Certain concepts in the bond insurance industry are being treated as gospel by municipal participants without the support of empirical evidence or common sense. These concepts are: Increased market share means increased profits; the greater the market share, the stronger the product; and market share equals success. When analyzed objectively, these assumptions generally prove false for any industry, but especially so for the long-term business of insuring municipal bonds.

Over time, the bond insurance industry will prove itself no different than the vast majority of businesses. Assembling cars, selling computers, or mortgage lending may appear to have nothing in common with selling 20year guarantees. But appearances deceive. Focusing on market share would appear to be a smart way to grow a business. For a bond insurer, it means having a larger book of business, a modicum of prestige, and something tangible to show the owners. For a carmaker, it is much the same: More cars sold means a potent advertising angle or an impressive slide show at the annual meeting. As long as a company can show growth, everything else will take care of itself, the argument goes.

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