Insurance Quotes & Advice

Even if bond insurers finally get their house in order, they may soon find themselves in a much smaller market to operate with.  According to Bloomberg, Moody’s Investor Service will soon be moving to a single rating scale for corporate and municipal entities with the other ratings agencies soon to follow suit.

Moody’s Investors Service is about to tell as many as 29,000 U.S. state and local government borrowers that they have higher credit ratings. That doesn’t mean taxpayers will enjoy lower borrowing costs anytime soon.

Next month Moody’s will start changing how it assesses tax- exempt bonds, a move that will boost ratings by an average of one to two grades for cities and towns. Even with the expected increases, a tax-exempt borrower currently rated A is being charged an extra $6 million in annual interest to sell $1 billion of bonds, up from about $2 million a year ago, according to Lehman Brothers Holdings Inc. data compiled by Bloomberg.

With higher ratings, some municipalities may no longer need bond insurance and those that would still benefit from purchasing it will pay lower costs than they did a year ago.  It’s a smaller ocean that insurers will try to get back into after the fallout of the subprime collapse finally settles.

The industry may survive by expanding into other markets but it will lose much of the easy money that was the hallmark of the municipal sector for decades.  With their history of low default rates, they hardly ever had to make any pay outs.

A number of companies are moving to form separate municipal units that would start with top credit ratings but it may be too little too late.  The ill fated decision of insurers to expand into the residential mortgage market has irrevocably changed the landscape in the municipal bond insurance sector.