Monoline

published 20 May 2018

A monoline is any business that specialises in one particular financial services area, which could in theory be anything from mortgages to car insurance.

However recently the term has been used to describe niche but important companies like Ambac Assurance, a bond insurance firm that makes a living by selling credit derivatives like credit default swaps. These in turn are bought by worried holders of asset backed bonds for which the overall return and ultimate repayment is determined by the performance of other related products like high risk subprime - mortgages.

The monoline insurers depend heavily on retaining a AAA rating from the ratings agencies like Moodys, Standard and Poors and Fitch a downgrade would have an instant and detrimental knock on effect on the credit rating of the bonds they have insured, further reducing the value of them as collateral (security for other loans) in the hands of their owners.