A delegation of representatives from municipal bond issuer advocacy groups, the National League of Cities and the National Association of Counties, met last month with the staff of the New York State Insurance Department (the “NYSID”) to discuss the possible formation of a not-for-profit mutual municipal bond insurer that would be broadly-owned by the issuers of municipal debt. During the discussion, the staff of the NYSID walked the delegation through the mutual insurance company licensing process.

The planned mutual municipal bond insurer would provide credit enhancement for municipal debt issuances in the same way as traditional for-profit monoline municipal bond insurers, but would avoid entering into the type of credit default swaps whose obligations have decimated the credit ratings of leading monoline municipal bond insurers. The primary objective of such a company would be to minimize the cost of borrowing that is paid by taxpayers and users of public services. Such credit enhancement would allow the issuers of municipal debt to obtain lower interest rates for fixed rate general obligation bonds and revenue bonds sold to finance essential government services such as water and sewer facilities.

As a mutual insurer, the proposed entity would be owned by its policyholders, who would be local governments that issue municipal debt, much in the same way that traditional life and property & casualty mutual insurers are owned by their policyholders.

Proponents believe that an initial capitalization of $1 to $1.5 billion would be required and could be provided by state pension funds, a reserve fund paid into by policyholders, and assistance from the federal government.