Warren Buffett launched a new bond insurer yesterday designed to help state governments and local authorities in the United States to reduce their borrowing costs and to compete with established players suffering from the credit crunch.

The move marks the third transaction in a less than a week for the billionaire investor. On Christmas Day, Berkshire Hathaway, Mr Buffett’s investment vehicle, spent $4.5 billion (£2.25 billion) buying a 60 per cent stake in Marmon Holdings, the American industrial conglomerate. He will acquire the rest of the company over the next five to six years.

Yesterday Mr Buffett received a licence to run a bond insurance business in New York, which will compete directly with MBIA and Ambac Financial, America’s largest players in the market. The new business – Berkshire Hathaway Assurance – is also planning to seek licences to operate in California, Florida, Illinois, Texas and Puerto Rico.

This year Florida’s state investment fund was frozen temporarily after a number of counties withdrew their capital for fear that the value of the fund would collapse, given its exposure to bonds backed by sub-prime mortgages.

States in America sell bonds to raise capital for projects such as building roads and schools. They are keen to insure the bonds to boost demand for the debt. Insured bonds are rated as less risky, which means that states issuing them do not have to pay very high coupons to investors, saving taxpayers’ money.

Some investors in MBIA and Ambac have expressed concern about whether the insurers would be able to cover potential losses if the credit market deteriorates further. MBIA has admitted that it has insured $8.1 billion of mortgage debt seen as being at very high risk of default. Yesterday, MBIA’s shares fell by almost 16 per cent to $18.74. Ambac’s fell by 14 per cent to $25.12.

Mr Buffett said: “We can’t guarantee everything, and we will not take risk beyond what’s prudent for us.” Berkshire Hathaway would commit “quite a bit of capital if we like the business”, Mr Buffett added. He also insisted that the new business would not invest in bonds backed by mortgages or by credit-card debt.

Mr Buffett also said that his investment vehicle had agreed to buy the NRG reinsurance unit of ING, the Dutch bank, for $441 million. In a statement, ING said that it had wanted to sell the reinsurance business so that it could concentrate on banking and asset management. The transaction requires regulatory approval, but is expected to be closed in the first half of next year. ING said that it planned to use part of the proceeds from the disposal to fund its €5 billion (£3.6 billion) share buyback scheme.

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