Bond insurer business grows 27% in 2020

Bond insurers grew their business in 2020 to $34.167 billion from $23.927 billion in 2019 as more investors demand and issuers purchase insurance for their deals in very uncertain times.

Assured Guaranty and its subsidiary Municipal Assurance Corp. wrapped $19.719 billion with 57.7% of market share while Build America Mutual insured $14.448 billion with 42.3% market share, both large increases from 2019.

As issuance ballooned to $474 billion in 2020, the insurance industry wrapped 7.5%, up from almost 5.7% in 2019.

“Our product shines brighter when investors are reminded that municipal issuers can have credit issues. Assured Guaranty saw a 41% increase year-over-year in insured primary-market par for a total of $20 billion, representing 58% of the total insured volume, across nearly 1,000 transactions," said Robert Tucker, senior managing director at Assured. “Additionally, and especially during uncertain markets, our insurance can provide an avenue for government entities to save financing costs and sometimes to place securities with buyers that would not have purchased their uninsured paper.”

Sean McCarthy, CEO of Build America Mutual noted there was greater utilization of insurance on larger and higher-rated transactions.

"That comes into play because we have such a robust surveillance effort, and because we enhance transparency by publishing a BAM Credit Profile for free on our website for every transaction and update it every year," McCarthy said. "That’s particularly important for taxable buyers — whether international or domestic — because they have less experience analyzing munis, so having the extra layer of BAM’s guaranty and the transparency is particularly valuable to them."

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Assured holds onto top spot

Assured Guaranty and its subsidiary Municipal Assurance Corp. wrapped $19.719 billion of municipal bonds in 983 transactions, 57.7% of the market share, in 2020, up from $14.003 billion in 839 deals for 56.7% of the share in 2019.

The economic disruption in 2020 from COVID caused investors to turn more of their attention to credit quality, trading value stability and market liquidity, all areas where Assured Guaranty’s product "tends to add value and where financial guaranty insurance can be an excellent solution for issuers and investors," Tucker said.

Tucker said another indicator of the growing demand was the volume of larger transactions that typically interest institutional investors.

"Assured Guaranty insured par amounts of $100 million or more on 39 transactions across a variety of sectors, up from 22 such transactions the prior year," he said, adding that in the case of AA credits, the company insured $2.5 billion in 2020, which is $1.0 billion more than 2019 in that category.

"The market disruption caused by COVID-19 resulted in broader recognition of the protection our guaranty provides against unforeseen circumstances, and we believe that investors appreciate the abundant capital and liquidity supporting Assured Guaranty’s insurance policies," he said, adding they expect the "increased awareness of our value proposition will remain on the minds of investors and issuers in 2021."

Tucker noted the influx of taxable bonds and the amount of international investors has grown.

"While taxable munis offer attractive yields in the current environment, international investors may find their lack of familiarity with U.S. municipal structures and credit considerations to be an obstacle to participation," he said. "We provide a simple solution through our credit selection, underwriting and long-term surveillance, backed by our unconditional guaranty."

Assured said they have seen an increase in demand for insurance across various sectors, but there was some additional emphasis in healthcare.
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BAM turns focus further on GreenStar in 2021

"In this market, investors are not just looking at bond insurance for default protection," McCarthy said. "It really has developed into a product for value preservation."

BAM insured $14.448 billion in 1,159 transactions, or 42%, up from $9.924 billion in 887 deals and 41.5% market share in 2019.

"Our double-A guaranty means that the bonds are going to trade at a more stable level, despite news that might come out about the underlying credit of the issuer, and I think that’s one of the reasons why the market grew dramatically over the last year," he said.

BAM's par insured reached a record in 2020 and BAM insured $4.1 billion of taxable bonds in 2020, up from $1.45 billion in 2019.

One area in particular BAM expects to see continued growth is green bonds as issuers increase investments in sustainable water and wastewater utilities, energy efficient buildings, and renewable energy. BAM GreenStar verified $1.4 billion across 87 series in 2020, up 167% from the year prior.

"We saw more than a billion dollars of bonds sold with the BAM GreenStar verification in 2020, and the pipeline for 2021 looks strong," McCarthy said.