The volume of municipal bond insurance sold in the first half of 1994 skidded 37% from last year's level, almost exactly matching the drop in overall new4ssue volume for the period.
The six-company industry insured $36.4 billion of municipal bonds issued between January and June, compared with a record-smashing $58 billion during the same period in 1993, according to company officials.
Despite the dramatic slip, bond insurers managed to slightly increase their penetration of the market. The industry guaranteed nearly 41% of the $89.2 billion of bonds that came to market during the first half of the year, compared with 39% of the $149 billion sold a year ago.
The silence of the refunding arena as interest rates rise is the major reason bond insurers are less busy these days, company officials said.
At Municipal Bond Investors Assurance Corp., for example, refundings accounted for nearly 75% of the company's unprecedented $22.5 billion in volume during the first half of 1993. During the same period this year, MBIA's refunding volume accounted for just 40% of the company's $14.5 billion slice of the industry's half-year pie.
But David H. Elliott, MBIA's chairman, said he sees positive trends in the new4ssue market that could help soften the blow of fewer refundings.
"The most encouraging part is the 18% increase in new money, because that's really the best indicator of the robustness of future years -- the fact that new-money issuance is alive and well," Elllott said.
The MBIA chief also pointed out that the company's volume in the first half of 1994 is almost identical to the amount generated in the same period of 1992.
"We all thought 1992 was a bangup year when we had it," Ellliott said.
MBIA maintained its market dominance in the first half, taking credit for 40% of the business written by the entire industry, about the level the company enjoyed in the same period last year.
AMBAC Indemnity Corp.'s 26% market share was enough for second place. The company's volume dropped to $9.5 billion from $163 billion in the first six months of 1993.
Joseph E. Van Houten, executive vice president at AMBAC, echoing officials at all the bond insurance companies, stressed that market share is not the company's major concern.
Core earnings, which discount the effects of refundings and capital gains or losses, are a much more important gauge of an insurer's success, Van Houten said. AMBAC's core earnings were up 20% for the period, but down 11% when the effect of refundings are included.
Van Houten also highlighted as encouraging the 18% rise in new-money issuance during the first half of 1994. He said he expects volume to begin picking up speed after the summer, and reach about $170 billion to $180 billion by yearend, compared with $291 billion for all of last year.
Financial Guaranty Insurance Co. was close behind AMBAC in the half-year race, insuring $9 billion for a 25% market share, compared with $14.6 billion last year.
Capital Guaranty Insurance Co. was the only insurer to actually see a rise in business over 1993 levels, insuring $926 million of bonds compared with $724 million last year.
But Capital Guaranty was in the midst of a major restructuring last year and ownership issues remained unresolved. With the problems now behind the company and a major new marketing push underway, Capital Guaranty "is right on target of where it wants to be," said Michael Djordjevich, president and chief executive officer.
Officials at Financial Security Assurance Co. said their strong presence in the structured finance industry has helped the company as the municipal market suffers a downturn.
"It just gives you a little bit more flexibility if you are not just looking at one market," said Roger K. Taylor, an FSA managing director.
FSA insured $2.3 billion of asset-backed business in the first half of 1994, compared with $2.1 billion in munis. That compares with $1.8 billion of asset-backed bonds in the first half of 1993 and $3.4 billion of municipals.
MBIA kept pace with FSA on the structured finance side, insuring $2.3 billion of its own during the first half. FGIC's structured finance business totaled $1.1 billion, down from $2.2 billion in the same period in 1993.
MBIA also expanded its reach in Europe during the first half of the year, insuring $2.3 billion of structured finance deals and $171 million of French municipality debt.
