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Definition: MBIA Insurance Corporation
MBIA stands for Municipal Bond Insurance Association. MBIA Inc. is a financial service company started in 1973 and headquartered in Armonk, New York. MBIA Insurance Corporation is a division of MBIA Inc. which is a worldwide issuer of financial insurance guarantee used for municipal bonds and structured finance products. Like any other insurance product, MBIA insurance ensures to repay the interest and principal on an insured bond which suffers from default. Thus it can be used as a means of credit enhancement as presence of MBIA insurance ensures an AAA rating for municipal bonds.
Thus a bond issuer may further reduce the cost of fund raising by purchasing a MBIA insurance as the higher the rating of the bonds, the lower the cost of issuing the bond or lower the coupon rate for the investor.
Also the MBIA and other similar companies try to keep their credit rating at the highest levels, as a higher rating will ensure more value for their customers and investors, and hence increase in their customer base. Thus such companies ensure a high credit rating for themselves by diversifying their own portfolio across different financial instruments, sectors, nations and asset classes.
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