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Bond Insurers Find Credit Default Swaps Low-Risk, High-Profit
Standard & Poors, Nov 2000
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
Abstract
In their ongoing efforts to expand the use of their product, financial guarantors have increased their participation in the credit default swap market in recent years. Based on the amount of par written for the first six months of 2000, they are on track to exceed the amount of par written in 1998 and 1999 combined. There are unique risks to this business line, however, the quality of each insurer's credit default swap business tends to be 'AA+' or higher and the profitability indices are superior to domestic public finance or domestic structured finance. A credit default swap is simply the transfer of third-party credit risk to a counterparty, with no legal transfer of the underlying assets. The bond insurer...
Companies mentioned in this report are: Ambac Assurance Corp.,Financial Guaranty Insurance Co.,Assured Guaranty Municipal Corp.,Assured Guaranty Corp,MBIA Inc.
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