Underwriting Derivatives

The Company’s underwriting strategy allows it to enter into government-sponsored enterprise credit-risk sharing transactions. These transactions are accounted for as derivatives. The derivative assets and derivative liabilities relating to these transactions are included in “other assets” and “other liabilities,” respectively, in the Company’s consolidated balance sheets. Realized and unrealized gains and losses from other derivatives are included in “other underwriting income (loss)” in the Company’s consolidated statements of net income (loss). The risk in force of these transactions is considered the notional amount.

As of March 31, 2020 and December 31, 2019, the Company posted $12.5 million and $13.1 million, respectively, in assets as collateral. These assets are included in “fixed maturities,” which are recorded at fair value in the Company’s consolidated balance sheets.

Investment Derivatives

The Company’s investment strategy allows for the use of derivative securities. The Company invests in call options to manage specific market risks; such derivative instruments are recorded at fair value, and shown as part of “payable for securities sold short” on its consolidated balance sheets. Such call options were purchased and sold in the first quarter of 2020.

Additionally, beginning in the fourth quarter of 2018, the Company invested in put options to manage specific market risks; such derivative instruments are recorded at fair value, and shown as part of “equity securities” on its consolidated balance sheets. Such put options were sold in the first quarter of 2019.

The Company began investing in total return swaps (“swaps”) during 2018, through a Master Confirmation of Total Return Swap Transactions agreement, and recognizes the swap derivatives at fair value. The derivative assets and derivative liabilities relating to these transactions are included in “other assets” and “other liabilities,” respectively, in the Company’s consolidated balance sheets. At March 31, 2020 and December 31, 2019, the Company had collateral funds held by the counterparty of $62.1 million and $64.1 million included in “short-term investments” in the Company’s consolidated balance sheets.

The fair value of such swaps are based on observable inputs and classified in Level 2 of the valuation hierarchy. Realized and unrealized gains and losses from investment derivatives are included in “realized and unrealized gains (losses)” on investments in the Company’s consolidated statements of net income (loss).

The Company did not hold any derivatives designated as hedging instruments at March 31, 2020 and December 31, 2019.

The following table summarizes information on the fair values and notional amount of the Company’s derivative instruments at March 31, 2020 and December 31, 2019:



	Estimated Fair Value
	Asset Derivatives		Liability Derivatives		Net Derivatives			Notional Amount(1)
	($ in thousands)
March 31, 2020
Other underwriting derivatives	$	—	$	314	$	(314	)	$	56,923
Total return swaps	—		23,726		(23,726		)	112,745
Total	$	—	$	24,040	$	(24,040	)	$	169,668

December 31, 2019
Other underwriting derivatives	$	148	$	—	$	148		$	59,879
Total return swaps	1,667		257		1,410			162,678
Total	$	1,815	$	257	$	1,558		$	222,557

(1) The notional amount represents the absolute value of all outstanding contracts.

The realized and unrealized gains and losses on the Company’s derivative instruments are reflected in the consolidated statements of income, as summarized in the following table:



	Three Months Ended March 31,
	2020			2019
	($ in thousands)
Underwriting derivatives:
Other underwriting income (loss)	$	133		$	592
Investment derivatives:
Net realized and unrealized gains (losses):
Options	1,081			801
Total return swaps	(23,882		)	1,582