A national insurance association said yesterday it is working closely with Berkshire Hathaway Assurance Corp. to get the bond insurer licensed in as many states as possible, as quickly as possible.
The National Association of Insurance Commissioners said it approached Berkshire Hathaway with a pilot program to provide convenient, fast-track licensure for insurers looking to do business in multiple states. NAIC is made up of insurance regulators from all 50 states.
“We originally approached them with this pilot program,” said spokesman Scott Holeman. “This will license them in all 50 states.”
The effort, and the accompanying three-part plan announced yesterday, is the latest attempt by insurance regulators to respond to the recent turmoil in the bond insurance industry. Fitch Ratings has already downgraded the important triple-A rating on two bond insurers — Ambac Assurance Corp. and XL Capital Assurance Inc. — and Moody’s Investors Service and Standard Poor’s are reviewing the field and considering doing the same.
“In order to create market demand for their issues, states and municipalities need access to financial guaranty insurance from a triple A-rated insurer,” said NAIC president and Kansas insurance commissioner Sandy Praeger in a press release. “We are taking any and all necessary steps — including the expedited licensure of companies like Berkshire — to ensure a healthy and competitive insurance market.”
Regulators hope that by making it easier to obtain a license, well-capitalized firms or individuals like Berkshire or Wilbur Ross will be more inclined to enter the market with new insurers. Berkshire Hathaway, run by Warren Buffett, has already begun writing policies in New York after receiving a personal invitation from New York State Insurance Department superintendent Eric Dinallo.
The department recently hired Perella Weinberg Partners LP to help it evaluate the various options currently on the table, including a $15 billion line of credit to be provided by Wall Street banks, according to a source familiar with the transaction.
Berkshire’s license was expedited in New York, and the NAIC announcement shows that other regulators are interested in speeding up the process in their states as well. When announcing his new bond insurer in late December, Buffett said he would focus on the eight to 10 states with the highest volume of bond issuance, and since then officials from Rhode Island and Puerto Rico have divulged talks with the company. As part of the program, Berkshire agreed to seek license in all 50 states.
Meanwhile, Fitch said yesterday it had completed a review of its ratings for all fixed-income funds, focused specifically on assets guaranteed by those financial guarantors that it had recently downgraded or that it or others have placed on negative watch.
The rating agency said the impact of recent downgrades of bond insurers, such as Ambac and XL Capital, have been “immaterial” — due to the funds’ strict adherence to credit quality, diversification, and short maturities — with no evidence of forced selling of assets.
Over the last eight weeks, fund managers have actively reduced their exposure to bond insurers that seemed to be at risk of downgrades, further putting their funds in a stable state, Fitch said.