Municipal bond insurance took on a tough environment once again in 2016 and although the penetration rate dipped slightly, overall par amount insured was up slightly compared with 2015.
The three active muni bond insurers – Assured Guaranty, Build America Mutual and National Public Finance Guarantee totaled $25.34 billion of par amount insured throughout 1,889 transactions, both up from $25.29 billion and 1,886 deals in 2015, according to data from Thomson Reuters.
The industry saw insurance penetration rate drop a tad to 5.63% from 6.36% in 2015 but did see a tough environment due to the historically low interest rates which hung over the market until December, when the Federal Reserve raised rates by 0.25%.
Assured once again led the market in terms of both par amount and the number of transactions insured during the year, capturing 56% of the par volume sold with insurance.
"Our $14.2 billion of new issue par from 902 transactions exceeded by $4 billion, or 40%, the par our closest competitor insured, and our total 2016 insured par in both primary and secondary markets was $16 billion," said Robert Tucker, senior managing director of communications and investor relations for Assured. "Growing institutional appreciation for our balance sheet strength, underwriting capabilities and trading value was reflected in the 57 transactions issued with $50 million or more of our insurance."
That includes more than $400 million each for the LaGuardia Airport P3 transaction and a Philadelphia school district issue.
"Additionally, we provided insurance on $1.6 billion par of double-A quality issues, $1.1 billion of which was on 38 new issues in a range of sizes." said Tucker.
Tucker also noted that Assured's group claims-paying resources of $12 billion at September 30 equals 19 times those of the next most active insurer.
"Our statutory capital grew in the third quarter even as we kept investors whole through timely claim payments, and our insured leverage ratios continued to improve, adding strength to our business," he said. "Investors have shown they appreciate our record of profitability, our diversified business strategy and our interest in acquiring legacy bond insurers on attractive terms."
In 2016, Assured completed the acquisition of CIFG, adding $5.5 billion to its insured portfolio, and also announced the acquisition of MBIA UK, which further diversifies its risk profile.
BAM had another great year that saw improvements in both par amount insured, number of transactions and market share. BAM's insured principal amount rose to $10.13 billion across 871 deals or 40% market share, from $9.57 billion or 38% market share in 2015.
"2016 was a record year for BAM. We saw a new high in new-issue insurance and grew our secondary-market activity by more than 50%," said Scott Richbourg, head of public finance at Build America Mutual. "The rising interest-rate environment at the end of the year highlighted the benefits insured bonds offer to issuers and investors, and increased demand led to BAM insuring several larger transactions and some high-quality, AA-minus rated bonds."
Richbourg said that when we look back at 2016, he thinks we'll see that it was a turning point in terms of increased public support for new-money infrastructure investments by both voters and their elected officials.
"That's important for BAM because new-money transactions tend to have longer lives and interest costs are a greater portion of the total debt service, so we'll have the opportunity to provide even more substantial savings to issuers," he said.
Richbourg said that BAM remains very conscious that transparency and disclosure are at the top of the list of concerns for both underwriters and investors, and they've been able to respond to that by making BAM Credit Profile reports available much sooner in the underwriting process — before the pricing for most negotiated sales, and immediately after the bid for most competitive transactions.
"Having that information about the issuer on a timely basis is helping people make their investment decisions more efficiently," he said.
NPFG also improved from the previous year, finishing the year with $975 million of par insurance, up 95% from 2015. Its market share almost doubled, to 3.8% from 2%.
"Coming off a very strong year in which we wrote a record level of new insurance, greatly expanded the number of parties with whom we're doing business and saw the trading differential with our competitors narrow, the prospects for bond insurance in 2017 appear very favorable," said Tom Weyl, head of new business development at National. Continued amortization of NPFG's existing insured portfolio has resulted in significant deleveraging and the strongest financial metrics in its history."
Weyl also added that a rising interest rate environment coupled with significant infrastructure needs across the United States should lead to greater demand for [National's] guarantee, which provides municipal market participants with lower cost funding, efficient market access, enhanced liquidity and enduring protection.
