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Abstract: 

From the first municipal bond insurance policy in 1971, bond insurance grew to about 54% of the new-issue market by 2005. Credit crises, such as New York City in the mid-1970s, the Washington Public Power Supply System in 1983, and Orange County in 1994, played a role in this expansion. Growth in the mutual fund market, accompanied by new technology that facilitated financial service delivery, increased investor appetite for bond insurance. This story would not be complete without discussing the role of ratings and rating agencies in the industry. Bond insurance played a systemic role in the 2007–2009 financial meltdown, which ultimately left only one insurer, Assured Guaranty, actively writing new business. Will the phoenix rise from the ashes? New entrant Build America Mutual believes so. A handful of other investors have seen the value of the product but have as yet been unable to obtain a rating necessary to launch a new business.

Keywords: Municipal bond insurance, bond rating, mutual fund market, credit crises, financial meltdown, financial service delivery

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