Monoline insurers collapsed in a dramatic manner during the subprime crisis. In this paper, I present a stylized model to account for this market breakdown. The initial neglect of a severe loss outcome by local thinking agents can trigger rating downgrade of insurers. This results in a damaging forced exit of investors with an investment certiffication constraint. However, the model identies a more fundamental problem. Even when the agents are rational, bond insurance exerts a negative externality by eliminating the price discount of an uninsured bond. Therefore, excessive focus on proper risk management alone may not improve the market welfare.