Tuesday, October 6, 2009

Berkshire Hathaway Pulls Out Of Municipal Bond Insurance

The municipal bond insurer that Berkshire Hathaway formed in 2007 has largely pulled out of insuring new bonds issued by cities and states, Barron's reports in this week's edition.

Berkshire Hathaway Assurance Co. was formed during the struggles of MBIA and Ambac to insure the bonds of municipalities and states. At the time it was seen as a brilliant way for Berkshire to take advantage of its stellar credit rating to grab a large share of a relatively safe business.

But as Barron's points out, "cash-strapped cities and states have been forcing premiums down." Warren Buffett never takes on a risk that he doesn't get well compensated for, and he's apparently decided that municipal bond insurance isn't a good bet at these premium levels.