Monoline Insurance

Posted in Finance, Accounting and Economics Terms, Total Reads: 549

Definition: Monoline Insurance

Monoline insurance companies issue guarantees in the form of credit wraps to issuers so that their credit is improved. This is used to signal to the investors that the credit issue such as a bond is safe, monoline insurance is used. An upfront premium payment is made by the issuing company to the insurer.

If there is any default in the coupon or principal payment, the investors have full recourse to the insurance company who will make the payment on behalf of the issuing firm. Unlike traditional insurance where the claim can be made only up to the insured amount, in a financial insurance claim to the full amount can be made.

While monoline insurance started out with providing insurance to bonds, other financial derivatives and mortgage backed securities were also included subsequently. Insurance reduces the overall cost of borrowing for the issuing company.


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