Most bonds issued by trustworthy entities are covered by an insurance policy that guarantees the terms of repayment made to investors. Vista bond insurance policies are often purchased because issuers want to get a favorable credit rating that will boost the market value of their securities. However, there are other reasons to purchase this type of insurance.
Purpose of Bond Insurance
Most bonds have financial guarantees that encourage insurance companies to offer coverage. This is typically done in exchange for premiums reflecting the risk of a bond issuer not being able to make interest or coupon payments.
In terms of economic value to investors, bond insurance guarantees bondholders will continue to receive some of the payments set in the terms of the bond contract. Furthermore, the insurer may also provide mitigation services to prevent bonds from collapsing due to adverse market conditions.
Bond Insurance Advantages
When investors shop for bonds and evaluate prospectuses, they are willing to accept lower interest payments if they see a favorable analysis from the credit rating agencies. Premium ratings not only indicate the ability to repay but also the marketability of the instrument itself.
Aside from assurance, there is also a cost savings factor created by the bond insurance industry. For example, municipal bonds tend to pay upfront premiums for policies that allow them to offer lower interest rates. Bond investors are attracted to insured bonds despite these lower rates of interest because they feel safer. In turn, issuers get to retain more of the principal and use it to develop their projects.
Following the 2008 collapse of the global financial markets, many bond insurance carriers stopped doing business, thus leaving the market to be dominated by a few major, highly rated players.
If you’d like to learn more about bond insurance, reach out to the insurance experts at American Tri-Star. In addition to affordable bond insurance, we also offer commercial, homeowners, health, and auto insurance in Vista. Give us a call at 760-758-1600 and one of our knowledgeable representatives would be happy to assist you.