Although bond insurance does not command the market it once did, local governments still are finding it a useful way to ensure that their projects will be built and their bonds paid. Insured municipal bonds helped Boston, Massachusetts, build its Deer Island sludge digester system as part of a project that is cleaning up Boston Harbor. San Francisco, California, is using insured bonds to complete a $2.4 billion expansion of its airport and build what will be the largest international terminal in the United States. Both international public finance and structured finance have grown and matured through the last 2 decades. As bond insurers have diversified into other areas, municipal finance has begun to play a less prominent role. Recently, insurers have begun to cover fewer new issues in the municipal market. The majority of the industry's portfolio of insurance tipped toward asset-backed transactions for the first time in 1999. Bond insurers have become more selective about deals, accounting for the drop in the proportion of insured. Municipal officials can expect to see a more careful bond insurance industry over the coming months.

SHIELDING LOCAL GOVERNMENT: A LOOK AT BOND INSURANCE

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