Like Maytag repairmen, healthcare bond insurers are lonely people.
Reduced demand for bond insurance mirrors this year's decline in healthcare bond issuance. Healthcare bond volume slipped 34% in the first five months of 1994 as interest rates on 30-year tax-exempt bonds crept up a percentage point to 6.5%, refunding opportunities dried up and discretionary capital projects were put on hold as providers waited for the outcome of the national healthcare reform debate.
Last year, 58% of the $23.3 billion in municipal healthcare bonds were insured. This year bond insurers hope to insure more than half of the $15 billion to $20 billion of the projected healthcare volume for the year.
With fewer deals to insure, healthcare bond insurers are competing somewhat more intensely than they did last year to add attractive deals to their portfolios. As a result, some issuers may be able to negotiate better insurance premiums.
"We are still finding that the deals that are desirable are attracting some significant competition among bond insurers," said Joe Beck, a principal with Shattuck, Hammond Partners, a New York-based bond adviser. But, he added, "They're not giving away insurance policies."
Insurers are lowering premiums in exchange for tighter bond covenants, said Joseph Carroll, a partner in the New York law firm of Mudge, Rose, Guthrie, Alexander & Ferdon.
Three of the biggest hospital bond insurers, AMBAC Indemnity Corp., Financial Guaranty Insurance Co. and Municipal Bond Investors Assurance Corp., wouldn't release specific pricing data. But bond insurers said there has been a slight increase in price competition.
Providers may see a slight decrease in premiums, maybe five basis points, which is not a material difference, said Joseph L. Campion, a vice president at FGIC and director of the healthcare group. One basis point equals one one-hundredth of a percentage point.
Shattuck Hammond's Mr. Beck estimates that healthcare issuers are negotiating premium savings of five to 10 basis points over last year's prices.
In addition, investment bankers say MBIA has indicated that it is willing to insure BBB credits, instead of only A-rated issues. But Emmeline Rocha-Sinha, vice president of the Armonk, N.Y.-based insurer and manager of the healthcare department, said this isn't a new marketing strategy. She said MBIA always has been open to insuring strong triple-Bs, although its portfolio contains no such credits.
One thing insurers won't compromise is their underwriting criteria. "It's not a wise strategy to loosen up your standards to attract more volume," said Steven Renn, a first vice president of New York-based AMBAC and managing director of HCIA, an AMBAC subsidiary that provides healthcare information and consulting services.
But they are refining their criteria to reflect changes in healthcare delivery and reimbursement.
For example, MBIA is moving away from focusing on bed counts, Ms. Rocha-Sinha said. Instead, MBIA looks for minimum gross revenues of at least $65 million. "In the past, it used to be a minimum of 250 licensed beds, but that's such a big misnomer," she said.
AMBAC's interest in a hospital's price competitiveness in a marketplace has evolved into an analysis of its cost structure and efficiency, Mr. Renn said. If a hospital says it's a leader in oncology, "we look at if they are an efficient oncology provider" based on staffing, cost structure and case-mix-adjusted length-of-stay, he said. AMBAC gives some additional weight to market position and market structure than it did in the past, he said.