Financial Derivatives (Tables)

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Gains and Losses on Derivative Contracts

Gains and losses on the Company's derivative contracts for the three and six month periods ended June 30, 2015 and 2014 are summarized in the tables below:

Three and Six Month Periods Ended June 30, 2015:



		Three Month Period Ended June 30, 2015						Six Month Period Ended June 30, 2015
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽¹⁾			Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽¹⁾
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	(1,563	)	$	1,056		$	(1,162	)	$	701
Credit default swaps on asset-backed indices	Credit	(616		)	588			(390		)	(664		)
Credit default swaps on corporate bond indices	Credit	1,736			(2,273		)	(1,277		)	(1,445		)
Total return swaps	Equity Market/Credit	2,256			130			4,066			240
Interest rate swaps	Interest Rates	7,521			(7,955		)	26,980			(14,943		)
Futures	Interest Rates/Equity Market	853			(781		)	3,251			43
Forwards	Currency	235			1,191			7,520			308
Other	Credit/ Interest Rates	3,172			729			(88		)	1,289
		13,594			(7,315		)	38,900			(14,471		)
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(23		)	(41		)	(42		)	(41		)
Credit default swaps on asset-backed indices	Credit	(28		)	2			117			208
Credit default swaps on corporate bond indices	Credit	(2,607		)	4,773			(483		)	2,116
Credit default swaps on corporate bonds	Credit	(271		)	292			(939		)	777
Total return swaps	Equity Market/Credit	(6,173		)	(1,594		)	(6,631		)	(1,897		)
Interest rate swaps⁽²⁾	Interest Rates	(10,731		)	16,419			(35,928		)	20,740
Futures	Interest Rates/Equity Market	(752		)	(209		)	(784		)	(620		)
Forwards	Currency	(4,555		)	513			(6,044		)	(69		)
Other	Credit/ Interest Rates	(2,467		)	709			(2,217		)	1,657
		(27,607		)	20,864			(52,951		)	22,871
Total		$	(14,013	)	$	13,549		$	(14,051	)	$	8,400


(1)	Includes foreign currency translation on derivatives in the amount of $0.9 million and $0.1 million, for the three and six month periods ended June 30, 2015, respectively, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.


(2)	Includes a $1.5 million reimbursement from a third party.

Three and Six Month Periods Ended June 30, 2014:



		Three Month Period Ended June 30, 2014						Six Month Period Ended June 30, 2014
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)			Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	(467	)	$	586		$	724		$	(625	)
Credit default swaps on asset-backed indices	Credit	(814		)	(106		)	(2,116		)	39
Credit default swaps on corporate bond indices	Credit	1,460			(460		)	2,112			(775		)
Total return swaps	Equity Market	1,842			10			7,767			20
Interest rate swaps	Interest Rates	(1,520		)	1,949			(48		)	(4,131		)
Futures	Interest Rates	926			138			966			2,573
Forwards	Currency	494			(115		)	505			52
Other	Credit/ Interest Rates	55			313			108			601
		1,976			2,315			10,018			(2,246		)
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(20		)	—			(39		)	—
Credit default swaps on asset-backed indices	Credit	(161		)	361			2,442			(1,125		)
Credit default swaps on corporate bond indices	Credit	(1,956		)	(656		)	(5,760		)	3,915
Credit default swaps on corporate bonds	Credit	140			(225		)	140			(225		)
Total return swaps	Equity Market	442			(12		)	(975		)	24
Interest rate swaps	Interest Rates	(92		)	(7,244		)	(3,856		)	(7,713		)
Futures	Interest Rates	(153		)	(197		)	(26		)	(335		)
Forwards	Currency	(437		)	(272		)	(929		)	(276		)
Other	Credit/ Interest Rates	(556		)	159			(613		)	(230		)
		(2,793		)	(8,086		)	(9,616		)	(5,965		)
Total		$	(817	)	$	(5,771	)	$	402		$	(8,211	)

Derivative activity, volume

The tables below detail the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the six month period ended June 30, 2015 and the year ended December 31, 2014:



Derivative Type	Six Month Period Ended June 30, 2015		Year Ended December 31, 2014
	(In thousands)
Interest rate swaps	$	2,716,471	$	2,227,315
Credit default swaps	785,522		552,411
Total return swaps	201,734		55,108
Futures	1,046,384		738,830
Options	693,320		926,369
Forwards	77,054		42,143
Warrants	1,554		120
Loan purchase commitments	240		—

Schedule of Credit Derivatives

Written credit derivatives held by the Company at June 30, 2015 and December 31, 2014, are summarized below:



Credit Derivatives	Amount at June 30, 2015			Amount at December 31, 2014
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	55,097		$	27,741
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	(2,914	)	$	(3,287	)
Notional Amount of Written Credit Derivatives ⁽²⁾	$	(493,986	)	$	(341,014	)
Notional Amount of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	40,728		$	54,874


(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.

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

+ References + Details