TITLE
"The Value of Municipal Bond Insurance to the Individual
Investor," Journal of Insurance Issues, Fikry
S. Gahin. June 1989, Vol. XII, No. 2, pp. 71-91.
ABSTRACT
As a result of the Tax Reform Act of 1986 and recent market conditions individuals have
become the largest investors group in the Municipal Bond (MB) market. Whereas the value of
MB insurance to the issuing municipality is well documented in current literature, very
little attention was given to its value to the individual investor. Although the value of
insured vs. non-insured MBs is determined in free markets this study attempts to examine
the perceived cost-benefit of insured MBs to the individual investor. The analysis
concludes that it is the investor rather than the MB issuer who ultimately pays for the MB
insurance cost, and this cost is substantial. Disclosure of MB insurance cost information
should help individual investors in making rational decisions when investing in insured
rather than non-insured MBs as long as the perceived benefits of risk aversion and
increased marketability exceed the insurance cost to the investor.
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