Insurance Quotes & Advice

With many of the largest bond insurers having been stripped of their AAA ratings it is a bleak time for the bond insurance sector.  Hit hard by subprime collapse and huge losses from insuring Mortgage Backed Securities, bond insurers are now trying to get back into the game.

Last week, Ambac Financial and Assured Guaranty announced plans to form independent municipal bond insurance units, separate from the main company that would likely start fresh with a top credit rating.  Right now these companies can’t book any new business with their low ratings.

We will probably see more companies following suit but the big question is whether there will be demand for their services.  All there has been a lot of talk or removing the double standard between corporate and municipal debt ratings that is going to take time.

While municipal debt has a history of low default rates, there are a lot of local governments that have been hurt real badly when the auction rate bond market collapsed in February because the companies that insured them had their credit ratings drop.  Consider Jefferson County Alabama, they are on the brink of bankruptcy because of this mess through no fault of their own.

Despite the auction rate settlement that was reached with investment banks, many municipalities still need to refinance hundreds of billions in debt at higher interest rates.  So there is demand out there for bond insurance despite all the hard feelings and mistrust against insurers.

But after all that has happened, it would come to no surprise, if we saw municipal default rates rise as local governments struggle with the higher borrowing costs.  What was once a steady profitable sector before insurers delved into guaranteeing collateralized debt, may not be as such in the future.