Last month, I took A Practical Look at the Bond Insurers and concluded that bond insurance was a terrible business. They face competitive forces with Mr. Market, with each other, and with their clients. Meanwhile, their accounting profits were largely fictional and reserves could quickly prove inadequate if the credit cycle turned negative.
So it was to my surprise tonight when I saw that Bill Ackman made the same exact point in his Value Investor Congress Slides last weekend in the section he entitles, "Does the Bond Insurance/ Financial Guarantee Business Make Sense?" To show a slide which summarizes the argument:
Overall, it is an interesting read, although it gets a bit technical.