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- Title
Bond Insurance Premiums After the Last Active Municipal Bond Insurer Lost Its AAA Credit Rating in 2010.
- Authors
Benson, Earl D.; Marks, Barry R.
- Abstract
After the financial crisis of 2007-2009, only one municipal bond insurer, Assured Guaranty Municipal Corporation was left in the market to underwrite insurance policies on newly issued municipal bonds. In 2010 and 2011, Standard & Poor's downgraded AGM-insured municipal bonds, first from AAA to AA+ and, then, from AA+ to AA-. In 2012 and 2013, respectively, two new bond insurers entered the market. One of the new insurers was organized as a mutual insurance company, whereas previous municipal bond insurers were organized as corporations. Finally, in 2014, the bond ratings of bonds insured by AGM and another new insurer were upgraded by S&P from AA- to AA and a third new insurer entered the market with a rating of AA-. Using a sample of 1,166 insured municipal bonds issued from 2010 to 2016, this paper finds that insurance premiums did not materially change when AGM-insured bonds were downgraded by S&P in 2011; however, they did significantly decline in 2012 and afterward as new insurers entered the market.
- Subjects
STANDARD &; Poor's Financial Services LLC; CREDIT ratings; FINANCIAL crises; BOND insurance; INSURANCE premiums; MUNICIPAL bonds; BOND ratings
- Publication
Municipal Finance Journal, 2023, Vol 43, Issue 4, p21
- ISSN
0199-6134
- Publication type
Article