All of the major bond insurers have reported that no direct material claims are expected as a result of last week’s tragedy at New York’s World Trade Center and the Pentagon in Washington.
Our discussions with senior officials at a number of the insurers revealed that none of the buildings and other destroyed structures had been bond insured.
Additional Security
Bond insurers guarantee the timely payment of principal and interest on municipal bonds, which provide an additional layer of security to bondholders. Since the companies providing bond insurance (MBIA, FSA, Ambac and others) generally specialize only in this one line of insurance, little exposure to casualty or other claims is likely to occur.
The World Trade Center, built in 1970 by the Port Authority of New York and New Jersey, was recently transferred to a private sector real estate developer. The Pentagon, of course, is owned by the federal government.
The municipal bond insurance industry insures many new issues each year. The insurers are monitored by the major rating agencies (Standard & Poor’s, Moody’s and Fitch) for both capital adequacy and portfolio quality and diversification. The ratings carried by the insurers (AAA, AA and A) reflect a combination of these two assessments.
Few Bond Insurance Claims
To date, there have been few bond insurance claims, reflecting the conservative underwriting standards employed by each insurer’s team of analysts.
FMS continues to maintain ongoing relationships with all of the major insurers and we are confident that last week’s tragedy will not detract from the safety and security that owners of insured municipal bonds have enjoyed in the past and can continue to expect in the future.