The credit risk time bomb

Insurers remain very keen to both guarantee and invest in credit derivatives products, but key regulators are about to release reports indicating that risk transfer between the insurance and banking sectors might not be such a good idea

Insurers’ foray into capital markets risk could cost them more than they ever bargained for. Regulatory bodies are nervously investigating insurers’ use of credit derivatives, while market participants are predicting serious losses from these instruments. Adding fuel to the fire, many insurers are now starting to contest payouts, and their reputation as competent financial services firms hangs in the balance.

Indeed, a group of 10 monoline insurers is currently contesting whether the debt