4. Financial Derivatives

Gains and losses on the Company's derivative contracts for the three and nine month periods ended September 30, 2012 and 2011 are summarized in the tables below:

September 30, 2012:


						Change in Net						Change in Net
			Net Realized			Unrealized			Net Realized			Unrealized
			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for
			the Three Month			the Three Month			the Nine Month			the Nine Month
			Period Ended			Period Ended			Period Ended			Period Ended
	Primary Risk		September 30,			September 30,			September 30,			September 30,
Derivative Type	Exposure		2012			2012			2012			2012
(In thousands)
Financial derivatives - assets
Credit default swaps on asset-backed securities	Credit	$	3,963		$	(3,823	)	$	(1,514	)	$	4,285
Credit default swaps on asset-backed indices	Credit		(134	)		(4,174	)		(7,200	)		(6,442	)
Credit default swaps on corporate bond indices	Credit		12			(602	)		(1,548	)		570
Total return swaps	Equity Market		(1,520	)		257			(1,520	)		257
Interest rate swaps	Interest Rates		0			495			49			417
Eurodollar futures	Interest Rates		(15	)		0			(32	)		(12	)
			2,306			(7,847	)		(11,765	)		(925	)

Financial derivatives - liabilities
Credit default swaps on asset-backed indices	Credit		(190	)		1,543			4,372			650
Credit default swaps on corporate bond indices	Credit		(160	)		11			143			11
Total return swaps	Equity Market		1,066			252			(2,262	)		273
Interest rate swaps	Interest Rates		(6,209	)		3,410			(22,157	)		15,093
Eurodollar futures	Interest Rates		0			(33	)		0			(87	)
			(5,493	)		5,183			(19,904	)		15,940
Total		$	(3,187	)	$	(2,664	)	$	(31,669	)	$	15,015

September 30, 2011:


						Change in Net						Change in Net
			Net Realized			Unrealized			Net Realized			Unrealized
			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for			Gain/(Loss) for
			the Three Month			the Three Month			the Nine Month			the Nine Month
			Period Ended			Period Ended			Period Ended			Period Ended
	Primary Risk		September 30,			September 30,			September 30,			September 30,
Derivative Type	Exposure		2011			2011			2011			2011
(In thousands)
Financial derivatives - assets
Credit default swaps on asset-backed securities	Credit	$	3,088		$	(248	)	$	8,396		$	(4,987	)
Credit default swaps on asset-backed indices	Credit		6,539			3,746			5,313			5,719
Credit default swaps on corporate bond indices	Credit		(150	)		109			(150	)		109
Total return swaps	Equity Market		(29	)		826			(29	)		826
Interest rate swaps	Interest Rates		456			(938	)		(195	)		(1,773	)
			9,904			3,495			13,335			(106	)
Financial derivatives - liabilities
Credit default swaps on asset-backed indices	Credit		24			(1,038	)		8,886			(1,256	)
Credit default swaps on corporate bond indices	Credit		100			220			0			186
Interest rate swaps	Interest Rates		(3,249	)		(14,154	)		(4,250	)		(17,844	)
Eurodollar futures	Interest Rates		(375	)		369			(1,094	)		890
			(3,500	)		(14,603	)		3,542			(18,024	)
Total		$	6,404		$	(11,108	)	$	16,877		$	(18,130	)

As of September 30, 2012 and December 31, 2011, the Company was a party to credit derivatives contracts in the form of credit default swaps on mortgage/asset-backed indices (ABS index or ABS indices). As a seller of credit protection via ABS indices, the Company receives periodic payments at fixed rates from protection buyers, and is obligated to make payments to the protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets. Written credit derivatives held by the Company at September 30, 2012 and December 31, 2011, respectively, are summarized below:

		Amount at			Amount at
Credit Default Swaps on Asset Backed Indices		September 30, 2012			December 31, 2011
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	(16,172	)	$	(9,548	)
Fair Value of Purchased Credit Derivatives Offsetting Written
Credit Derivatives with Third Parties⁽¹⁾	$	2,881		$	0
Notional Amount of Written Credit Derivatives⁽²⁾	$	(56,505	)	$	(22,615	)
Notional Amount of Purchased Credit Derivatives Offsetting
Written Credit Derivatives with Third Parties⁽¹⁾	$	24,685		$	0

(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 ABS indices 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 an ABS index contract may be offset against amounts due or owed on another ABS index contract with the same ISDA counterparty.

Unless terminated by mutual agreement by both the buyer and seller, ABS index contracts typically terminate at the date that all of the underlying reference assets are paid off in full, retired or otherwise cease to exist. Implied credit spreads may be used to determine the market value of swap contracts and are reflective of the cost of buying/selling protection. Higher spreads would indicate a greater likelihood that a seller will be obligated to perform (i.e., make payment) under the swap contract. In situations where the credit quality of the underlying reference assets have deteriorated, the percentage of notional values paid up front ("points up front") is frequently used as an indication of ABS index risk. ABS index credit protection sellers entering the market would expect to be paid points up front corresponding to the approximate fair value of the contract in order to write protection on the reference assets underlying the Company's ABS index contracts. Periodic payment rates at September 30, 2012 on ABS index contracts where the Company wrote protection range between 9 and 458 basis points on contracts that were outstanding at this date. Periodic payment rates at December 31, 2011 on ABS index contracts where the Company wrote protection range between 350 and 442 basis points on contracts that were outstanding at this date. However, participants entering the market at September 30, 2012 and December 31, 2011 would likely transact on similar contracts with material points upfront given these spreads. Total net up-front payments received relating to ABS index contracts outstanding at September 30, 2012 and December 31, 2011 were $17.8 million and $9.6 million, respectively.