William O. Bailey, who helped to create the financial guaranty industry and later headed up one of Bermuda's “Class of 1992” reinsurers, has died at the age of 78.

Mr. Bailey, a resident of Bermuda for many years, died in New York City on Friday morning. The cause of death was pneumonia.

He was formerly president, chief operating officer and vice-chairman of Aetna Life & Casualty company and CEO and chairman of MBIA Inc., which he helped to found.

Mr. Bailey was later chairman, chief executive officer and president of Terra Nova (Bermuda) Holdings Ltd., which was formed when the demand for catastrophe reinsurance soared after Hurricane Andrew struck in the early 1990s.

Mr. Bailey, who retired from Terra Nova in May, 1998, was a founding director of Bermuda-based Intercontinental Re, which merged with Terra Nova Insurance of London, Ltd. in July 1980. In 1994, Terra Nova (Bermuda) Holdings. Ltd. became the parent company with Mr. Bailey as chairman. Terra Nova was sold to Markel Corp. in 2000.

During his years in Bermuda, he and his wife, Carole, were active supporters of several Island charities including the Bermuda Society of Arts and National Gallery, said friend Sheilagh Head.

In the US, Mr. Bailey served as chairman of the American Insurance Association and the Property Casualty Insurance Council.

He was also a frequent spokesman on insurance industry affairs and regulatory matters, including the need for tort reform. He was a founding board member of the Institute for Civil Justice at California's Rand Corporation.

William Olliver Bailey was born in Syracuse on July 1, 1926. He served in the US Navy during the Second World War and graduated from Dartmouth College in 1947.

He received a business degree in insurance from the Wharton School at the University of Pennsylvania in 1949 when he joined the National Bureau of Casualty Underwriters.

He joined Aetna Life in 1954, and after a series of assignments in underwriting and the executive and marketing departments of Aetna's casualty division, Mr. Bailey was named head of the division in 1969.

In 1972, he was elected executive vice-president in charge of insurance operations and became a director of the company. Four years later, he was named president and COO in and became vice-chairman in 1987. He retired from Aetna in December, 1988.

He also served as the first president of the Municipal Bond Insurance Association, predecessor of MBIA and served as chairman of its governing committee in 1974.

He was chairman of MBIA Inc. from 1987 through his retirement from the company in 1993.

The New York Times reported that in the 1970s, Mr. Bailey enlisted four other firms to jointly offer state and local governments insurance that would guarantee the repayment of money lent to them by investors.

Because such municipal bond issues often amounted to nearly $100 million, insuring them was too expensive for any one company.

By reducing the risk to investors, the Municipal Bond Insurance Association, started in 1973, allowed municipalities to borrow money from the public at lower interest rates.

While still at Aetna, Mr. Bailey became the first president of the association and later the chairman of MBIA, a separate, publicly traded company that took over the association's business in 1987.

MBIA has helped back the construction of Denver International Airport and insured Orange County's “recovery bonds” after its fiscal crisis, among other deals.

It also helped create an industry that has insured more than $2 trillion in municipal and asset-backed securities, according to the Association of Financial Guaranty Insurers, the industry's trade group.

The New York Times said the association also estimates that municipal bond guarantors have saved taxpayers $35 billion in interest that they would have paid on uninsured bonds. “Bill Bailey was one of the true titans of the insurance industry in the second half of the 20th century,” MBIA chairman Jay Brown said. “He had the vision to accept the concept of financial guarantee insurance as a viable product.... He was a great friend to me.”

At Aetna, now primarily a health insurer, Mr. Bailey coordinated a bailout of the car insurer Geico in 1975, and persuaded several insurers to underwrite the makers of swine flu vaccine, who were otherwise reluctant to produce it for widespread distribution, the New York Times said.

“Under his leadership, Aetna grew to become the nation's largest shareholder-owned insurance organisation,” Aetna's chairman and chief executive, John W. Rowe, said in a statement.

In 1974, Mr. Bailey was appointed - along with Rep. Barry Goldwater and then Rep. Edward Koch - by President Gerald Ford to the seven-member Privacy Protection Study Committee which recommended legislation to protect personal information collected by governmental, regional and private organisations.

Mr. Bailey is survived by his wife of 26 years, Carole Parsons Bailey, a son, George, of Northampton, Massachusetts; two daughters, Janet Faude, of West Hartford, Connecticut. and Carolyn Bailey, of Lexington, Massachusetts; and six grandchildren. Two sons, John Mason and Thomas Wood, died before him.