Non-payment insurance grows as banks shun stuttering CDS market

Credit portfolio managers explore insurance contracts to offset risk from loan book

For credit portfolio managers, a vital part of their risk management toolkit has been credit default swaps. If a loan portfolio had too much exposure to, say, the healthcare sector, the manager could simply buy CDS to offset the credit risk of some larger names, reducing concentration risk.

But a drop in CDS liquidity has exposed some of the deficiencies of the product as a hedge. Instead, credit portfolio managers are increasingly turning to credit insurance as a way to manage risk in loan

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