An insurance company that specializes in hedging credit risks (an entity that provides credit default swaps [CDS] for specific types of assets). – An insurance company which specializes in providing its own [high] corporate rating to a bond issue with a lower underlying rating, by effectively guaranteeing [also called “wrapping”] the payment of all principal on the last maturity date, and all interests when due). Such transactions are widespread in the U.S.A., especially with regard to municipal bonds, which are highly regarded as a result – and otherwise hardly particularly sought after by investors (this mechanism is extensively used in the U.S. municipal bond market). However, when large insurance companies were downgraded in the financial crisis triggered by the subprime crisis in 2007, many bonds guaranteed (packed) by the companies suddenly lost value. – See Monoliner. – Cf. 2010 BaFin Annual Report, p. 18 (risk assessment).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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