Insurance Quotes & Advice

Bond insurers are the latest casualty from the sub prime mess that has nearly crippled the financial sector.  By insuring securitized debt backed by sub prime mortgages, the industry has faced mounting losses the past few months.

Some companies have already been downgraded from their AAA ratings and the ones remaining are under the microscope.  These firms are scrambling to raise capital in order to protect their precious ratings.

AAA rated bond insurers play a pivotal role in the economy by providing a service to entities like corporations or municipalities that are looking to raise capital by making it cheaper for them to issue debt.  The fallout from this can be far reaching.

New issuance of bonds has slowed considerably in recent months in what was already a tight credit market.  This is a big problem especially for municipalities, many of which are having to delay their scheduled public works projects.  However, the recent aggressive rate cutting by the Fed should help ease things somewhat by making it cheaper to issue debt even if it’s not backed by an insurer.

However, the fate of existing bonds remains a major concern.  Many institutional investors are feeling the pain as they see their portfolio’s taking huge losses as existing bonds backed by downgraded insurers have lost their resale value on the secondary markets.

The banking sector, which has already felt the brunt of the sub prime disaster, typically holds large blocks of bonds as safe and highly liquid assets that are easily convertible to cash.  If their bonds start losing value, banks have to find a way to replace this lost short term capital in order to fund their lending operations.

Many investors are holding out hope for either a government or bank led bailout plan to help stabilize the bond market.