Derivatives

9 Months Ended

Sep. 30, 2020

Derivatives [Abstract]

Derivatives

5. DERIVATIVES 

The Company sold

seven

 equity index put option contracts, based on

two

 indices, in 2001 and 2005. The

Company sold these equity index put options as insurance products with the intent of achieving a profit. These

equity index put option contracts meet the definition of a derivative under FASB guidance and the Company’s

position in these equity index put option contracts is unhedged. Accordingly, these equity index put option

contracts are carried at fair value in the consolidated balance sheets with changes in fair value recorded in the

consolidated statements of operations and comprehensive income (loss). 

Six

 of these contracts had expired

prior to

September 30, 2020

, with

no

 liabilities due under the terms of the expired contracts. 

The Company had

one

 remaining equity index put option contract at September 30, 2020, based on the

Standard & Poor’s 500 (“S&P 500”) index. Based on historical index volatilities and trends and the September

30, 2020 S&P 500 index value, the Company estimates the probability that the equity index put option contract

of the S&P 500 index falling below the strike price on the exercise date to be less than

0.5

%. The theoretical

maximum payout under this equity index put option contract would occur if on the exercise date the S&P 500

index value was

zero

. At September 30, 2020, the present value of the theoretical maximum payout using a

3

%

discount factor was $

146,796

 thousand. Conversely, if the contract had expired on September 30, 2020, with

the S&P index at

3,363.00

, there would have been

no

 settlement amount. 

At September 30, 2020 and December 31, 2019, the fair value for these equity put options was $

6,632

 thousand

and $

5,584

 thousand, respectively. 

The fair value of the equity index put options can be found in the Company’s consolidated balance sheets as

follows:

(Dollars in thousands)

Derivatives not designated as

Location of fair value

At

At

hedging instruments

in balance sheets

September 30, 2020

December 31, 2019

Equity index put option contracts

Equity index put option liability

$

6,632

$

5,584

Total

$

6,632

$

5,584

The change in fair value of the equity index put option contracts can be found in the Company’s statement of

operations and comprehensive income (loss) as follows:

(Dollars in thousands)

For the Three Months Ended 

For the, Nine Months Ended

Derivatives not designated as

Location of gain (loss) in statements of

September 30,

September 30,

hedging instruments

operations and comprehensive income (loss)

2020

2019

2020

2019

Equity index put option contracts

Net derivative gain (loss) 

$

2,456

$

(189)

$

(1,048)

$

3,395

Total

$

2,456

$

(189)

$

(1,048)

$

3,395