UPDATE 2-Credit derivatives may need regulation-NY official

(Adds details, background, comment from trade group and analyst)

By Karen Brettell

NEW YORK, May 12 (Reuters) - New York's insurance superintendent said on Monday it may make sense to regulate segments of the credit derivatives market as if they were insurance products.

When an investor owns a bond and buys a credit derivative to protect it against default, the derivative functions like an insurance contract and should possibly be regulated accordingly, the superintendent, Eric Dinallo, said on CNBC.

It's "something to discuss," he said.

Members of the credit derivatives industry questioned whether adding a new regulator to the market would fix problems or just create new ones.

Dinallo said the trades that he would discuss regulating represent around 20 percent of the $62 trillion market. The other 80 percent of the market is used to make outright bets on whether a debt issuer's credit quality will deteriorate, and these contracts would not qualify as insurance, he added.

Dinallo has worked with bond insurers to raise capital after firms including MBIA Inc (MBI.N: Quote, Profile, Research) and Ambac Financial Group (ABK.N: Quote, Profile, Research) have written down billions of dollars in the market value of credit derivatives.

But some of the most problematic credit derivatives were put together by investment banks, which are regulated by the Securities and Exchange Commission, said Janet Tavakoli, president of Tavakoli Structured Finance Inc in Chicago.