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Abstract: 

The effects of the credit crisis on the U.S. municipal market have been profound. One of the most significant effects has been the dramatic falloff in the participation of bond insurers. The bond insurers have provided many important services to this fragmented market of numerous, disparate issuers and a predominantly retail investor base. Bond insurer services have included default protection, improved liquidity, and investor information. This article examines the scope of these services and estimates an aggregate valuation. With a decline in bond insurance, a service gap or void will result, with retail investors, who have a dominant role as investors in this market, bearing the largest share of this loss. Given the vulnerable position of retail investors, market participants need to keep their interests in mind as they develop solutions to this substantial service gap.

Keywords: Bond insurance ratings; default protection

Affiliations:  1: FG Research, LLC.