Financial Derivatives (Tables)

9 Months Ended

Sep. 30, 2018

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, 2018 and 2017 are summarized in the tables below:

Three- and Nine-Month Periods Ended September 30, 2018:



		Three-Month Period Ended September 30, 2018						Nine-Month Period Ended September 30, 2018
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	$	(986	)	$	1,307		$	(739	)	$	759
Credit default swaps on asset-backed indices	Credit	(153		)	(291		)	(2,199		)	1,161
Credit default swaps on corporate bond indices	Credit	(1,085		)	(247		)	(3,322		)	2,181
Credit default swaps on corporate bonds	Credit	1,234			(1,031		)	4,230			(1,823		)
Total return swaps	Equity Market/Credit	32			(1,425		)	455			(1,739		)
Interest rate swaps	Interest Rate	1,000			1,171			(500		)	8,301
Futures	Interest Rate/Currency	729			1,021			1,652			2,002
Forwards	Currency	10			228			(59		)	712
Options	Interest Rate/ Equity Market	—			—			(62		)	76
Total		$	781		$	733		$	(544	)	$	11,630


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $5 thousand and $(0.2) million, for the three- and nine-month periods ended September 30, 2018, 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 $32 thousand and $0.3 million, for the three- and nine-month periods ended September 30, 2018, 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, 2017:



		Three-Month Period Ended September 30, 2017						Nine-Month Period Ended September 30, 2017
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	$	583		$	(577	)	$	486		$	(319	)
Credit default swaps on asset-backed indices	Credit	(58		)	(522		)	(2,514		)	(3,132		)
Credit default swaps on corporate bond indices	Credit	(975		)	(591		)	(2,147		)	(573		)
Credit default swaps on corporate bonds	Credit	(241		)	1,837			218			842
Total return swaps	Equity Market/Credit	(293		)	1			(1,649		)	150
Interest rate swaps	Interest Rates	318			(694		)	(262		)	(1,492		)
Futures	Interest Rates	(152		)	147			(331		)	183
Forwards	Currency	(4,013		)	2,026			(7,357		)	1,162
Warrants	Equity Market	—			—			(100		)	(6		)
Mortgage loan purchase commitments	Interest Rates	—			—			—			31
Options	Credit/Interest Rate/Equity Market	167			26			18			41
Total		$	(4,664	)	$	1,653		$	(13,638	)	$	(3,113	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $(56) thousand and $(68) thousand, for the three- and nine-month periods ended September 30, 2017, 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 $(59) thousand and $(194) thousand, for the three- and nine-month periods ended September 30, 2017, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

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, 2018 and the year ended December 31, 2017:



Derivative Type	Nine-Month Period Ended September 30, 2018		Year Ended December 31, 2017
	(In thousands)
Interest rate swaps	$	1,100,828	$	1,306,853
Credit default swaps	586,350		531,008
Total return swaps	45,612		19,760
Futures	165,494		48,244
Options	114,394		94,415
Forwards	43,107		76,784
Warrants	—		378
Mortgage loan purchase commitments	—		1,585

Schedule of Credit Derivatives

Written credit derivatives held by the Company at September 30, 2018 and December 31, 2017, are summarized below:



Credit Derivatives	September 30, 2018			December 31, 2017
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	1,601		$	(4,770	)
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	329			(3,582		)
Notional Value of Written Credit Derivatives ⁽²⁾	133,218			177,588
Notional Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	(15,517		)	(88,400		)


(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 value of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional value 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