Price competition influencing bond insurers’ international underwriting

Recent underwriting efforts by bond insurers’ are being influenced by competition from within the industry, as well as from banks, according to “Bond Insurers’ International Underwriting Activities Are Shaped By Competitive Pricing Pressures” a recent report created by Standard & Poor’s Ratings Services.
S&P’s notes that along with the bond insurers that pioneered international financial guaranty expansion Ambac Assurance Corp., Financial Security Assurance Inc., and MBIA Insurance Corp. those companies that have also initiated international marketing efforts are Financial Guaranty Insurance Co. and Assured Guaranty Corp.
The report says that “compounding the competition issue are XL Capital Assurance Inc., which has expanded its international efforts, and CIFG Financial Guaranty, with its European roots.”
Compressed market spreads are a concern that stems from this increased competition as they make it difficult to economically justify financial guarantees; allow for fierce competition from banks that offer cheap capital with limited covenants; open up the potential for loss of key deals due to bidding competitions that resulted in the lowest common denominator for both price and covenants; and allow for a more competitive market, narrower spreads, and more single line insurers competing on deals.