July 23, 2009 by Canadian Underwriter
The use of credit derivatives as a proportion of total derivatives was very limited in the 2009 Q1 filings of 100 companies, and its use was seemingly concentrated more among banks than insurance companies, according to a review of the filings by Fitch Ratings.
Improvements to derivatives disclosure became mandatory for all U.S. companies in 2009.
Assessing the filings, Fitch reviewed the first quarter filings of 100 companies in a variety of industries representing nearly US$6.4 trillion in aggregate outstanding debt, according to a special report: Derivatives: A Closer Look at What New Disclosures in the U.S. Reveal.
Only 17 out of the 100 companies reviewed reported exposure to credit derivatives, according to the report. All 17 were financial institutions.
“Five banks (JP Morgan, Bank of America, Goldman Sachs, Morgan Stanley and Citigroup) account for an overwhelming majority ? upwards of 96% ? of the exposures,” the report reads. “While these firms hedge credit risks, they are also active dealers of credit derivatives.”
The primary derivative instrument used by many the companies reviewed was interest rate derivatives, according to the report.
Fitch reviewed four large insurance companies — AIG, Metlife, Prudential Financial, MBIA — where interest rate derivatives dominate.
The ratings agency further observed that AIG and MBIA Inc. (MBIA) show relatively sizable total notional amounts for net credit derivatives written (AIG: US$265 billion; MBIA: US$165 billion).