MBIA Inc., one of the largest companies in the beleaguered bond insurance industry had it’s top rating reaffirmed by both Moody’s and Standard & Poors over the last two days.  A downgrade would of meant a devaluation of the $673 Billion in debt that MBIA guarantees.

This would have created havoc in the already troubled credit markets as banks and other institutions would have had to write down these losses to their asset backed portfolios.  This news as well as the reported Ambac bailout plan eases somewhat the dark cloud that has been hanging over the entire financial sector.

MBIA had been scrambling over the past few months to raise capital to stave off the downgrade, which would of effectively ended any chance of new business for the firm.  The company also announced that it would stop writing polices for collateralized debt for the next six months.

While this does give a slight reprieve to the company, it’s not out of the woods yet.  Moody’s, while it confirmed MBIA’s rating still has a negative outlook for the company.  The firm still has a large exposure to sub prime debt and is expected to take at least another $4 Billion in losses in the upcoming months which is approximately 25% of it’s claims paying ability.

MBIA made it’s fortunes over the past two decades from insuring the relatively safe municipal bond market.  The company plans to separate it’s asset backed division from it’s municipal division in the next few years.

If your policy goes up for some inexplicable reason it may be your credit score to blame.  The use of credit ratings to calculate premiums has been a sore point of contention between insurance carriers and their customers for a few years now.

In the auto and property insurance industries especially, some companies have determined that there is a statistical correlation between a bad credit score and a higher frequency of claims.

While on the surface it may seem unfair, people need to accept the reality of the situation because most states allow it’s use and the courts have ruled in favor of the carriers when litigation over the subject has arisen.

There are a few things everyone can do to help themselves.

It is always important to check your credit report. The three main credit reporting agencies all offer you one free report annually. Discrepancies may show up from time to time that you may not even be aware of.

Also, be sure to visit our debt management section from time to time for important tips on keeping your credit score high and for ways to rehabilitate it, if your score is not so good.

Shop around. Companies all have different methods of calculating premiums. So, even if you do have bad credit, another company may give less weight to your credit score than your current carrier.

On the bright side a good credit rating supposedly helps lower your premiums, at least that’s what they claim.

World renowned billionaire investor Warren Buffet, stated in an interview with CNBC, that he has offered to reinsure up too $800 Billion in municipal bonds.  The offer went out to three of the largest bond insurers Ambac Financial Group Inc., MBIA Inc. and Financial Guaranty Insurance Co.

This would in effect restore the AAA rating for these bonds, some of which are currently selling at a deep discount as if they carried no insurance at all.  One of the three companies has already declined the offer with the other two yet to respond.

This would still leave these companies with the much riskier Collateralized Debt Obligations(CDOs) they have insured which is the real problem the industry is facing.

“Well, they would still have substantial book capital.  But how deep that problem is with the CDOs is and other things they’ve done, we can’t figure it out.”

“It doesn’t do anything for the CDOs, but I’m not sure anything is going to do much for the CDOs.  We’ll just have to find out how that plays out.”

You can’t blame Buffet, he’d be a fool to consider having anything to do with sub prime mortgage debt.  On the other hand municipal bonds offers very little risk to his company which recently entered the bond insurance market.

While this may do little to help the bond insurers, it would help out the credit markets immensely, especially for the troubled lenders who currently carry municipal bonds in their asset portfolios.  They have had to deal with bond devaluation on top of their own sup prime troubles.