But FGIC’s case did not end with a government bailout or insolvency. With the help of Corinne Ball, the insurer crafted a first-of-its-kind reinsurance transaction that satisfied policyholders and insurance regulators while keeping the banks at bay.
First, a little background. A monoline like FGIC is paid a premium to guarantee debt issued by lower-rated borrowers. (It’s called a monoline because it provides services to only one industry, the capital markets.) A public issuer paid FGIC a premium to, for instance, back a municipal bond issue. In return, the bond’s rating rose, reflecting FGIC’s own triple-A rating. The system has long made the muni bond market more attractive to investors, and made public borrowing cheaper. At its peak, FGIC backed some $300 billion of the roughly $2.6 trillion in total U.S. municipal debt.
