The Warren of Wrapped Wraps

Warren Buffett's new monoline is doing well, partly through writing wraps on already wrapped paper. From the FT:

Berkshire Hathaway’s fledging bond insurer generated $400m in premiums during the first quarter, outstripping all the established, but troubled, operators in the so-called US monoline insurance market.

Many of the 278 contracts the unit wrote were for clients who already held policies from other triple-A rated insurers, Berkshire’s Warren Buffett said at the annual shareholder meeting in Omaha on Saturday. “They’re paying us a [higher] fee to write insurance that will only be paid if the principal [insured party] and insurer didn’t pay,” Mr Buffett said. “It tells you something about the meaning of triple-A in the bond-insurance field.”

I guess if you need a real AAA BHAC is one of the few places you can go. The interesting question is why people want that degree of credit protection on muni risk given the low underlying default probability.