BERKSHIRE MOVES INTO SHAKY BOND INSURANCE SECTOR

The New York insurance department has granted a license to the newly formed Berkshire Hathaway Assurance as a new entry into the bond insurance market, where losses have mounted for existing carriers that are exposed to the subprime mortgage crisis. The new unit of insurance and investment holding Berkshire Hathaway intends to back bonds that states and municipalities issue to finance infrastructure and other public projects. Berkshire chairman Warren Buffett told the Wall Street Journal that the group intends to obtain licensing for the new bond insurer in California, Puerto Rico, Texas, Illinois and Florida, adding that “ideally we’d be licensed in every state, but there’s a limit to what we can do”. Ratings agencies have warned that major bond issuers MBIA, Ambac Financial and others could lose their triple-A ratings owing to their exposure to subprime mortgages. Fitch Ratings has said that MBIA and Ambac will lose that coveted rating if they fail to find $1bn in additional capital by the end of the month. The formation of the new bond insurer has prompted sharp drops in shares of the big bond insurers in recent days. Analysts warned that small bond insurers could also suffer if Berkshire simply issues cover for new municipal bonds and opts not to provide reinsurance cover.