The municipal bond insurance market looked very different several years ago. According to Palmer, in 2005, the market was divided between nine bond insurers who insured 40% of municipal bonds. Now, coverage has dropped to the low single digits and the only publicly traded players in the space are Assured and MBIA, which was unable to write new business from 2008 through the settlement of legal issues this year. Other contenders are
, and newcomer
Build America Mutual Assurance
, which began doing business last summer.
Build America has insured 38% of new municipal debt issues in the first half of this year, Palmer said, adding, "But that's on very low volume in the market in general."
Palmer believes the recent spate of municipal distress will increase the demand for municipal bond insurance, as investors will want to protect their investment, but he said that demand has not materialized yet. If it does, Assured will be well-positioned to take advantage.
The launch of MAC is a long time coming. Assured acquired
Municipal and Infrastructure Assurance
(RDN - Get Report)
on Jan. 24, 2012, for $91 million, and is just now opening that business up to write new policies. MAC is licensed and authorized to offer insurance in 30 states, and licensed with authorization pending in eight states.
MAC's muni-only focus is appealing to investors, Palmer said, because the muni portfolio will be separate from Assured's structured finance portfolio, which is a riskier segment held by a different subsidiary.
Assured's portfolio is 75% U.S. public finance, 14% U.S. structured finance, and 11% international, according to a May 23 investor presentation.
General obligation bonds account for 44% of Assured's U.S. public finance portfolio, or $166.3 billion.
Assured executives weren't available to comment.
Assured is listed on the
New York Stock Exchange
under the symbol AGO. Its shares closed at $22.82 on Monday, down 3.3% from a high of $23.61 on July 18, which is the day Detroit filed for bankruptcy. Assured has a market capitalization of $4.33 billion.
Written by Lisa Allen