Insurance 4 Insurance

An insurance bond (or investment bond) is a single premium assurance policy for the purposes of investment. Traditionally investment bonds only invested in the with-profit fund of the insurance company.

Issuers that meet certain credit criteria can purchase municipal bond insurance policies from private companies. The insurance guarantees the payment of principal and interest on a bond issue if the issuer defaults. Bond ratings are based on the credit of the insurer rather than the underlying credit of the issuer.

Traditionally insurance bonds were with-profits policies and were often called with-profit(s) bonds. Since the introduction of unitised insurance funds they have often been marketed as unit-linked bonds or investment bonds. Bonds can provide income or growth and have access to a wide range of investment funds.

Bond insurance policy may result in significant interest cost savings, depending upon the issuer’s underlying credit and market conditions at the time of the bond sale. Interest cost savings are attributable to the higher bond rating as well as enhanced liquidity for insured bonds.

Insurance adds several value-enhancing features to related bonds:

Safety
With insurance, an investor has a backup source of payment to rely on if the primary payer, the issuer, cannot meet its obligations.

Quality
Insured bonds automatically receive the highest rating available, Triple-A, based on the Triple-A claims-paying ability of the insurer.
Ratings strength

Bond insurers are highly regulated by state insurance departments and closely monitored by the major rating agencies, which historically have reaffirmed their Triple-A ratings at least once a year. Investors who wish to sell their insured bonds before maturity usually find a ready market for such highly rated securities.

Yield
In most cases, Triple-An insured municipals offer slightly higher yields than Triple-An uninsured securities.

Opportunity for even higher earnings
There are certain types of municipals—for example, revenue bonds and structured issues—that pay higher yields than conventional general obligation bonds. However, many investors are unfamiliar with such securities. By guaranteeing timely payment of interest and principal, insurers enable investors to purchase them with confidence.

An insurance bond (or investment bond) is a single premium assurance policy for the purposes of investment. Traditionally investment bonds only invested in the with-profit fund of the insurance company.

Issuers that meet certain credit criteria can purchase municipal bond insurance policies from private companies. The insurance guarantees the payment of principal and interest on a bond issue if the issuer defaults. Bond ratings are based on the credit of the insurer rather than the underlying credit of the issuer.

Traditionally insurance bonds were with-profits policies and were often called with-profit(s) bonds. Since the introduction of unitised insurance funds they have often been marketed as unit-linked bonds or investment bonds. Bonds can provide income or growth and have access to a wide range of investment funds.

Bond insurance policy may result in significant interest cost savings, depending upon the issuer’s underlying credit and market conditions at the time of the bond sale. Interest cost savings are attributable to the higher bond rating as well as enhanced liquidity for insured bonds.

Insurance adds several value-enhancing features to related bonds:

Safety
With insurance, an investor has a backup source of payment to rely on if the primary payer, the issuer, cannot meet its obligations.

Quality
Insured bonds automatically receive the highest rating available, Triple-A, based on the Triple-A claims-paying ability of the insurer.
Ratings strength

Bond insurers are highly regulated by state insurance departments and closely monitored by the major rating agencies, which historically have reaffirmed their Triple-A ratings at least once a year. Investors who wish to sell their insured bonds before maturity usually find a ready market for such highly rated securities.

Yield
In most cases, Triple-An insured municipals offer slightly higher yields than Triple-An uninsured securities.

Opportunity for even higher earnings
There are certain types of municipals—for example, revenue bonds and structured issues—that pay higher yields than conventional general obligation bonds. However, many investors are unfamiliar with such securities. By guaranteeing timely payment of interest and principal, insurers enable investors to purchase them with confidence.