FINANCIAL GUARANTY INSURANCE

Financial guaranty insurance is:
• A specialized insurance product that guarantees the timely payment of interest and principal on a bond or other security;

• A form of credit enhancement that provides an extra layer of protection for bondholders, who also benefit from the guarantor’s credit selection, underwriting, surveillance and remediation activities; and a collateral and security for Loan funding and all sort of financial investment engagement without limitation to any value or size of deal

A a means of facilitating capital market access, broadening distribution and reducing borrowing costs for bond issuers. 
Financial guaranty insurers are also known as “monoline” insurers because, by law, they are permitted to write only this single line of insurance (and related lines which may include surety, residual value and credit insurance) serving the financial markets – they are not exposed to risks from any other lines of business, such as life, health, or automobile insurance. 

HOW DOES IT WORK?

A financial guaranty insurance policy can be issued at the time a bond is issued in the primary market, or it can be issued to an investor who owns a bond that is already trading in the secondary market. In the case of Loan such as Project financing or Trade financing, Financial Guaranty Bond serves as collateral and security for the Investor/Lender’s funds, and shields the deal from risk that may arise especially from the side of the Borrower/receiver.

• In a primary market transaction, the insurance premium is paid by the bond issuer, in return for a lower interest rate for the life of the bonds, and the insurance provides default protection to all investors in the bond or Investment.

• In a secondary market transaction, the insurance premium is paid by the investor and protects that investor’s investment.
In the event of full or partial non-payment of an insured Loan funding, Trade finance or other financial transactions, New Summit Insurance pays Investors/Lenders to make up any shortfalls in the principal and interest payments – as they come due. We then “steps into the shoes” of those bondholders(borrowers/partners) and may exercise on its own behalf the bondholders’ rights and remedies for recovery.



WHY USE IT?

Financial guaranty insurance benefits both bond issuers and investors.
Benefits for insured issuers include:

• Lower borrowing costs: We generally issue Insured Financial Guaranty Bonds at a lower rate than if it were not insured, due to the additional security of the guaranty. The insurance premium would be a portion of those cost savings. 

• Improved access to capital markets: Financial guaranty insurance can help small and medium size issuers access capital markets, which can be particularly challenging if they are not well known.

• Broader distribution: From our experience, many investors limit the amount of bonds they will hold at various rating levels and per issuer. The higher credit rating insurance typically confers, together with the additional obligor/guarantor, expands the universe of investor portfolios for which the bond will qualify. 

• Single point of contact: Through our surveillance activities, we may spot developing credit problems early and work with an issuer(borrower) to resolve them before they become serious. We may have more flexibility than a bond trustee or a group of investors to waive covenants, grant temporary forbearance or agree to restructuring terms, and the issuer has only one “investor” to interact with for the life of the insured transaction.

Benefits for investors in insured bonds include:
• Timely payments: If the issuer of an insured bond or investment fails to make a scheduled payment, all insured bondholders are paid on time and in full, so only New Summit Insurance needs to seek recovery. This is true and certain whether the non-payment was due to a natural disaster, like Hurricane Katrina, or a municipal bankruptcy, like Detroit’s.

• Stringent underwriting standards: We maintain disciplined credit selection and underwriting standards. We have the resources to evaluate the unique risk of each issuer and to conduct due diligence. We may also be able to negotiate stronger terms and conditions than those of an uninsured bond.

• Surveillance and remediation: Evaluation of our insured risks doesn’t end when the bond is issued. We scrupulously monitor the financial health of every issuer for the life of the insured bonds, including surveillance of broader economic trends and emerging political issues. We work with issuers before problems become serious and, should restructuring ever become necessary, remove the burden of negotiations and litigation from investors.

• Improved market liquidity: Because hundreds of millions of dollars of insured bonds are traded daily, the insurer’s “brand” may be better known than the issuer’s. While bond insurance does not guarantee investors a specific market value for insured bonds, insured bonds from a distressed issuer have typically held their trading value better than that issuer’s comparable uninsured bonds.

A Power that protects you. | Nothing is Certain, Except Our Insurance Services.