Warren Buffett, the world’s third-richest man, has offered to help out three of the biggest bond insurers by reinsuring the $800 billion (£408 billion) of local government securities they underwrite.

Mr Buffett told CNBC television in the US that his firm, Berkshire Hathaway, had approached MBIA, Ambac and FGIC and offered to take on their municipal bond liabilities by providing a second level of insurance.

One has rejected his offer and he is waiting to hear back from the two others, Mr Buffett said, without naming names.

His offer sent the London market's FTSE 100 index up by 150 points and Wall Street's Dow Jones industrial average up by almost 200.

The three bond insurers, which collectively underwrite about $800 billion of so-called municipal debt, guarantee the principal and interest payments on the securities they underwrite in the event of a default by the issuer.

They face a huge jump in claims on the mortgage bonds they insure after a surge in defaults on the home loans that back them.

As a result, the insurers face billions of dollars of claims and need hefty capital injections if they are to prop up their capital ratings and meet their guarantees.

These capital ratings are key if they want to write new insurance business and survive in the longer term.

Although Mr Buffett is offering to reinsure only the safe municipal bonds, rather than the risky mortgage securities, his intervention could prove crucial in restoring confidence in the insurers and boosting their credit ratings.

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