Q-3. John is a risk manager for ABC, an insurance company. Below is a conversation between John and his colleague David about credit risk. John tells David, "ABC faces significant credit risk in our investment portfolio. We are taking on too much risk in emerging markets debt and need to find a way to hedge this risk." David responds, "I am more concerned about the credit risk we take on when originating new policies, in particular when we extend installment terms and grace periods to our corporate customers." John responds, "No, David, what we should worry about is our emerging market credit risk and the credit risk we are taking on from buying reinsurance." David responds, "Reinsurance? Reinsurance does not create credit risk. Reinsurance helps us mitigate our risk exposure." In the above conversation, each of the statements is likely true except which of the statements is most likely incorrect?