What is the primary criteria used by rating agencies to evaluate insured bonds?

The evaluation of insured bonds typically revolves around the payment of an upfront premium, which is essential in obtaining bond insurance. Insured bonds receive a premium rating due to the additional security they provide to investors; this security is largely derived from the insurer's creditworthiness rather than the issuer's financial status. The upfront premium signifies the cost incurred by the issuer for obtaining insurance coverage, thereby enhancing investor confidence in the bond's ability to meet its obligations.

While quality of underlying assets, market demand, and historical performance of the issuer may play significant roles in overall bond market analysis and credit assessment, they are secondary considerations when specifically evaluating the characteristics and desirability of insured bonds. The presence of insurance fundamentally alters the credit profile that rating agencies utilize, making the upfront premium the most direct and immediate criterion in assessing the risk associated with insured bonds.