Bond Insurance

Investment in bonds ensures steady financial growth when the bond remains under the umbrella of bond insurance. Bond insurance providers have created specific parameters for the issuers, and when an issuer can fulfill the specified guidelines they can provide insurance of the bonds.
Bond insurance reduces investment risks and ensures peace in the investor’s mind. In case of any default by the issuer, the bond insurer guarantees payment of the principal amount (face value) along with the due interest. Bonds are often used as long-term investment instruments, and as bond insurance considerably reduces investment risks, insured bonds have gained high popularity.

Municipal bond insurance has been available since 1971. Initially investors were not aware of the pros and cons of bond insurance, but since becoming available, demand for it has increased.

To provide bond purchasers with an effective insurance cover, the issuers should fulfill certain rating criteria. Issuers are expected to bear the rating associated costs.
Bond Insurance is provided to the bond purchasers with a one-time payment, but not all types of bonds may be insured. In order to secure coverage of a new issue, an issuer needs to produce documents for review. Bond documents, financial statements, and official statements are mandatory during a review.

The number of bond insurers has increased over the years. The major bond insurance providers are as follows:
CIFG Assurance North America, Inc.
AMBAC Assurance Corporation
Financial Security Assurance, Inc.
Financial Guaranty Insurance Company
XL Capital Insurance
MBIA Insurance Corporation
MGIC Radian Financial Group
Assured Guaranty Corporation (AGC)
American Capital Access (ACA)

Bond insurance has attracted potential investors to invest in a wide range of bonds. It has also increased bond marketability. Bonds provide financial growth, and tax advantages are also offered by various bonds. Investors do not want interruptions during payment of income. Insured bonds offer higher yield compared to non-insured bonds. Market value of insured bonds has been much higher. The bond insurance companies consider the issuers who have history of stable credit profiles. All insurers of insurance bonds have a senior credit committee and this committee frames underwriting policy and checks the conditions to be met.

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Last Updated on : 10th July 2013

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