The new European market standard for restructuring underwent emergency surgery last week after traders realized it would not work for subordinated insurance companies. The definition restricts the maturity of bonds that can be delivered in the event of a default, which excludes most debt issued by insurance companies. This makes the protection worthless because if the buyer cannot deliver an asset they cannot make a claim on the default swap.
Dealers held a conference call on Tuesday and agreed to drop the maturity limit for insurance companies and were due to hold another conference call as DW went to press on Friday to deal with credit-default swaps referenced to banks and other insurance companies.
Credit-default swaps referenced to insurance companies have become increasingly liquid in recent months, with several trades a day being executed on the likes of Swiss Re, Munich Re and Allianz.
"What is becoming obvious is that all these areas are so complicated they are requiring continued development," said Patrick Clancy, derivatives counsel at Shearman & Sterling, London.
