As subprime woes mount for insurers of municipal and loan-backed bonds, potential customers are voting with their feet. They're largely shunning firms like
The results show how the subprime crisis is providing an opportunity for new entrants - and for older players that avoided the lure of complex businesses that, for a stretch, were boosting competitors' reported results.
Its market share of U.S. municipal finance business in the first quarter plummeted to 3%, down from 21% for the first quarter of 2007,
The meager numbers are a testament to the value of a stable AAA credit rating to bond insurers' customers: debt issuers who use the value of the insurer's credit rating to reduce the yield they must pay on the bonds they issue.
The picture was a lot brighter for the more stable bond insurers.
Upstart bond insurer Berkshire Hathaway Assurance Corp., a 2007 start-up of Warren Buffett's
Investors rely on bond insurer credit ratings as a sort of proxy for the credit-worthiness of the underlying municipality that issued the debt.
Nonetheless, the new
It held onto its credit rating because it largely stayed away from the arcane securities that have caused the most trouble.
It's critical for highly rated bond insurers to have sufficient capital to provide a cushion well above expected defaults on issues they insure.
But premiums on the new business are tracking about the same as the first so far, with
Next-largest rival Ambac also reported a first quarter business slump. It currently holds an AA rating from Fitch, and AAA from S&P and Moody's, all with a negative outlook.
Ambac reported new production of
In a Monday research note, William Blair & Co. analyst
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