Definition of monoline
A monoline is an insurer writing only a single line of insurance contracts - such as credit insurance (similar to a financial guarantee). Securitisation transactions often make use of monoline insurance contracts as credit enhancements. Monolines, in effect, insure against the risk that a bond will default, allowing the rating of the monoline to be assumed by the debt security. The issuers of the debt security pay the monoline a fee for the insurance and in return can expect to pay a lower interest charge due to the high credit rating. Estimates suggest that the monoline insurers guarantee about $2.4 trillion of bonds.
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