Icarus of the 21st Century: The Rise and Fall of Monoline/Bond Insurers

39 Pages Posted: 19 Jan 2019

Date Written: January 18, 2019

Abstract

The business model of monolines/bond insurers is to guarantee payments of debt issues in case of defaults by the issuer. Thus, effectively providing their high credit rating to lesser rated debt issuers for a fee. Monoline insurance provide protection for debt issues and secondary guarantees for certain financial products. Although sparse attention is given to monolines in academic literature, they play an important role in enabling municipalities and firms alike in refinancing through bond issues. The 2008 global financial crisis exposed monolines, dependent on an AAA-credit rating to various risks that resulted in rating downgrades which subsequently led to their demise. This study examines accounting and regulatory inadequacies that further exacerbated issues at monolines. In addition, the study conducts a quantitative and qualitative analysis of the key monoline insurers leading up to the crisis. Identify key factors that led to their fall, resulted in a key successor and outlook for the future.

Keywords: monoline insurance, bond insurance, multi-line insurance, financial guarantors, credit enhancements

JEL Classification: G11, G22, G30

Suggested Citation

Jayasuriya Daluwathumullagamge, Dulani, Icarus of the 21st Century: The Rise and Fall of Monoline/Bond Insurers (January 18, 2019). Available at SSRN: https://ssrn.com/abstract=3318631 or http://dx.doi.org/10.2139/ssrn.3318631

Dulani Jayasuriya Daluwathumullagamge (Contact Author)

University of Auckland ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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