N.Y. Approves Mutual Bond Insurer for Muni Market

New York State’s Department of Financial Services announced on July 23 that it has licensed Build America Mutual Assurance Company (BAM) to operate as the first mutual bond insurer serving the U.S. municipal market and guaranteeing state and municipal debt.

After receiving $600 million in initial financing, the company has secured an “AA” rating from Standard & Poor’s (with a stable outlook), which makes BAM the highest-rated bond insurer in the nation.

The insurer will provide bond insurance to the small- and mid-sized municipal bond market, focusing on municipal bonds up to $75 million. It will insure only investment grade general obligation bonds or other revenue bonds issued to fund essential governmental facilities and services.

Officials said the company will not insure structured securities, a practice which caused serious problems for bond insurers during the financial crisis. As a mutual insurer, the company will be owned by the issuers who are also its policyholders.

BAM expects to issue its first policy in September 2012. Headquartered in New York City, the insurer will initially employ an estimated 40 people.