Buffett’s New Bond Insurer Company Receives License from NY State Insurance Regulator
On Friday, New York State Insurance department spokesman David Neustadt said that Warren Buffett's new bond insurer company, Berkshire Hathaway Assurance Corp, received a license to operate its company. The bond company would help state and local governments lower their borrowing costs, and is likely to lure business from established rivals struggling with credit market turmoil.
Buffett's entry puts pressure on the largest bond insurers, MBIA Inc and Ambac Financial Group Inc whose shares sank a respective 15.9 percent and 13.8 percent after Buffett revealed his plans. MBIA shares touched a 13-year low.
Credit rating agencies are reviewing their ratings on concern they won't be able to cover losses on bonds they guarantee. Berkshire has "triple-A" ratings, and expects the new unit to earn the same rating. It plans to expand the unit into California, Florida, Illinois, Texas and Puerto Rico.
"Berkshire provides the municipal finance industry with a lifeline," said Sean Egan, head of the ratings desk at Egan-Jones Ratings Co in Philadelphia. "The industry will be able to turn to a truly triple-A credit. Many investors are likely to demand that bonds are backed by Berkshire."
Issuers welcomed Buffett's foray into the bond insurance industry, whose members guarantee about $2.5 trillion of debt.
"The more the merrier," said David Bryant, treasurer at the Chicago Board of Education. "The more price competition and credit quality, the better for us."
Published on December 31, 2007
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