The role of bond insurance in the municipal market has evolved in the past few years from simple credit substitution to credit enhancement with a mix of functions, according to an analyst at Moody’s Investors Service.

“You could have made the argument a few years ago that people were thinking about bond insurance as a pure credit substitution product,” said Stanislas Rouyer, senior vice president at the credit rating agency. “Either you had faith in the bond insurer or you [didn’t]. Now, the situation is a bit more subtle. No bond insurer can claim to be riskless or close to riskless.”

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