From: Reuters
Published January 3, 2008 05:06 PM

Buffett's bond insurer looks to expand to Rhode Island

By Anastasija Johnson

NEW YORK (Reuters) - Warren Buffett's new bond insurer is looking to expand to Rhode Island after hearing that the state's treasurer wanted it to apply for a license to operate in the state, according to a Buffett spokeswoman.

"Rhode Island, here we come," the spokeswoman quoted the billionaire investor as saying in an e-mail on Thursday after reading about state Treasurer Frank Caprio's appeal.

Caprio sent a letter to Buffett last Friday after Berkshire Hathaway Inc <BRKa.N> announced plans to start a new insurer that would help state and local governments lower their borrowing costs.


The new venture, Berkshire Hathaway Assurance Corp, is entering the $2.5 trillion U.S. municipal bond market at a time when established rivals are suffering from a loss of confidence because of exposure to faltering subprime mortgages.

Berkshire received an operating license from New York state's insurance department on December 28, and is expected to expand into California, Florida, Illinois, Texas and Puerto Rico, which are among 10 largest municipal bond issuers.

Caprio said he hoped Berkshire Hathaway would move quickly to seek necessary licensing to do business in Rhode Island.

"At a time when a number of existing bond insurers are facing extensive losses due to their decisions to insure mortgage-related bonds, Berkshire Hathaway's entry into this market would be a very positive development for the state and all of Rhode Island's cities and towns," Caprio said in a letter to Buffett, according to a statement released earlier this week.

Rhode Island and its local governments sold $1.4 billion of bonds last year, according to Thomson Financial.

Caprio welcomed Buffett's plans to insure only municipal bonds and stay away from the mortgage sector, which could cost large bond insurers such as MBIA Inc. <MBI.N> and Ambac Financial Group Inc <ABK.N> their top-notch ratings.

"When it comes to seeking bond insurance, I would welcome arrival of an insurer who is not only committed to maintaining a strong capital ratio, but is serious about avoiding unnecessary risk simply to expand its business," Caprio said.

States, cities and towns sell bonds to finance schools, roads and other public projects. They often insure their debt to reduce the perceived risk of holding bonds and thus reduce their borrowings costs. About half of outstanding municipal bonds are insured.

Municipal bonds insured by MBIA, Ambac, FGIC, a unit of Blackstone Group LP <BX.N>, XL Capital Assurance, a unit of Security Capital Assurance <SCA.N>, and others have dropped in value in recent months on fears that insurers could lose their top ratings. Bonds insured by Dexia's <DEXI.BR> Financial Security Assurance have not been affected because that insurer's ratings are not vulnerable to downgrades.

"In this turbulent financial environment, I know state and local issuers across the country will be looking for a reliable partner to help them insure bonds on a range of crucial projects," Caprio said.

Berkshire has "triple-A" ratings and expects the new unit to earn the same rating. Moody's Investors Service and Fitch Ratings declined to say whether the new insurer has applied for a rating.

(Reporting by Anastasija Johnson; Editing by Dan Grebler)

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