Travel Insurance Protects

For all travel warnings go to the FCO website, which provides information on where not to travel. The swine flu outbreak in Mexico is a case in point. The FCO imposed a full travel ban on the country for a short period of time because of risk of spreading the disease. Insurers, tour operators and airlines all follow this advice and so customers were entitled to have their money refunded.

But now the ban has been raised as the threat recedes. Unfortunately those who fear swine flu and no longer want to go to Mexico are not entitled to a refund, unless there happens to be other legitimate reasons to stay at home. The opposite also applies. People who ignore the FCO warnings put themselves at risk, because they will be invalidating their travel insurance.

Frequent updates to the status of places occur, so it is important to take a look often. The FCO warnings are region-specific, so might include only part of a country. An example would be the recent bomb in Lahore, Pakistan, which put parts of the country off limits whilst other parts were open to travel to.

If it happens that the travel company is responsible for disrupting or cancels your holiday they should give you an alternative or your money back. However, they are not obliged to compensate you for any disturbance, inconvenience or disruption caused. They might if you are lucky.

Once you arrive safely and on time at your destination, be aware of how to keep yourself healthy whilst away. Much of it is obvious. In many areas tap water will upset your stomach, so if the Lonely Planet says don't drink it then listen to them. Bacteria and germs thrive in warmer climates and so prosnal hygiene, such as hand-washing, is particularly important to take care of.

When dining out or cooking yourself make sure meat is properly cooked, so that any germs have been killed in the cooking process. White meats should be pale and of an even colour, with no traces of pinkish opaque flesh showing through. The juices that flow from white meat when cooked should be clear, not pink or bloody. Red meats obviously aren’t necessarily well done and can be bloody.

Other annoyances occur for a vast number of reasons, such as the incident at Bangkok airport in November, when protesters held a sit-in and stopped the airport from functioning. There was no danger of violence but it did casue a lot of flights to be cancelled. Travel insurance really helps under these circumstances because it means another flight will be provided for you, so you won't end up stranded.

The bottom line is, anything can happen. So whilst you shouldn't be put off travelling overseas by the dangers or inconveniences that may occur, you should buy a decent travel insurance policy to give you peace of mind and make sure you’re protected.

Factors that Determine Term Life Insurance Rates.

With term life insurance policy, you are provided with limited coverage for a period that you wish, usually between 10 to 20 years. Term term life insurance policy, is the most popular insurance policy in the country because it is the cheapest. However, there are different plans for different people. With this policy, you will not receive any payout when your term expires. Payouts are only made to the beneficiaries in case you pass on during the period that is covered by the term policy. The rates of the policy depend on a number of factors such as age and occupation. Taking the policy at a younger age entitles to you to much lower rates. This is because you are expected to live past the period of the insurance.

The total sum of the term life insurance can be difficult to calculate. While some policies may appear to cost more, the may actually be much cheaper when you consider the total cost of the plan. For instance, policies that are renewable every year may appear to cost more than those whose premiums remain constant throughout the years. However, when you look loser, you may find the level term policy may cost higher especially when it comes to renewing the policy at the end of the term. This is one reason why you have to be careful when choosing an insurance plan. In fact, it is recommended that you engage the services of a professional insurance broker to advise you on the cover that you should take.

There are different factors that affect the rate of the term life insurance plan. Some of these include the following:

a) Your physical health. The insurer will check your medical record to check you health history. If you have heart disease, you can get a policy but at much higher rates. If you have a terminal disease, it is unlikely that you will be offered a life insurance cover.


b) Your occupation and hobbies also matter. For instance, if you work in a company in the gas storage facility, you will be considered a high risk client. Also, if you are into high risk activities such as bungee jumping, mountain climbing, and sky diving, your rates are likely to go up.


c) The company will also check whether you smoke or not. Smokers are considered to be high risk clients as they are twice as likely to die as nonsmokers. This will therefore raise the rates of a smoker by 20 to 30 percent. Quitting smoking will help you get a lower term life insurance cover rate.


There are different types of term life covers that you can go for. However, all companies consider the above factors when coming up with a rate for you. You can enjoy lower rates by taking the initiate to live healthily, quit smoking and avoiding putting your life at risk through activities such as bungee jumping. This will help you secure a lower rate insurance plan.

The Primary Types of Life Insurance & How Their Cost is Determined

There are many forms of life insurance policies available to a potential policyholder but all life insurance policies will always fall under two different categories:

Term Life Insurance - these types of policies are only active for a specified amount of time of your life, called a "term". When the term ends, so does the policy. Payout only occurs should the insured die sometime within the policies defined term. This type of life insurance is best used for temporary or shorter term needs: 20-year mortgage, college education costs for children, and helping to support children and assist with family income needs should one of the parents die.

Permanent Life Insurance - this type of policy covers you for your entire life and will pay death benefits when you eventually die. This type of insurance policy is best for "permanent" related needs: burial fees, estate taxes, providing income for a spouse, etc.

Whichever type of insurance policy you choose, there are two factors that determine its cost: Mortality Cost and Policy Expense Cost.

Policy Expense Cost is the cost of insurance company expenses such as office rent, utilities, general staff, and agent commissions. Depending on the type of policy you purchase, this fee can either remain constant or fluctuate throughout your policy's lifespan.

Mortality Cost is determined by the odds of the insured dying at that particular moment. Obviously, the odds of the insured dying increase exponentially with age. To avoid an ever increasing insurance premium that correlates directly with the insured's aging, insurance companies average the increase and adjust the early premium payments accordingly. Essentially, you are paying an inflated premium when the insured is younger and a much lower premium as the insured individual ages, but the actual payment remains constant. This overpayment is called "cash value" and must be reimbursed to the policyholder should he or she cancel an existing permanent life insurance policy early. It is important to note that Term Insurance premiums increase with the policy holder's age but they will never accrue a "cash value". When a Term Insurance policy is terminated early, there is no refund for overpayment due from the insurer.

Additional life insurance terms you should know:

Beneficiary - This is the person or organization to whom the insurer will pay proceeds to should the insured die. This could be your husband/wife, or your spouse. It could also be your children or a perhaps your favorite charity.

Primary Beneficiary - This is the person or organization that will be paid upon the insurer's death.

Contingent Beneficiary - This is the person or organization to which the proceeds will be paid to should the Primary Beneficiary be dead or no longer exist (such as a company or corporation named as the Primary Beneficiary). If no Contingent Beneficiary was named in the policy, proceeds will be paid to the Primary Beneficiary's estate.

Face Amount - This is the amount of money payable at time of death. It is usually found on the first page of every Life Insurance policy, whether it's a Term or Permanent policy.

Purchase Options - These are options that can be purchased throughout the life of the policy regardless of the insured's health. A good example of a purchase option is allowing the policyholder to increase the amount of the policy without having to re-evaluate the health of the insured.

Waiver of Premium - This is an optional coverage that permanently suspends your premium in the event that you are disabled. However, you must first be disabled for six months before the waiver takes effect. Additionally, this option is quite expensive and may not be necessary should the insured have substantial disability coverage.

FAMILY : Selecting Health Insurance

Health insurance at this time is not a foreign object again. Almost all banking institutions have a health insurance package. However, there is a blunder on the part of the community about health insurance. Ie, the premiums we pay are considered as lost money. Fortunately, not all think so. Some of the people of Indonesia have started will be the importance of health insurance. In general, health insurance will bear the risks that we experienced in terms of health.

Cautious in choosing. Typically, for employees, private companies usually include the staff working in health insurance. In addition to the program Jamsostek (social security workers), not infrequently also included in the employee health insurance is selected according to company policy. For those who are civil servants (civil servants), are automatically enrolled in health insurance guarantees that the government is the PT Askes.


Meanwhile, the family members that have not been protected by health insurance, should not be overlooked. Should include in the health insurance program that according to the needs of families. Because many insurance companies that bid with an interesting, not to select any insurance that does not comply with the demand.

Before the drop option, first learn some alternative health insurance bids. Consider the mature peeved not to be disappointed because the product does not fit their needs. Among them, know how long the insurance company has been long standing and reputation in handling the insurance members. Such as ease of handling and payment of claims.

Do not hesitate when the dig information from the health insurance products that will be selected. From this information, you will be able to obtain descriptions of the capital strength of insurance companies are. And the most important is to choose the package that truly fit the needs of your family. For example, check on claims confinement if your pregnant wife, or check the claims of compulsory immunization in the small first year. With carefulness in work, you can get optimum benefit from the health insurance of your choice.

IMPORTANT; FINANCIAL PLANNING FOR Life Insurance

There are many myths surrounding the purchase of life insurance policies that you should know about. Life insurance policies are not sold by agents. They are only advertised by them.

You must know that only stupid people will not buy life insurance. For many people, buying life insurance is the act selfless to ensure that their needs are met even when they are no longer around to meet the needs of their own. With life insurance, you can breathe your last with a smile, knowing that your family will be good is to treat.

Guidance to help you choose the best coverage for your life insurance is to imagine the worst case scenario. Although it is true that thinking negatively can be depressive, it is realistic to prepare for any natural event that can cause pain to the person loved. A good life insurance can cover even the most natural of events.

Life insurance policies have different premium rates. Term life insurance is more murahpremi because the time period they are active. Whole life insurance is the most expensive in terms of premium because the water came from the mouth of the benefits.

When you understand the vocabulary of life insurance, you reduce the opportunity to get scammed. For many people, the confusion they experience more of life insurance lies in the gibberish language associated with it. You can remove the clear cobwebs of life insurance to make the Glossary of life insurance on the internet.

Life insurance is primarily targeted at families where the husband is the only source of income for families. Some people said that if there are several sources of income in the family, there's really no need to get insurance. If you have more than one person to fix it in the family, health insurance will get your best bet, they do so well.

Deh healthy in other aspects of their lives may be more affordable premium notes. He was a smoker the risk of death for young, affordable or cheap premisering is not available. You can get cheap life insurance as a smoker with the purchase of life insurance early.

Today is the people who take out insurance to cover the funeral costs. Last cost life insurance is designed to ensure that those who give thanks on the financial burden related to place you in the land. To end the cost of life insurance, you do not need to worry about being a medical examination because of circumstances in accordance with your life after your death.

FOCUSING ON IMAGE QUALITY

One of the most revolutionary features of the Check 21 environment is the development of new image-based depository services for corporations that receive check payments. These services enable a business to capture check images and MICR line information and then to deliver check deposits electronically to a Check 21-enabled banking service provider. The supporting technology can be provided through desktop scanners and imaging software. Alternatively, a business that employs an image-capture system, for processing mailed check remittances, can create electronic cash letters for transmission to its bank.

Already offered by several bank and non-bank providers, these new image corporate depository services should become more widely available in 2005. For any business thinking about moving to these new depository solutions, image quality assurance will be a key factor in evaluating product and service providers. In this article, we examine why image quality is critical in the Check 21 environment and how image quality assurance will be a major differentiating factor in the new corporate depository services coming to market.

Substitute Checks and Image Exchange

Check 21, which went into effect in October 2004, introduced a new negotiable instrument called a substitute check. A substitute check is a paper reproduction of the original check that includes electronically captured images of the front and back of the original check and a reproduction of the original MICR line. A bank of first deposit can create substitute checks from the original deposited paper checks and then truncate the original items. This bank can then electronically transmit check images and MICR line information to a locale near the paying bank, where substitute checks can be printed and presented for payment.

By setting the stage for image-based processing of paper checks, Check 21 also implicitly encourages image-embedded banks to enter into bilateral contractural agreements with each other to present checks by purely electronic means or in "image exchange". In the long run, banks will be able to clear checks more efficiently by eliminating physical transportation of the paper checks.

Check 21 Image Quality and Usability Standards

Image quality assurance is obviously a key aspect of Check 21. Under Check 21 regulations, a substitute check (or image replacement document) is considered the legal equivalent of the original check provided the substitute check accurately represents all of the information on the front and back of the original check at the time the original was truncated. Furthermore, the bank creating the substitute check (or the first bank that takes the substitute for deposit) must make certain that the image captured from the original check meets this legal equivalence requirement.

In establishing image exchange standards, the Financial Services Technology Consortium (FSTC) has been playing a leading role. The FSTC, of which Bank of America is a member, is made up of financial institutions, clearing houses, exchanges, and third-party service providers. In 2004, the FSTC launched an Image Quality and Usability Assurance Initiative to develop an interoperable set of terminology and metrics for check image exchange. In Phase I of this project, the FSTC identified 16 image defects that could result in a check image not being usable. These include such conditions as folded or torn document edge, excessive document skew, image too light, image too dark, image with horizontal streaks, and image out of focus. Such defects could affect the legibility and/or completeness of information digitally represented in a substitute check image. In Phase II of the project, the FSTC will establish image quality and usability metrics to be incorporated into the ANSI X9.100-180-2005 Specifications for Electronic Exchange of Check and Image Data. Phase II is scheduled to be completed in about 18 months.

Another key point to keep in mind is that current experience with imaging shows that most defective images are the fault of the source document (the original check) and are not caused by deficiencies in imaging technology. Checks with excessively dark or complex background patterns, intricate borders or logos, and other "noisy" design elements are more likely to result in unreadable images. Consequently financial institutions, check printers, and businesses that print their own checks need to promote the use of check designs that meet the image quality and usability requirements for image processing. The FSTC estimates that it will be 12-18 months before we see significant levels of image exchange check processing. That provides time for the gradual elimination of check stock designs that are not image friendly.

Image-Based Corporate Depository Services

Image-based corporate depository services enable a business that receives check payments to capture check images and MICR line information and make deposits electronically by sending that data to its bank. One form of this service employs a desktop scanner with imaging software. The operator scans each check, keys in the dollar amount, and validates that the MICR line information has been captured correctly. When the entire deposit has been imaged, the information is transmitted to the bank. The client's account is credited and the deposit is processed. Checks are cleared through the check clearing system using image replacement document processing or through the ACH using accounts receivable (ARC) check conversion for mailed consumer checks.

An electronic cash letter service for businesses - with in-house, image-based remittance processing operations - works in much the same way. Check images and MICR information captured by the corporate lockbox system are converted into image cash letter files that are transmitted directly to the bank. The bank credits the corporation's account and clears the deposited items through the check clearing system or the ACH.

For businesses that receive significant volumes of check payments, these new image depository solutions may provide major benefits, including faster deposit processing, accelerated funds availability, and earlier notification of returned items. In case of disputes, the business has electronic access to check images and can also securely store the original checks for a period of time before destroying them. With either the remote deposit or electronic cash letter service, the corporate customer assumes responsibility for the destruction of truncated checks within the mandated timeframes so that they can't be reintroduced into the check clearing system.

Evaluating Image Depository Services

Both remote deposit and electronic cash letter services obviously depend on image quality assurance and processing controls help to ensure that there are no problems in downstream clearing. Here's a checklist of some of the key image technology and processing issues to consider if you're thinking about moving to an image depository service:

• Image quality assurance engine. Making sure that image quality is satisfactory before images enter the image-processing flow is the best way to ensure that there no problems downstream. Does your service provider offer a software solution for validating image quality as checks are being scanned or for validating images contained within an electronic cash letter file?
• Check 21 compliance. As more banks become image-enabled, opportunities to clear checks via direct image exchange or substitute check presentment will grow. Can your service provider create files for image exchange that meet standards outlined by the FSTC? Is your service provider actively planning to enter into electronic check presentment agreements with other banks? Can your service provider create substitute check cash letters and deliver them to distributed print sites?
• Automated check conversion decisioning. For consumer checks, check conversion is the fastest, most efficient clearing alternative. Does your proposed service include an automated system for determining if checks are eligible for check conversion and converting them into ACH transactions?
• Deposit review. When preparing electronic deposits, you want to be sure that transactions and deposits balance. Does your service provider offer a deposit review function to balance items and total dollars, validate MICR line information, and verify deposit account numbers?
• Transmission security. Security is paramount when sending deposits to the bank electronically. Does your proposed service make use of digital certificates or other security methods to better protect your transmissions and may ensure that deposit files are not altered in transit?

Focusing on the Image

At Bank of America, we're convinced that image technology will totally transform the way banks do business and the way businesses do their banking. Through our participation in the FSTC, we're fully committed to assisting in the development of image quality standards and supporting the new image depository services that are becoming available to corporate customers. Look for more information on image quality and usability parameters in future issues of IdeasLab.

adapted from http://www.gtnews.com/article/5937.cfm

Credit Derivatives and Insurance .

It is a truth universally acknowledged (well - in the insurance world at least!) that insurance companies cannot enter into derivative contracts (unless the contract is entered into "in connection with or for the purposes of" insurance business - for example, if the insurer is hedging its own portfolio). What an insurer cannot do is enter into a derivative contract for commercial reasons.

This gives rise to a certain friction between what insurers are permitted to do and what they wish to do. It is also an issue for the capital markets who are thereby denied access to the vast capital resources available to many insurance companies which could well facilitate greater volumes of derivative activity.

This friction goes a long way in explaining the current market interest in "transformer" companies. As their name suggests, these are companies which, in effect, "transform" a contract, in this case a derivative contract, into an insurance policy. To understand why these companies are becoming popular, it is worth looking at the underlying issues more carefully.

The Similarities and the Differences

Similarities

Broadly, a credit derivative is a financial instrument designed to assume or lay off credit risk on loans, debt securities or other assets or in relation to a particular entity or country. In return for the laying off of risk, there is a payment from the originating party to the counterparty. Credit derivatives may take the form of credit default options, credit-linked notes or total return swaps, but the product which is most similar to insurance is the credit default swap. Credit default swaps typically pay out on the occurrence of a specified credit event - such as the insolvency of the referenced entity, or a material deterioration in that entity's credit-worthiness.

Compare this, then, to insurance, or more particularly credit insurance, which is defined in the Insurance Companies Act 1982 ("ICA") as being insurance against "loss to the persons insured arising from the insolvency of debtors of theirs or from the failure (otherwise than through insolvency) of debtors of theirs to pay their debts when due". Thus the same or a similar kind of risk could equally well be offset either by a derivative or an insurance product, both being contracts of indemnity and having a similar economic effect.

Differences

Although insurance and derivative contracts can be extremely similar, a derivative contract is not an insurance. One needs to understand the meaning of "insurance" in order to appreciate the difference between the two.

There is no English statutory definition of a contract of insurance but case law has identified certain essential elements as follows:

• there must be a promise to pay;
• the insured must have an insurable interest in the subject matter of the policy;
• what the insured purchases is the right to receive monies on the occurrence of an uncertain event (the key feature being that there must be an element of contingency, either as to the happening of the event or as to its timing);
• there must be a premium passing between the parties.

It is also worth considering the commercial effect of an insurance contract, which is to transfer risk from one party (the insured) to another (the insurer). Where there is doubt as to the correct characterisation, then as with any contract, what is likely to carry most weight with an English court is the substance of the contract as a whole, taken in its commercial context. How the parties choose to describe the contract will be of little persuasive force.

Furthermore, it has been established that either the contract as a whole is a contract of insurance or it is not. Only where the principal object of the contract is to insure will the contract be one of insurance. So a contract which contains an element of insurance which is collateral to its principal purpose will not constitute insurance.

The most important of the above features for the purpose of distinguishing credit insurance from a credit derivative is that the insured must have an insurable interest in the subject matter of the insurance. In other words, the insured must stand to lose financially if the event insured against happens.

The statutory definition of "insurable interest" is as follows:

"a person is interested in [a marine] adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or damage thereto, or by the detention thereof, or may incur liability in respect thereof."

The key concept is that of loss - is the insured's relationship with the matter insured such that he would incur financial loss should the risk insured against occur? If not, then the requirement that there must be an insurable interest is not satisfied. (Nor indeed is the requirement that there be a transfer of risk, since one cannot have a transfer of risk unless the insured would otherwise be exposed to that risk.)

Note, however, that the test is two-pronged: there must be a legal or equitable relationship, as well as an economic interest. Thus, for example, under English law, an individual cannot insure against being disinherited by his parents; nor can a person take out life assurance on the life of any other person save where he stands to suffer financial loss on that death (the most famous case in this respect involving the courts' refusal to classify as insurance a contract by a subject to insure the life of the King!), in both cases because there is no legal or beneficial interest in the property in question. (Note that it is this requirement of a legal or equitable interest that distinguishes insurance from gambling.)

So whilst it can be seen that the commercial and economic effects of credit derivatives can be similar to contracts of insurance, there is a clear conceptual distinction:

• With a credit default product, the event triggering payment is the occurrence of the credit event and not the loss suffered by the originating party as a result thereof. The existence or otherwise of such a loss is irrelevant to the contract.
• Under the terms of an insurance contract, however, loss to the insured is critical. If the insured has not suffered a loss, the insurer will not be under an obligation to pay.

In the case of a credit default product, although the originating party may suffer a loss if the relevant credit event occurs and, indeed, may have entered into the credit derivative specifically to hedge against that risk of loss, the counterparty is obliged to pay the originating party on the occurrence of the credit event whether or not the originating party has actually suffered a loss.

Why does the difference matter?

The difference is probably of greatest significance in relation to regulation. In the UK, a contract of insurance can only be issued by an authorised insurance company; an insurance contract issued by a non-authorised party will be unenforceable by the issuer and monies paid under it may be recovered by the insured, together with compensation for loss. In addition criminal sanctions are available against the issuer.

Conversely, UK-authorised insurers are prohibited from carrying on any business "other than in connection with or for the purpose of its insurance business" (section 16 ICA). (The intention of section 16 is to ensure that the business of insurance companies is completely ring fenced and isolated from the risks associated with any other commercial activity, whether regulated or not.) Thus a credit derivative issued by an authorised insurer could be unenforceable, and the wrath of the regulator will no doubt be incurred!

In addition, a number of consequences flow from a contract being one of insurance rather than non-insurance and these are, generally speaking, undesirable from a commercial perspective. Two of the most relevant in this context are, first, that insurance premium tax at the rate of 5% is payable on insurance premiums.

Secondly a contract of insurance is a contract of utmost good faith. Whilst all contracts (including derivatives) are subject to considerations of good faith to the extent that the law cannot support fraud, in ordinary commercial contracts, parties are not required to reveal all that they know about the proposed agreement. Subject to certain statutory protections available to purchasers (and in particular consumers), the common law applicable to most commercial contracts is that of "caveat emptor" (let the buyer beware). Not so for insurance.

The "utmost good faith" doctrine means that a duty of full disclosure is imposed on both parties to the contract. In practice, the duty of the insured to give full disclosure is the only one of importance. The duty is onerous - the insured must disclose all material facts which he knows or which he should have known about. The consequence of failure to disclose all material facts is, in English law, also harsh - the insurer can consider the contract void and avoid payment completely.

The consequences of whether a contract is one of insurance or not is also of particular relevance to the securitisation of insurance risk, where care must be taken to structure any note, or insurance-linked derivative, issued as a derivative, as otherwise the note-holders could be held to be carrying on (unauthorised) insurance business as a result of holding the notes.

Thus any person who wishes to write a credit derivative has plenty of reasons to ensure it is not actually a contract of insurance!

How Do Transformer Companies Work?

So, although insurers may wish to write credit derivatives, they may not do so. Bodies (such as banks) which do want to write credit derivatives need to take precautions to ensure the contracts they write cannot be characterised as insurance.

The first of these issues has been addressed by the development of transformer companies.

Although UK insurers cannot write derivative products, they are allowed to enter into insurance policies to insure a counterparty in a derivative agreement. Such a policy would indemnify the counterparty against having to pay losses incurred under the derivative agreement. The transformer effectively places itself in the middle of a structure, enabling the insurer to issue an insurance policy one step removed from the derivative contract.

In a typical transaction, the transformer would write the original swap contract, and the UK authorised insurer would then insure the transformer company, hence avoiding section 16 ICA problems. For the insurer there may also be the opportunity to offset its insurance liability by reinsuring the risk.

Figure 1

In addition, depending on the place of registration of the transformer, it is possible to transform an insurance risk into a derivative contract (i.e. the converse of the above structure - a transformer entering into an insurance policy and then offsetting the risk via a derivative contract). This is possible because in certain jurisdictions (for example, Bermuda) insurance companies are permitted to carry on non-insurance business.

It is also worth noting that although many transformer companies are set up as shells (i.e. with insufficient capital to honour their commitments under the derivative contract without the benefit of the insurance), and it could therefore be argued that the transformer has only a technical (and artificially constructed) liability to pay rather than an actual one, (i.e. casting doubt on the existence of an insurable interest) the inclination of the English courts is to find in favour of an insurable interest whenever the facts allow. Economic effect is not the test applied to the characterisation of a contract.

However (and notwithstanding the above) it is important to observe the legal niceties of the distinction between insurance and derivative contracts and not, in transformer structures, to make the two contracts entered into with the transformer completely "back to back". (The same principles should be observed by parties writing derivatives who desire to avoid the contract being classified as insurance.) The following suggestions may be of use:

(a) the policy should have its own self-contained terms (rather than incorporating and annexing the derivative agreement). In particular, the parties should define and include all the key financial provisions of the insurance within the policy, rather than relying on the derivative contract;

(b) the liability under the policy should not exactly match the insured's liability under the derivative agreement (i.e. there should be a retention of some kind under the policy or some other financial liability for the insured);

(c) where, under a standard ISDA agreement, payment is by instalments with such instalments diminishing if an obligation ceases to be part of the portfolio, be wary of matching this exactly by an identical proportionate premium rebate under the policy;

(d) the benefits of the policy should not be freely assignable, particularly to the originating party.

If the above suggestions are followed, we believe that the risk that a court would characterise the role of a transformer as a mere device, in a structure where the true purpose and intent of the parties is that an insurer writes a credit derivative, would be materially reduced.

This is a grey area of law and it is difficult to state with any certainty where the dividing line between insurance and derivatives is drawn. However, adherence to the above guidelines should result in the relevant contracts, if ever challenged, satisfying the requisite criteria to keep on the right side of the regulators!