For the second consecutive year, municipal bond insurers have surpassed their record for yearly volume, needing only three quarters to top 1992's record-setting performance.

If current levels are maintained, the monoline insurers will surpass last year's record percentage of penetration -- insured bonds' share of the total market.

The primary insurers guaranteed $84.8 billion par amount, or 38.5% of the $220 billion of municipal bonds issued in the first nine months of 1993, according to a survey of firms. The figure easily eclipses the record $78.9 billion insured in all of 1992. Market penetration last year was approximately 34%, the all-time high for a full year.

Refundings, which accounted for 67% of overall volume, continue to drive the market. About $60.5 billion, or 71.2%, of insured bonds in the first three quarters were refunding issues, according to Securities Data Co.

Insurance officials said there are plenty of candidates still awaiting refinancing which should bode well for the monoline insurers in the fourth quarter and into 1994.

Through the first nine months of the year, Municipal Bond Investors Assurance Corp. maintained its industry-leading pace, backing $30.72 billion of bonds for a 36.2% market share. In the third quarter, MBIA backed $8.2 billion of bonds for a 30.9% share of the $26.5 billion insured market.

David H. Elliott, MBIA's president and chief executive officer, said volume for 1993 thus far has surpassed the predictions made at the end of last year by even the most optimistic market observers.

"Nobody thought interest rates would drop as much as they did. It took everyone by surprise," Elliott said. "Even we underestimated the magnitude of volume."

Elliott said interest rates still have room to decline before the end of the year and into 1994, and that overall volume this year could approach $300 billion.

AMBAC Indemnity Corp. led the industry for the three months ended September 30, backing $8.95 billion for a 33.8% market share. AMBAC insured $25.3 billion, or 29.8%, of the year-to-date total.

AMBAC officials, like those from all the monoline insurers, down-played the importance of quarterly market share.

Joseph E. Van Houten, executive vice president at AMBAC, experts insured penetration to remain in the 39%-40% range for the rest of the year and sees potential for both increased new volume and more refundings.

"Because of infrastructure needs we expect new money issuance to go up," Van Houten said. ~I think interest rates still have a chance to go down. There are still a lot of refunding candidates out there."

Financial Guaranty Insurance Co. placed third in the volume race for both 1993's third quarter and the first nine month of the year. In the first three quarters of 1993, the monoline insurer took 25.1% of the insured market, backing $21.3 billion. FGIC insured a par amount of $6.4 billion, or 24.2% of the insured market in the third quarter.

Francisco Borges, managing director of FGIC's public finance department, was not as bullish of the fourth quarter as MBIA's Elliott, predicting overall volume in the $250 billion range for the year as interest rates remain flat and refunding volume declines.

The market will remain strong in 1994, but, Borges said, "We don't expect next year will be in the same level. However, we expect that in 1994 the insured penetration will increase given more appreciation and understanding by investors."

Despite the continued dominance of AMBAC, FGIC, and MBIA, strong gains were made in the quarter by Financial Security Assurance Inc. and Capital Guaranty Insurance Co.

FSA took 8.3% of the insured market for the quarter, backing $2.2 billion par amount. For the year to date, FSA has insured $5.6 billion for a 6.6% market share.

FSA officials said they could not comment on volume issues because of the firm's recent filing with the Securities and Exchange Commission for an initial public offering of common stock.

Buoyed by the recent receipt of a Aaa rating from Moody's Investors Service, Capital Guaranty insured $566 million par amount in the third quarter, nearly matching its $720 million output for the first half of the year, according to Securities Data Co. The San Francisco-based insurer took 2.2% of the insured volume in the third quarter.

For the first nine months of the year, Capital Guaranty insured $1.3 billion par amount for a 1.5% market share. Capital Guaranty officials were precluded from commenting because they are still in a "quiet period" following their initial public offering last month, a spokesman for the firm said.

Connie Lee Insurance Co. backed $158.2 million par amount in the third quarter and $569 million for the first three quarters of the year for market shares of 1.3% and 0.7%, respectively.

Aaron L. Task is a reporter for The Guarantor, a Bond Buyer newsletter.

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