Last year was a good year for bond insurance.
Municipal bond insurers wrapped 5.5% of the long-term municipal debt issued in 2014, up from 3.4% the previous year.
The $18.55 billion of insured debt that was issued over 1,405 transactions last year represented a 61.6% gain from 2013's $11.48 billion over 1,022 deals, according to data from Thomson Reuters.
The bond insurance industry started off 2014 with gains in the first and second quarters of 28.5% and 30.2% respectively.
The second half of the year is when things really took off, as the volume insured rose 124% in the third quarter of 2014 to $5.69 billion from $2.54 billion in the same period of 2013.
The fourth quarter also saw marked improvement, as it went up by 68.4% to $5.55 billion from $3.30 billion.
Assured Guaranty retained its position as the bond insurance leader in market share and insured volume.
"During 2014, we saw a solid year of growth; increasing our new issue par insured by 43% to $10.7 billion," according to Robert Tucker, head of communications and investor relations at Assured.
"In total, we insured $11.6 billion, including our secondary market activity," he added.
Tucker believes Assured's market leadership was reflected not only in their par insured, but also in their ability to help a broad range of issuers access the market with small, medium and large transactions and reduce their borrowing costs.
"Investors clearly saw the benefits of our guaranty and the value in our sizable capital base, profitable operations and ability to manage our exposure to troubled credits effectively," said Tucker.
Tucker also thinks that a number of developments, such as Standard & Poor's upgrading all three of Assured's municipal bond insurance subsidiaries — AGM, MAC and AGC — to AA ratings with a stable outlook as well as the newest subsidiary, MAC, completing its licensing to write business in all 50 states and the District of Columbia helped strengthened Assured's market position.
Likewise, Build America Mutual completed its licensing in all states in 2014, which helped fuel its growth.
"It was a great year for Build America Mutual and bond insurance in general," said Michael Stanton, head of strategy and communications for BAM.
"We saw a significant increase in volume and penetration. We also wanted to demonstrate the insurance's value and by the end of the year, I would say we really accomplished that," he said.
According to Stanton, BAM will continue to focus on its core market: mid-sized to smaller transactions with ratings from BBB to A.
"Over 60% of those issuers use bond insurance and that really validates that we are reaching them," Stanton said. "That's our target market. Of course it's not exclusive, as we can and will do transactions for larger issues, but for the most part that's where we think bond insurance has the most value in the market."
On the other end of the spectrum, National Public Finance Guarantee is taking the approach of re-emerging and re-engaging with the marketplace after resolving litigation that prevented it from writing new business since early in the financial crisis.
Tom Weyl, who has recently joined National as the head of new business development, says the process is going well.
"We are happy with our pace and financially we are doing fine," Weyl said. "We can be selective with our capital, as the unearned premiums and investment earnings embedded in our balance sheet means that we don't feel the need to rush in a low-rate environment.
"Our penetration rate increased last year and we think that will continue and we expect to get a healthy slice of the pie this year. National is the largest muni-only bond insurer and is essentially a start-up with a 40-year history."
One topic that will impact the muni industry as a whole, including bond insurance, is when and if the Federal Reserve decides to raise rates.
Mark Palmer, analyst at BTIG, said that from a historical standpoint when there has been perception from time to time that interest rates are set to rise, demand for bond insurance perks up.
"There is clearly a relationship with rates and demand for product," said Palmer. "Rising interest rates and expectation of them rising and remaining high is key to driving demand. Bankruptcies and challenges underline the value associated with bond insurance and the value is there. In order to see a significant rise in penetration rate, we would need to see a sustained increase in interest rates."
