Bond Accountability Commission 2 Recommendations Page 74
disappeared. 86 No bond insurer has the highest rating from each of the three major services.87 The proportion of insured bonds issued in the municipal securities market decreased sharply in 2009. 88 Still, bond insurers believe they may have a role to play especially for lesser known and lower rated credits, although some detractors express skepticism. 89 In retrospect, disparities in the rating process were a key component in those disruptions. As experience and rating agency data demonstrate, the bond insurers’ corporate rating categories entail greater default risks than do rating categories of most of the investment grade municipal securities the insurers insure, even likely after proposed
Seymour, “Assured Wraps Up FSA Purchase, Cements Hold on Industry” (Bond Buyer Online July 2, 2009) (“After closing the deal [acquiring FSA] … Assured is essentially the only insurer writing significant new business.”)
“Insurer Ratings at a Glance” (Bond Buyer Online as of Feb. 17, 2010). One rating service, Standard & Poor’s, maintained a “AAA” rating on two insurers, but Moody’s Investor Service and Fitch Ratings had assigned lower ratings to those companies.
Herman, “Bond Insurers: We Still Have a Future” (Bond Buyer Online June 9, 2009), states, “Bond insurance penetration has plummeted as most of the industry’s legacy insurers have seen their formerly triple-A ratings downgraded. Just 12.5% of new issues came to the market with insurance through May 31, compared to a peak of 57.1% of new issues in 2005, according to Thomson Reuters.” Efforts to date to form new highly-rated insurers that would limit their business to insuring municipal securities have not been successful. See, e.g., Herman, “Ambac Postpones Everspan Kick-Off—Capital Raising Talks Not ‘Satisfactory’” (Bond Buyer Online June 22, 2009), regarding efforts to create a double-A insurer. Another insurer, MBIA, split into two companies. One company, intended to be a new municipal bond insurer, is named National Public Finance Guarantee Corp. Herman, “MBIA Public Finance Arm Renamed” (Bond Buyer Online March 27, 2009). To date, the effort has not been successful in achieving triple-A status, as it has drawn litigation.
Herman, “Bond Insurers: We Still Have a Future” (Bond Buyer Online June 9, 2009).