California may create bond insurer, rival Buffett

By Anastasija Johnson

NEW YORK (Reuters) - California Treasurer Bill Lockyer is exploring the possibility of having state pension funds create a new bond insurer, his spokesman said on Thursday.

Lockyer has no immediate plans to use Berkshire Hathaway's (BRKa.N: Quote, Profile, Research) new bond insurance unit following congressional testimony earlier this month by Ajit Jain, the head of the Berkshire unit, said Tom Dresslar, the spokesman for the California treasurer.

In his testimony, Jain defended using different ratings for municipal and corporate issuers that created the need for bond insurance, Dresslar said.

Lockyer is trying to change this double-rating system because it drives up borrowing costs for states and local governments. He also wants state pension funds to pressure Standard & Poor's to modify how it rates municipal bonds.

Berkshire, run by billionaire investor Warren Buffett, entered the municipal bond insurance sector this year after a request from the New York insurance superintendent following the collapse of investor confidence in the existing insurers.

Buffett saw the new venture as an attractive opportunity, but California might prove a tough market.

"The treasurer's view is -- unless we get a word from Mr. Buffett that he doesn't share the view expressed in Mr. Jain's (testimony) we won't have any interest in doing business with Mr. Buffett's insurance company," Dresslar said.

Spokesmen for Berkshire Hathaway and Standard & Poor's had no immediate comment.