Ambac rejects Buffett's offer

OMAHA, Neb. -- Two of the three troubled bond insurers billionaire investor Warren Buffett offered to help have rejected extra guarantees on municipal bonds.

Ambac Financial Group Inc. said in a statement Tuesday the reinsurance that Omaha-based Berkshire Hathaway Inc. is offering wouldn't be in the best interests of the bond insurer or all of its policyholders.

Buffett said Tuesday morning one of the three bond insurers Berkshire offered reinsurance to had already said no, but he didn't say which one. Ambac spokesman Peter Poillon said his company was not the one Buffet was referring to.

Besides Ambac, MBIA Inc. and Financial Guaranty Insurance Co. also received reinsurance offers from Berkshire.

Buffett's offer to help insure municipal bonds assuaged some of the broader market's credit concerns Tuesday, but the troubled bond insurers may have little interest in extra coverage for their best assets.

Buffett's reinsurance offer wouldn't cover any of the subprime mortgage debt that's much more likely to cause problems for the bond insurers, and Berkshire Hathaway would require a substantial premium for covering their municipal bonds. Credit rating agencies were already worried the insurers won't have enough cash available to cover a potential spike in claims.

"I really don't think this does much for anyone but Warren Buffett," said Kevin Giddis, fixed-income strategist at Morgan Keegan. "The thought of an insurer giving away its best business and their only means of surviving this mess in return for the rest of its 'junk in the trunk' should leave them cold."