Municipal bond insurance fell to the lowest level since the financial crisis last year as issuance slumped. The guarantors' market penetration began to rise.
Insurers wrapped $12.08 billion of debt in 2013, or 3.9% of the total $311.9 billion in long-term muni bond sales, according to data from Thomson Reuters. In 2012, the financial guarantors backed $13.3 billion, or 3.5% of the market.
Market penetration by bond insurers had been in free-fall leading up to 2013 after a precipitous drop in business following the financial crisis. The onset of the recession in 2008 left the industry responsible for just 19% of new bonds, and the amount of insured bonds has fallen yearly. The lone surviving guarantor after the crisis, Assured Guaranty, was met with competition this past year from Build America Mutual.
Assured claimed 61% of the market in 2013 with $7.38 billion of insured bonds by par amount, while BAM insured $4.44 billion. Berkshire Hathaway Assurance had a single deal in 2013 that accounted for less than one percent of the market.
"We are pleased that we ended 2013 with our strongest quarter of the year, both in terms of insured par and the number of larger transactions we guaranteed," Robert Tucker, managing director of corporate communications at Assured, said in an email. "During 2013, Assured's combined primary and secondary insured volume totaled $8.6 billion."
Assured widened its lead on BAM in the fourth quarter, insuring $2.57 billion, almost two-thirds of the total par amount of insured bonds in that time period. The guarantor insured six primary market transactions exceeding $100 million each, including $600 million of senior-lien sewer bonds in Jefferson County, Ala.
Assured's municipal-only bond insurer, Municipal Assurance Corp, launched in July, added another $154.5 million to the firm's insured par amount last year.
The future for bond insurers remains dubious in the eyes of market participants, as some say sub-triple-A ratings limit business prospects, while others believe climbing interest rates and high-profile distress scenarios will place more value on insurance.
Municipal bonds carrying insurance outperformed general obligation debt from May to August last year as falling bond prices and default concerns sparked by Detroit's bankruptcy caused investors to put more weight into insurance.
By November, the insurers were selling their product at cheaper prices than 2012, receiving less compensation on risky deals. Both Assured's MAC and BAM entered agreements with TMC Bonds to offer their insurance on secondary market trades made through the alternative trading system.
"We're pleased with the progress we made in the market during 2013, both in terms of the volume and number of transactions we insured and particularly the underlying quality of those transactions," Sean McCarthy, chief executive officer of BAM, said in an email. "As we continue to build liquidity in our name, we expect demand for our guaranty to grow in pace."
