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It's not insurance if you're the only customer

Insurance regulators said Delaware did not consider credit-default swaps to be insurance.

"I don't think an insurance commissioner should tread on the toes of the banking industry," said Karen Weldin Stewart, the commissioner in Delaware. "This started out as a bank product."

Her special deputy for examinations, John Tinsley, explained the reasoning. "In insurance, you're putting together a pool," he said. Each customer would be charged a premium based on the total risk of the pool.

A credit-default swap cannot be insurance, Mr. Tinsley said, because it does not involve a pool. There is just one seller and one buyer for every contract.

"It's an investment product," he said. "It's closer to buying an option."

Not everyone agrees. Eric R. Dinallo, New York State's insurance superintendent when A.I.G. imploded, said he believed credit-default swaps were insurance and should be regulated as such.

Risky Trading Wasn't Just on the Fringe at A.I.G.
Published: February 1, 2010
The conventional wisdom was that risky derivatives from a London unit brought down A.I.G. But a Delaware division was gambling as well.


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