Robert Arvanitis

Evaluating Ambac: Intrinsic Value Withstanding Market Volatility

The credit insurance model is over, despite the author's delight in perpetual state budget deficits.

On the muni side, if the business model ever worked, it is now over. The rating agencies can no longer lie - a so-called triple-B muni is in fact a triple-A on the corporate scale. Once rating agencies are forced to end the false distinction between "corporate" and "muni" scales, that eliminates the artificial need for insurance.

On the corporate side, the business model never worked. A small part of the corporate credit spread is for liquidity and traders' capital. Not nearly enough to justify insurance premiums at less than 40% of market spread.

Finally, the author seems to dismiss mark to market. But investors have a right to know. If you can't sell it, it ain't worth much.

Whither Municipal Bond Insurance?

Bond "insurance" has a fundamentally flawed business model - even more so than P&C insurance in general.

When bond "insurance" was more of a service to muni issuers, like title insurance for example, it may have been worth a few bps.

When bond insurers began to take all the credit risk for half the credit spread in corporates, that was the end.