Municipal Bond Forum
Bondholders see value of insurance
Q
In your article, “Herd Mentality Yields Unique Value,” you seemed to place more value on the insurance aspect of a bond rather than focusing on the underlying value of the issuer itself. AMBAC, FGIC and SCA all went bankrupt. Does insurance really guarantee anything?
A
James A. Klotz responds:
Although your point is well taken that there are no investments that come without risk, holders of insured Jefferson County, Alabama, and Detroit, Michigan, bonds would strongly disagree with your conclusion that “insurance really doesn’t guarantee anything.” Currently, these investors are receiving timely payments of principal and interest from insurance companies, that “guaranteed” bonds that are now in default.
Our article was intended to present an S&P analysis of the claims-paying ability of AGM and National insurance companies in the event of a default.
Keep in mind, the companies to which you referred did not go bankrupt due to insuring municipal bonds, which is the exclusive function today of AGM and National.
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