Higher industry concentration for bond insurers in 1H22 despite less issuance

Assured Guaranty accounted for a total of $9.468 billion in 375 deals for a 51.7% market share in the first half of 2022, down from the $10.872 billion in 557 deals for a 52.2% market share over the same period as the year before, according to Refinitiv data.

Assured continues to see high demand for bond insurance compared to pre-pandemic levels. The first half 2022 insured concentration of 8.8% was higher than the 8.4% for the first half of 2021 and significantly higher than the 5.9% in 2019’s first half, said Robert Tucker, senior managing director of investor relations and communications at Assured.

“We believe that two important factors have helped to amplify the use of bond insurance: wider investor awareness that insurance offers safety from many potential consequences of volatile economic conditions and a larger number of issuers recognizing the cost-effectiveness of bond insurance,” he said.

Along with the $9.5 billion in the primary, the company’s $1.75 billion par amount in the secondary market was its largest first-half amount in a decade, he said. In total, its insured par sold in the primary and secondary markets was $11-billion-plus, the largest first-half amount the firm has insured in a decade. Also in the first half of 2022, Assured guaranteed more than $100 million of par on 17 different transactions, according to Tucker.

During the second quarter, Assured’s bond insurance market share was over 54% and the firm guaranteed 10 large transactions that each utilized over $100 million of Assured Guaranty insurance. These included a $608 million New York Power Authority issue and a $460 million portion of an Alameda Corridor Transportation Authority issue, he said.

Tucker said the company continues to add value on double-A credits during the second quarter, insuring $1.1 billion of par on 52 deals, including about $300 million in the secondary market. In aggregate for the first half of 2022, Assured insured $1.6 billion of par on 79 primary and secondary market policies with double-A underlying credits, he said.

Build America Mutual insured $7.664 billion, or a 41.9% market share, in 458 deals during the first two quarters of 2022. That is slightly down from $7.922 billion, or a 38.0% market share, in 617 deals over the same period in 2021, according to Refinitiv data.

“BAM had a record first half for par insured, driven by continued strong utilization by institutional accounts," said Mike Stanton, head of strategy and communications at BAM.

Insurance, he noted, "played an important role in their overall portfolio management strategies: Targeting high-quality, more-liquid securities helped managers respond to the volatility caused by rising interest rates and investor outflows, which is why we saw higher penetration in the market overall.”

“From BAM’s perspective, that meant continuing the recent trend of more large, higher-rated deals, including our largest transaction to date — $667 million for the New York State Dormitory Authority’s school districts revenue bond financing program, which priced in May and carried underlying ratings in the double-A category from Fitch and Moody’s,” he added.

“For 2022, BAM is on pace to surpass 2021 business volume as volatility in municipal yields has driven a significant shift in demand from different classes of investors," an S&P Global Ratings report said.

While new-issue municipal bond sales are down as refunding transactions are put on hold in response to rapidly rising interest rates, the report said new-money issuance is up nearly 10%.

Much of the rise in new-money issues is attributed to state and local investment in essential infrastructure, according to the report.

Market participants, the report noted, anticipate this activity will increase further in the second half as issuers accelerate capital investment plans to take advantage of federal grants through the Infrastructure Investment and Jobs Act.

"This bodes well for BAM as bond issues associated with these types of investment have historically had the greatest insured penetration of any municipal sector," the report said.