rate swaps	Interest Rates	169			(91		)
Futures	Interest Rates	(51		)	(11		)
		(17,464		)	(2,201		)
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(79		)	(1		)
Credit default swaps on asset-backed indices	Credit	9,665			(491		)
Credit default swaps on corporate bond indices	Credit	(579		)	(122		)
Total return swaps	Equity Market	(3,563		)	209
Interest rate swaps	Interest Rates	(22,777		)	16,094
Futures	Interest Rates	—			(71		)
		(17,333		)	15,618
Total		$	(34,797	)	$	13,417

The tables below detail the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the years ended December 31, 2014 and 2013:



Derivative Type	Year Ended December 31, 2014		Year Ended December 31, 2013
	(In thousands)
Interest rate swaps	$	2,227,315	$	828,442
Credit default swaps	552,411		319,603
Total return swaps	55,108		29,212
Futures	738,830		134,831
Options	926,369		10,736
Forwards	42,143		369
Warrants	120		—

From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives"). As of December 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 corporate bond indices (CDX), collectively referred to as credit indices, or on individual corporate bonds, 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 December 31, 2014 and 2013, are summarized below:



Credit Derivatives	Amount at December 31, 2014			Amount at December 31, 2013
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	27,741		$	1,421
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	(3,287	)	$	57
Notional Amount of Written Credit Derivatives ⁽²⁾	$	(341,014	)	$	(120,497	)
Notional Amount of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	54,874		$	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 or a corporate bond typically terminates at the stated maturity date in the case of corporate indices or bonds, 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 has 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. For the Company's written credit derivatives that were outstanding at December 31, 2014, periodic payment rates ranged between 15 and 500 basis points. For the Company's written credit derivatives that were outstanding at December 31, 2013, periodic payment rates ranged between 25 and 500 basis points. Total net up-front payments received relating to written credit derivatives outstanding at December 31, 2014 and 2013 were $28.9 million and $2.5 million, respectively.