New York Insurance

Shortly before the feast of thanksgiving, Eric Dinallo, insurance, the regulatory authority of New York State, has something unusual. He called Warren Buffett’s right hand on insurance, Ajit Jain, and suggested that a new company to provide municipal bonds in New York.

Jain, monitors, one of the biggest insurance portfolios in the business to a subsidiary of the holding company Buffett’s Berkshire Hathaway, was surprised. He never had the assurance of a regulatory authority proposes a new idea.

“I thought Gee, I wonder what he calls to complain,” Jain said in an interview Tuesday.

In a little over a month, Dinallo The separation was a problem of bureaucracy Berkshire license to sell insurance bond, municipalities in New York.

In the last days of December, when the financial ability of the rating of obligations of the former insurance companies have been under pressure and insurers have been forced presentations in the additional capital, Buffett announced the launch of its new company Berkshire Hathaway insurance.

The company sells its first Tuesday, insurance of $ 10 million loan from New York City.

“We are tip-toeing on the market,” Jain said, “because of very small transactions. We want see if we pricing, which we acceptable to us. As soon as we find is true, we will be much more capital. ”

The insurance regulatory authorities of the rule with a multitude of attention, is well below the radar. Not Dinallo. He was the Superintendent of Insurance in New York for less than one year. His work, he said, is the promotion and protection of the Insurance Company customers and opportunities to do both.

“It is 180 degrees with the exception of regulatory authorities, I have,” said Jain. “He is a man in a hurry. There is constant pressure. He called me personally and its height. He said:” This is a very important issue for me personally and for the department. ”

If Dinallo phoned, he was looking over the division of insurance. New York City, governments and other common issues above $ 32 billion per year in bonds.

The granting of a credit Subprime crisis had begun to reverse the transfer of the obligations of insurers and Dinallo saw a time when it may not be able to sell bonds for a project like a bridge, a highway, or may be a sewer system.

“I had to make sure we had sufficient capacity to guarantee municipal bonds,” said Dinallo.

Dinallo was aware that the financial strength was essential to guarantee insurance business and Berkshire Hathaway, the highest rating Triple-A. The municipal borrowing depends on the Triple-A-Rating. Buy cities of the insurance provided that the insurers’ Triple A Rating gives its obligations. With the highest level of assessment and almost no risk, the city of issuing bonds can pay less interest for its loans.

Take New York City, for example with a double-A-Rating. It could pay $ 15 million to 20 million dollars to ensure a billion dollars in loans. But the Triple A Rating, lowest interest rates would more than offset the cost of insurance. The Triple-A Rating would also have links more desirable than many investors and the best of all, Berkshire, there would be a bit of luck, a payment in the insurance sector.

It turned out Berkshire Hathaway has tried to find out how they capitalize on the problems in the municipal bond market and was ready to move when the phone rang. The two sides met at a meeting in New York. “We talked very quickly reached and we are on the basis of a number of issues,” said Jain.

Some snags was quickly overcome. For a New York company, Berkshire, with its principal insurance subsidiaries in Stamford, Connecticut, technique that would require new models to its offices in New York. But Dinallo agreed that Berkshire, a token office in New York and made the most of their work in Connecticut.

For its part, Berkshire agreed to $ 105 million capital to start, $ 30 million more than the minimum required in New York. But “to reduce the amount of the capital, captured in unity,” said Jain, Dinallo developed a way to Berkshire to increase their leverage that will, more than the usual boundaries of reinsurance, d ‘ insurance or the risk of the new company acquired.

“Normally, the insurance regulatory authorities take some general books and show you some clause on the page that way and, thus, and tell you why something is not possible,” said Jain.