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Berkshire Hathaway buys insurance unit from ING, reportedly opening bond insurance business

Berkshire Hathaway buys insurance unit from ING, reportedly opening bond insurance business

Insurer ING Group said Friday it will sell its reinsurance unit, NRG N.V., to Warren Buffett's Berkshire Hathaway Group for about $435.7 million (euro300.15 million).
The acquisition could be part of a plan by Buffett to launch a new company to insure municipal bonds. The Wall Street Journal reported Buffett will launch a bond insurance business Friday in New York, aiming to capitalize on instability in that sector.
In recent weeks, bond insurers have come under fire as rating agencies have downgraded them, or warned of possible downgrades, because of their exposure to the deteriorating credit markets.
Standard & Poor's downgraded ACA Capital Holdings Inc.'s bond insurance unit to "CCC" from "A" on Dec. 19, while Fitch Ratings has placed two of the largest bond insurers, MBIA Inc. and Ambac Financial Group Inc., on negative credit watch.
The rating agencies are worried the insurers will not have enough capital to cover potential defaults on bonds and debt backed by mortgages, especially subprime mortgages given to customers with poor credit history.
As defaults on mortgages have risen in recent months, rating agencies and investors have worried the bonds and debt backed by the troubled loans will begin defaulting as well, triggering payments by the insurers _ which they ultimately might not have enough cash to cover.
Fitch said both MBIA and Ambac need to find at least $1 billion (euro690 million) in additional capital by the end of January or face a downgrade from their current "AAA" ratings, while ACA said in a regulatory filing Thursday it has ceded some control of its business to a state regulator as it tries to survive being downgraded to junk status. Bond insurers typically need the "AAA" rating to generate new business.
Berkshire Hathaway would likely receive a "AAA" rating for its new bond insurance unit.
Municipal issuers _ like hospitals, school districts and sewer systems _ often seek out bond insurance as a way to lower their cost of borrowing and make their issues more attractive to investors. The troubles of late with ACA, MBIA and Ambac have led to speculation that more issuers will simply forego insurance and pay the higher costs necessary to come to market without it.
The sale of NRG to Berkshire Hathaway is expected to close during the first half of 2008. ING is expected to take a loss of about $145.2 million (euro100 million) in 2007 related to the sale.


Updated : 2020-11-30 04:44 GMT+08:00