Buffet has an important market linked insurance business. In late 2007,an bought the NRG reinsurance company (ING Group) at a price of 300 million and on 23 January acquired a 3% stake in the largest reinsurance company in the world, Swiss Re at the end of last year, Buffett planned create the Berkshire Hathaway Assurance Corp. to compete with Ambac and MBIA, and that was at least what he had said at that time. Although he created the insurance firm, which develops insurance of public debt, seems to have found a better strategy. Clearly know you can get a good bargain as these companies are about to lose its credit rating, which can have serious drawbacks to them.
I think it is well to remember what is at stake to risk a downgrade of the insurers: the same guarantee assets US $2.4 billion, of which 57.4% correspond to bonds U.S. municipal securities issued to finance the construction of roads, hospitals and schools. It would also involve an additional cost for banks because, according to analysts at Oppenheimer & Co, a general reduction in the rating of the big bond insurers could lead to additional provisions of up to US $70.000 million in the bank. For insurers, Buffett’s proposal is not entirely convincing. In fact, one of the three mentioned and rejected. The other two, while taking your time to answer, are seeking alternative solutions. While analyzing the alternative insurers, both Berkshire and the NY insurance superintendent, , looking forward to a positive response from what would be a very good business for Berkshire (which would keep the good part of the business of these insurers) as well as for holders of municipal bonds and bring some calm to the markets. Do not think Buffet’s proposal is the salvation for the insurers.
In fact, analysts at Royal Bank of Scotland, saying that although an agreement is reached with Berkshire Hathaway, this does not eliminate the possibility that insurers lose their ratings. What is certain, that in case of reaching an agreement, Buffet will do everything possible for firms to maintain the highest level of qualification. However, the optimistic market reaction does not strike me is very well founded. Because if the proposal to prosper and be successful, the crisis will surely continue its path and damage the U.S. economy will continue beyond that has been turned off a light bulb that would have increased the magnitude of the crisis. Of this I am convinced beyond the Council of Economic Advisers in the Bush administration, has forecast growth of 2.7% this year in the U.S. economy. And while I’m talking about the insurance, on Monday it was learned that the world’s largest insurer, American International Group (NYSE: AIG) reported that their external auditors (PricewaterhouseCoopers) have questioned the company’s internal controls over the valuation of derivatives. The share price fell by more than 11% when the news broke. My point is that, in addition to what happened with the Society, regulators will have to tighten control over financial companies if they do not want to become more volatile markets yet.