Two footnotes to the previous post and reblog.
(i) A 2008 Mayer Brown Structural Finance Update provides a historical perspective:
Is a credit default swap (“CDS”) a contract of insurance? This question was resolved in the negative some ten years ago in both London and New York, and most other financial centers have followed these leads. The 19th May 1997 opinion of Robin Potts, QC and the 16th June 2000 opinion of the New York State Insurance Department have been oft-cited as the benchmark legal positions on this issue. These legal opinions paved the way for the blooming of a multi-trillion dollar CDS industry over the past decade. Given the recent unprecedented global credit crisis, however, this question is now being revisited by financial regulators.
(ii) Recital (21) of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps:
Sovereign credit default swaps should be based on the insurable interest principle whilst recognising that there can be interests in a sovereign issuer other than bond ownership.