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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2017
General Discussion of Derivative Instruments and Hedging Activities [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are equity price risk and interest rate risk. Equity contracts (options sold) on various equity securities are intended to manage the price risk associated with forecasted purchases or sales of such securities.

The Company also enters into derivative contracts to enhance returns on its investment portfolio.

On February 13, 2014, Fannette Funding LLC ("FFL"), a special purpose investment vehicle, formed by and consolidated into the Company, entered into a total return swap agreement with Citibank. Under the agreement, FFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest on the outstanding notional amount of the underlying obligations. The total return swap is secured by approximately $30 million of U.S. Treasuries as collateral, which are included in short-term investments on the consolidated balance sheets. The Company paid interest equal to LIBOR plus 145 basis points prior to the renewal of the agreement in January 2017 and LIBOR plus 128 basis points subsequent to the January 2017 renewal, on approximately $108 million of underlying obligations as of December 31, 2017 and 2016. The agreement had an initial term of one year, subject to annual renewal. In January 2018, the agreement was renewed through August 15, 2018, and the interest rate was changed to LIBOR plus 120 basis points.

On August 9, 2013, Animas Funding LLC ("AFL"), a special purpose investment vehicle, formed and consolidated by the Company, entered into a three-year total return swap agreement with Citibank, which has been renewed for an additional one-year term through February 17, 2018. The total portfolio of underlying obligations was liquidated during June 2017, and the total return swap agreement between AFL and Citibank was terminated on July 7, 2017. Under the agreement, AFL received the income equivalent on underlying obligations due to Citibank and paid to Citibank interest on the outstanding notional amount of the underlying obligations. The total return swap was secured by approximately $40 million of U.S. Treasuries as collateral, which were included in short-term investments on the consolidated balance sheets. The Company paid interest, which was equal to LIBOR plus 135 basis points prior to the amendment of the agreement in January 2017 and LIBOR plus 128 basis points subsequent to the amendment, on approximately $152 million of underlying obligations as of December 31, 2016.

The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains or losses in the consolidated statements of operations:
 
Asset Derivatives
 
Liability Derivatives
 
December 31, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
(Amounts in thousands)
Total return swaps - Other assets
$
—

 
$
667

 
$
—

 
$
—

Options sold - Other liabilities
—

 
—

 
123

 
20

Total return swaps - Other liabilities
—

 
—

 
1,200

 
765

Total derivatives
$
—

 
$
667

 
$
1,323

 
$
785


 
 
(Losses) Gains Recognized in Income
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(Amounts in thousands)
Total return swaps - Net realized investment (losses) gains
$
(2,137
)
 
$
11,533

 
$
(6,438
)
Options sold - Net realized investment gains
2,291

 
3,846

 
3,081

Total
$
154

 
$
15,379

 
$
(3,357
)


Most options sold consist of covered calls. The Company writes covered calls on underlying equity positions held as an enhanced income strategy that is permitted for the Company’s insurance subsidiaries under statutory regulations. The Company manages the risk associated with covered calls through strict capital limitations and asset diversification throughout various industries. For additional disclosures regarding equity contracts, see Note 4. Fair Value Measurements for additional disclosures regarding options sold.