Financial Derivatives (Tables)

9 Months Ended

Sep. 30, 2016

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 nine month periods ended September 30, 2016 and 2015 are summarized in the tables below:

Three and Nine Month Periods Ended September 30, 2016:



		Three Month Period Ended September 30, 2016						Nine Month Period Ended September 30, 2016
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾			Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	622		$	(288	)	$	1,007		$	(518	)
Credit default swaps on asset-backed indices	Credit	983			(2,660		)	3,790			(905		)
Credit default swaps on corporate bond indices	Credit	(21,220		)	12,572			(34,230		)	(5,260		)
Credit default swaps on corporate bonds	Credit	110			(14		)	237			47
Total return swaps	Equity Market/Credit	(4,408		)	(917		)	(11,323		)	3,466
Interest rate swaps	Interest Rates	182			1,087			(1,167		)	(11,129		)
Futures	Interest Rates/Equity Market	(89		)	271			(824		)	417
Forwards	Currency	1,525			(1,855		)	221			(1,402		)
Warrants	Equity Market	—			—			(50		)	—
Mortgage loan purchase commitments	Interest Rates	—			—			—			8
Options	Credit/ Interest Rates	925			(656		)	7,257			(298		)
Total		$	(21,370	)	$	7,540		$	(35,082	)	$	(15,574	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $0.4 million and $0.3 million, for the three and nine month periods ended September 30, 2016, which is included on the Consolidated Statement of Operations in Realized gain (loss) on foreign currency transactions.


(2)	Includes foreign currency translation on derivatives in the amount of $(0.1) million and $1.0 million, for the three and nine month periods ended September 30, 2016, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

Three and Nine Month Periods Ended September 30, 2015⁽¹⁾:



		Three Month Period Ended September 30, 2015						Nine Month Period Ended September 30, 2015
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽²⁾			Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽²⁾
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	428		$	(292	)	$	(777	)	$	369
Credit default swaps on asset-backed indices	Credit	(219		)	(166		)	(492		)	(622		)
Credit default swaps on corporate bond indices	Credit	(4,384		)	4,968			(6,145		)	5,639
Credit default swaps on corporate bonds	Credit	36			(54		)	(903		)	723
Total return swaps	Equity Market/Credit	3,639			(1,204		)	1,075			(2,862		)
Interest rate swaps⁽³⁾	Interest Rates	2			(7,585		)	(8,945		)	(1,787		)
Futures	Interest Rates/Equity Market	(1,043		)	(595		)	1,425			(1,172		)
Forwards	Currency	415			(153		)	1,890			87
Options	Credit/ Interest Rates	3,484			1,621			1,179			4,567
Mortgage loan purchase commitments	Interest Rates	—			11			—			11
Total		$	2,358		$	(3,449	)	$	(11,693	)	$	4,953


(1)	Conformed to current period presentation.


(2)	Includes foreign currency translation on derivatives in the amount of $58 thousand and $(80) thousand, for the three and nine month periods ended September 30, 2015, respectively, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.


(3)	Includes a $1.5 million reimbursement from a third party for the nine month period ended September 30, 2015.

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 nine month period ended September 30, 2016 and the year ended December 31, 2015:



Derivative Type	Nine Month Period Ended September 30, 2016		Year Ended December 31, 2015
	(In thousands)
Interest rate swaps	$	1,864,665	$	2,463,892
Credit default swaps	1,910,985		1,080,772
Total return swaps	117,304		112,641
Futures	439,070		880,682
Options	441,866		865,600
Forwards	86,601		107,448
Warrants	1,640		1,554
Mortgage loan purchase commitments	5,926		2,093

Schedule of Credit Derivatives

Written credit derivatives held by the Company at September 30, 2016 and December 31, 2015, are summarized below:



Credit Derivatives	Amount at September 30, 2016			Amount at December 31, 2015
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	10,467		$	135,443
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	(1,391	)	$	(369	)
Notional Amount of Written Credit Derivatives ⁽²⁾	$	227,607		$	(799,750	)
Notional Amount of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	24,090		$	17,322


(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