The bond insurance industry took a further step yesterday towards creating a premier league of underwriters when Wilbur Ross agreed to invest up to $1 billion in Assured Guaranty, one of only a few fully healthy players left.

Bond underwriters guarantee the interest and principal payments on the securities that they insure in the event of default and most face extinction as they await an expected surge in claims on mortgage bonds.

Struggling bond insurers, such as Ambac and MBIA, have been trying to raise enough money to meet their claims, maintain their credit ratings and retain credibility. It is unclear whether they will succeed in any of these aims. Meanwhile, other shrewd investors are looking to steal market share in new underwriting.

Mr Ross has opted to invest in Assured Guaranty, which has a relatively little exposure to high-risk sub-prime bonds and has plenty of cash to meet its claims, rather than in a struggling insurer. Instead of bailing out, he is investing, helping Assured to benefit from rivals’ woes.

Warren Buffett is playing a similar game. In December, the famed investor’s Berkshire Hathaway vehicle announced plans to form a business to insure local government bonds. He is also courting some of the biggest bond insurers to try to buy some of their safe, municipal, bond insurance portfolios.

The third and last member of the bond insurance premiership is Financial Security.

The existence of this new super league is good for new customers seeking new underwriting business because they inspire confidence, but it is bad for the struggling insurers, since the healthy players are taking away cash that they desperately need. This makes it more likely that they will go bust, which would wipe billions of dollars off the value from the bonds that they underwrite.

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