Berkshire Hathaway Assurance Corp.: A Royalty on Stabilty

Includes: BRK.A, BRK.B
by: Value Watcher

The Forest:

Some Personal Reflections from 20,000 Feet...

  • See's Candy: A Royalty on Love
  • Coca Cola: A Royalty on Sips
  • Gilette: A Royalty on Hair Growth
  • Wrigley's: A Royalty on Chews
  • Moody's: A Royalty on GDP Growth

And most recently...

  • Berkshire Hathaway Assurance Corp: A Royalty on Stability

The Trees:

As Lavonne Kuykendall of Dow Jones Newswire writes:

The strong are getting stronger at the expense of the weak...

Upstart bond insurer Berkshire Hathaway Assurance Corp., a 2007 start-up of Warren Buffett's Berkshire Hathaway, has seen its business skyrocket. It reported the highest premiums of any bond insurer for the quarter, at about $400 million, Buffett said earlier this month. All the premiums were for insuring municipal bonds; Berkshire is avoiding some of the exotic subprime securities bedeviling most other bond insurers.

Berkshire Hathaway said its business was split, with $100 million in the form of new premiums and $300 million in transactions that were structured as credit default derivative contracts. These contracts provide credit protection on municipal bond debt in the secondary market - that is, when investors purchase credit protection on bonds that were previously insured. The motive for buying this sort of protection is likely that the original insurer's credit rating has declined.