Bond insurance market slowed as overall new issuance declined

Assured Guaranty accounted for a total of $12.859 billion in 529 deals for a 56.2% market share in the first three quarters of 2022, compared to $17.439 billion in 826 deals for a 60.1% market share over the same period as the year before.

"Total primary market volume utilizing bond insurance remained higher in the first nine months of 2022, a trend that has continued since 2020, and at 7.8% of par issued, the industry penetration rate was the third highest in over a decade for this same period," said Robert Tucker, head of investor relations and communications at Assured.

He said some of the impact on insured volume of lower overall primary market issuance during the first three quarters of 2022 was offset by demand for Assured's secondary market bond insurance where the company wrote more insured par than in any first-nine-month period of the last decade. Its $2.23 billion of secondary insured par totaled more than 11 times that of the same period last year.

"We believe this shows that investors were responding to market conditions by seeking the security and other benefits of our guaranty," Tucker said.

This marks the third straight year Assured has insured more than $12 billion of primary market par in the first nine months. Overall, the company's insured par sold in the primary and secondary markets was $15.1 billion, the third largest amount the firm has insured during the first nine months of any year in the last decade, he said.

During the third quarter, Assured insured par sold in the primary and secondary markets totaled $3.4 billion, of which $480 million was secondary-market par.

The company continues to add value on double-A credits, where Tucker said it believes investors see its guaranty on high-quality credits as a mitigant of downgrade risks.

During the third quarter, Assured insured $659 million of par on 22 primary and secondary transactions with double-A underlying ratings. In aggregate, for the first three quarters of 2022, the company insured more than $2.3 billion of par on 101 primary and secondary market transactions with double-A underlying ratings, he noted.

Build America Mutual insured $10.039 billion, or a 43.8% market share, in 617 deals during the first nine months of 2022. That is compared to $11.599 billion, or a 39.9% market share, in 889 deals over the same period in 2021.

"BAM maintained its record pace for total par insured through the first three quarters," said Mike Stanton, head of strategy and communications at BAM.

The company has seen "consistent demand for insured bonds due to the ongoing volatility in the market, which highlights the advantages of high-quality, insured bonds as a tool for value preservation in both retail and institutional portfolios," he said.

Insured bonds' durable ratings are also increasingly important to investors who are expressing growing uncertainty about how municipal credit quality will perform if the U.S. economy slides into recession, Stanton noted.

He said BAM's insured new-issue activity was broad-based during the third quarter, including issues with high underlying ratings and larger transactions in both the competitive and negotiated markets.

More than 30% of BAM's third-quarter insured new issues carried public ratings in the double-A category from S&P Global Ratings or Moody's Investors Service, including the largest sale of the quarter, a $271 million competitive sale by the Miami-Dade County School District, he said.

"While overall taxable volume is down, BAM insured $116 million of green bonds for Pinal County, Arizona, demonstrating continued interest from overseas buyers in BAM credit enhancement and the BAM GreenStar green bond verification program," he said.