Berkshire’s Muni Insurer Starts Strongly-Buffett

May.05, 2008 in Market Outlook

Last Update: 5/3/2008 1:38:52 PM

OMAHA, Neb. (Dow Jones)–Berkshire Hathaway Inc.’s (BRKA) new bond insurance
business has started strongly, writing more than $400 million of policies on
municipal debt during the first quarter, Chairman Warren Buffett said at the
company’s annual meeting Saturday.

Most of the policies sold by Berkshire Hathaway Assurance Corp. have been written
in the secondary municipal bond market.

Almost all of that business has come from customers who have asked Berkshire to
guarantee muni bonds already insured by other AAA-rated bond insurers, Buffett
said.

“That tells you a lot about the meaning of AAA,” he added.

Berkshire Hathaway Assurance has also written a couple of primary policies on
muni debt issued by a water utility in Detroit, Buffett said.

So far, the business has done 278 transactions, with a staff of roughly 30 people
that is run by Ajit Jain, Berkshire’s reinsurance chief, he said.

Bond insurers such as Ambac Financial (ABK) and MBIA Inc. (MBI) agree to pay
interest and principal on debt in a timely manner in the event of default. The
$2.4 trillion business relies on AAA ratings to win new business.

But those top ratings were in jeopardy earlier this year amid concern Ambac and
MBIA will have to pay big claims from guarantees they sold on complex
mortgage-related securities.

At the height of the crisis, Berkshire unveiled its own bond insurance business.
Buffett injected roughly $1 billion into the business, which quickly won AAA
ratings from Standard & Poor’s and Moody’s Investors Service.

The $400 million of new business written by Berkshire Hathaway Assurance in the
first quarter was probably more than any other bond insurer and may have been
more than all other bond insurers combined, Buffett said.

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