MBIA Insurance Corporation
- A division of publicly-traded MBIA, Inc, and a primary worldwide issuer of financial guarantee insurance. Used to back municipal bonds and structured finance products, MBIA insurance is used as an avenue to credit enhancement, as MBIA's insurance promises to pay interest and principal on any bonds that suffer an issuer default.
The presence of MBIA insurance on a municipal bond typically ensures an 'AAA' rating or its equivalent from the major ratings agencies and also makes the bonds much more marketable to investors.
Bond issuers may find they can even lower the total cost of issuing debt by purchasing MBIA insurance, as the higher rating the bonds would garner could allow the issuer to lower the coupon rate to investors.
MBIA and its competitors try to keep their own credit ratings at the highest levels, as this obviously makes their services much more valuable to clients and investors. They do this by diversifying their insured portfolios across nation, sector and asset classes, and also by keeping certain measures of financial leverage below dangerous thresholds.
Investment dictionary. Academic. 2012.
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