New Era Life is poised to start buying and selling credit derivatives for the first time via the use of baskets of credits for hedging and investment. Jeffrey Chen, portfolio manager in Houston, said the insurance company is likely to pull the trigger on its first deal within the next three months. "There are a lot of regulatory issues involved with regard to income taxes and accounting to be looked at before we start selling and buying baskets of credits because we are an insurance company," Chen added. New Era has been talking to structured products experts at both Lehman Brothers and Merrill Lynch about using credit-default swaps. Discussions about entering the credit-default swap market arose from New Era's use of CDOs and its consultation with Lehman and Merrill about new products.
New Era sees entering the credit-default swap market as a way to increase the insurance company's high-grade assets. "We're giving up some yield for a better asset class," Chen noted. The notional size New Era would look to use for hedging and investing would range between USD1-2 million. The company's fixed-income portfolio has about USD170 million in assets.
