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Bermuda braced for financial guarantor entrants

Bermuda could be in line for an influx of financial guarantee reinsurers following the sub-prime mortgage crisis, according to The Bermuda Monetary Authority (BMA).

Just as property and casualty (re)insurers set up on the island filling gaps in capacity following major catastrophes in 1992, 2001 and 2005, Bermuda could play now host to new financial guarantors, the regulator suggested.

According to reports, one entity has already applied to the BMA offering such capacity and could be public within weeks.

“Sub-prime is the KRW of the financial guaranty business and our response is first, to sort through the damage and second, to ensure that new capacity comes on line quickly, but subject to careful oversight," said BMA CEO Matthew Elderfield.

Financial guaranty (re)insurers have been badly hit by the sub-prime crisis with XL Capital affiliate Security Capital Assurance and Financial Guaranty Insurance Co suffering downgrades in the last week.

MBIA Corp was forced to raise an additional $1.1bn from a new share issuance as it tried to boost capital and keep its crucial AAA credit ratings while Ambac Financial Group Inc pulled plans for its $1bn capital raise earlier this year and said “stable and predictable” credit ratings by the agencies are needed to restore confidence in the industry.

Warren Buffett has offered to provide up to $800bn of reinsurance to the bond insurers, in a move that would see Berkshire Hathaway reinsure its steadier municipal business.

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