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Assured Guaranty Ltd. Message Board

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  • gregdines gregdines Oct 11, 2009 9:23 AM Flag

    barron's article

    Here's an interesting one for you:

    Beefed-Up Assured Is
    Ready to Rule the Roost
    Assured Guaranty Ltd.’s business is
    poised to enjoy a two-pronged benefit:
    capturing fatter portions of fatter spreads,
    according to the credit research firm
    CreditSights.
    After buying Financial Security Assurance
    this month, Assured controls
    the only companies writing any measurable
    new business in the bond insurance
    industry.
    Assured and FSA together captured
    83% of the market share during the first
    half of 2009, according to Thomson Reuters,
    with nearly
    $21 billion in insured
    deals.
    With Berkshire
    Hathaway’s bond
    insurer the only
    other underwriter
    on the map and FSA
    planning to ramp up
    following the merger,
    Assured Guaranty
    should “dominate
    the market,” Credit-
    Sights wrote in a report yesterday.
    That dominance will translate into
    much better returns than the company
    generated in 2006 and 2007, according to
    the report.
    The reason is that the company will
    face less competitive pricing, CreditSights
    said.
    In an interview earlier this month, Assured
    chief executive officer Dominic
    Frederico explained the price of a bond
    insurance policy is buffeted by its value to
    the issuer. For example, if a single-A rated
    city trying to sell a bond would pay a percentage
    point less in interest on its debt if
    it opted for bond insurance, it would never
    pay more than a percentage of the debt for
    an insurance policy.
    Bond insurers charge a portion of that
    spread, Frederico said. Competition is a
    primary determinant of how plump the
    portion is.
    When seven viable insurers fought for
    business as recently as 2007, CreditSights
    said, insurers were charging 25% to 45%
    of the spread.
    That was smaller than usual. The most
    it has ever been is about 70%, according to
    CreditSights.
    “Now that Assured
    is the only
    insurer writing new
    business, it is able to
    take a larger piece
    of the spread differential,”
    Assured
    said.
    Not only will the
    insurer be able to
    capture more of the
    spread, the spreads
    are bigger.
    For most of 2007, a single-A rated 10-
    year municipal bond yielded less than 50
    basis points more than a triple-A rated 10-
    year, according to the Municipal Market
    Data yield curve. Today that spread is
    roughly 120 basis points.
    CreditSights does not foresee Berkshire
    Hathaway becoming a long-term competitor
    in bond insurance.
    Startup firms like Municipal Infrastructure
    and Assurance Corp., which is
    currently awaiting financial strength ratings
    from the rating agencies, may be able
    to compete, CreditSights said.

 
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