As if the big municipal bond insurers MBIA and Ambac Financial Group did not have enough to worry about, they now face a new competitor with deep pockets and a firmer hold on a triple-A rating: Warren Buffett.

Karen Richardson in the Wall Street Journal reports that Buffett is starting a bond insurer that opens for business today in New York State. Buffett told the Journal that the business will seek approval to open in California, Puerto Rico, Texas, Illinois, and Florida.

Buffett is taking advantage of the troubles of the two dominant players in the bond insurance markets. Shares of MBIA and Ambac have fallen in recent months on concerns that their triple-A ratings may be at risk because they have insufficient capital to make up for losses on their holdings of mortgage-backed securities and collateralized debt obligations.

For the bond insurers, the triple-A rating is the engine of their business. That rating provides a blanket of protection for states and municipalities that issue bonds, allowing them to pay a lower interest rate. Buffett, with his huge pool of capital, is certain to get a triple-A rating for his new business.

Shares of MBIA were down nearly 13 percent, while Ambac shares were down 12 percent in midday trading today. 

But Darrell Preston of Bloomberg News found that Wisconsin, California, New York City, and about 300 other municipal issuers have recently sold bonds without buying insurance.

That is a trend that is a much greater threat than new competition to the bond insurance business.

"Taxpayers give insurers $2 billion a year because of a dual-rating scale," Matt Fabian, senior analyst and managing director of Municipal Market Advisors, an independent municipal bond research firm in Concord, Massachusetts, told Bloomberg. "You could easily save taxpayers that $2 billion by rating them [municipal bonds] on the same scale as corporate bonds."

Preston cites a March report from Moody's Investors Service that found that many investment-grade munis would have triple-A ratings without insurance if they were ranked the same way as corporate debt.

Buffett acknowledged to the Journal that there is a risk in local governments deciding that the price of its bond insurance is too high and choosing to do without. "It could be tiny, it could be very large," Mr. Buffett said of his new venture.

In another insurance deal, Buffett's Berkshire Hathaway is buying ING Group of the Netherlands' reinsurance unit for 300 million euros, or $436 million. Reinsurance helps insurers spread their risk.

ING said that the sale was part of its strategy to focus on its core insurance, banking, and asset-management businesses.