INSURANCE

Quackenbush Issues Derivatives Guidelines: Insurance Commissioner Chuck Quackenbush issued guidelines reminding California insurers that state law restricts their ability to invest in derivatives. Speculative trading in derivatives--securities whose values are derived from underlying instruments such as stocks, bonds, commodities or market indexes--have been involved in such financial debacles as Orange County’s bankruptcy and the collapse of the British merchant bank Barings. California law allows insurers to invest in only a few narrowly-defined kinds of derivatives and only as a means of “hedging,” or offsetting other investment risks, not for generating income. “We’ve been fortunate in California in that as far as we know, the [insurance] industry has not been significantly burned” by derivatives investments, Insurance Department attorney James Holmes said.