Municipal bond insurers backed 31.3% of all new tax-exempt issues sold in the first nine months of 1991, a pace that puts the industry on track for its biggest year in history.
The five major firms, all rated triple-A, insured a total of $36.77 billion during the nine-month period, while the market issued $117.66 billion. In 1985, biggest year to date, $44.38 billion was insured. This year, volume is set to hit almost $50 billion.
"This will be the biggest insured volume year ever," said David H. Elliott, president and chief operating officer of Municipal Bond Investors Assurance Corp. "The insured market could come out to 32% or 33%."
Compared with last year's performance, 1991 is shaping up as stellar indeed. The nine-month insured volume is about 50% greater than the same period in 1990, but even more remarkable is the total: The insurers already have surpassed 1990's full-year volume of $33.03 billion.
Factors Behind Volume Gain
Part of the higher volume is simply a matter of the swelling new issuance, but insurance executives said industry gains also are due to a convergence of very positive market factors.
Stephen Berger, president and chief executive officer of Financial Guaranty Insurance Co., said issuers in 1991 have been more inclined to insure their debt for a series of reasons.
"The search for insurance is a product of events," Mr. Berger said. "It's a response to situations like Mutual Benefit, to stories and concerns about the underlying economy and the credits of state and local governments. It's all driving it."
"It's a very favorable market both for issuance and for insurance," Mr. Elliott agreed. "Low interest rates spur volume and refunding volume. It feeds on itself."
"Bond insurance has not been that well understood," said Robert J. Genader, senior executive vice president at AMBAC Indemnity Corp., "but people are becoming more accustomed to this. There are more investors asking for and seeking out bond insurance, and more issuers today understand the value."
The good times are recognized by all parties, however, so competition for the many available credits has not diminished in the least, according to market sources. AMBAC, in particular, has been pouring it on during the last quarter.
AMBAC insured more deals and greater par amounts than any other firm in the third quarter, but September's activity is even more dramatic. Last month, AMBAC backed a total of $1.24 billion, while the nearest competitor -- MBIA -- totaled $885 million.
Mr. Genader said looking at market share for short time frames is "a little bit dangerous" because the environment can change so rapidly. "You probably have to look at the numbers over a two-year period," he said.
In fact, Mr. Genader de-emphasized AMBAC's volume of business. "There has not been a change in focus here," he said. "We are continuing with our strategy, and our strategy is continuing to do well."
Premium levels began to firm up in the third quarter, but it is only the beginning of a trend, Mr. Genader said. Other sources disagreed, preferring to characterize pricing as remaining stable at adequate levels.
"I would hope that we would see some more intelligent pricing," Mr. Berger said, "but there has been little evidence of that."
Charles Silberstein, managing director at Financial Security Assurance Inc., said prices have not improved. "We aren't seeing any significant firming," Mr. Silberstein said. "And within certain categories of credit, we've seen a decline."
He mentioned investor-owned utilities as an area of premium deterioration and said the price declines were due to a "general hunger" for business, rather than a function of this year's market environment.
For the entire nine-month period, MBIA retained its mantle as the number one insurer. MBIA insured a total of $13.20 billion for a 35.9% share of the insured market, while AMBAC insured $12.33 billion to take a 33.6% share and second place.
FGIC remained in its third-place niche, insuring about $24.6% on $9.03 billion. Mr. Berger said the showing is consistent with the firm's philosophy. "Everybody measures their success differently," he said. "We're staying where we want to be, from 24% to 25%."
The other firms are "struggling for the number one market share," Mr. Berger added, "and I am struggling for the number one profit position."
Financial Security Assurance Inc. backed $1.2 billion in the nine-month period for a 3.3% share of the market. And Capital Guaranty Insurance Co. insured $1.01 billion to take a 2.7% share.
Future Industry Trends
For both the remainder of 1991 and all of 1992, insurance executives were sanguine about the industry's prospects. Perhaps the most significant reason cited is a consensus forecast for stable to lower interest rates, which would continue to encourage issuers to sell refunding issues, sources said.
"Rates will trend downward for the rest of this year and next year," Mr. Elliott predicted. "The market will continue the same type of environment and certainly bring more refundings out of the closet."
Mr. Genader of AMBAC said muncipal interest rates for the next year are likely to stay within the 6.8% to 7.2% range, as measured by The Bond Buyer's Municipal Bond Index. "Within that very narrow band, we should anticipate the same level of activity," he said.
Mr. Berger suggested that after November 1992 interest rates will finally break out of the current low environment and begin to head back up.
Mr. Silberstein said the market is headed into a strong period but more because the demand for public capital will continue to increase than interest rates will remain low.
"If you take out the blip that occurred because of 1985, the general [new issue] trend has been up for a rather long time," he said. "We will obviously see some variance, but all of that is noise around an uptrending market driven by the same factors.
"This year's volume exceeds [that of] 1985," he added, "but it's not approaching '85's premiums."
The data used for this story do not include "forward" deals. On a new-issue basis, $883.3 million of forwards were sold during the first nine months, according to Securities Data Co. The resulting total issuance was $117.66 billion, rather than the $118.55 billion originally reported by Securities Data.
Several insurers enhanced some of the $883.3 million, but none includes the forward issues in 1991 market share numbers.
