WALL STREET JOURNAL - Predictions of the demise of bond insurers could be premature, particularly if they succeed in securing lifelines from a deep-pocketed insurance salesman in Omaha, Neb.

Warren Buffett, chairman of Berkshire Hathaway, stands to cash in from the turmoil sweeping the credit markets and the worries surrounding the financial strength of bond insurers, including Ambac Financial Group and MBIA.

Flush with more than $45 billion in cash on its books, a triple-A credit rating and decades of experience insuring other insurers against catastrophic losses, Berkshire Hathaway is in a strong position to help provide relief to some of these companies and could get into the bond-insurance business itself, people familiar with the matter said.

In recent weeks, every major bond insurer has reached out to Berkshire — owner of a range of companies including reinsurer General Re and auto insurer Geico — as a source of capital relief while their financial strength comes under scrutiny by ratings firms and investors, according to these people. In the process of pleading their cases with Berkshire, these companies provide Mr. Buffett with opportunities to size up their businesses.

"Fear has moved away from hurricanes and is now moving into the financial markets," said Glenn Tongue, a partner at T2 Partners, a New York hedge fund that owns Berkshire Hathaway shares. "Warren Buffett can make a lot of money from fear," he said.

Bond insurers, which guarantee the interest and principal payments on bonds in the event of default, are the latest casualty of the subprime-credit crisis. Shares of Ambac have fallen 58 percent since the end of September, and MBIA's are down 42 percent, indicating investors are questioning whether Ambac and MBIA deserve their triple-A credit ratings.

While the bulk of the financial guarantors' business is insuring securities such as municipal bonds, they have also insured some $100 billion of riskier collateralised debt obligations, or CDOs, most of which are pools of mortgage loans to borrowers with spotty credit histories. Only about five percent of the risky policies on that debt have been ceded to reinsurers.

Increases in the underlying loans' delinquency and default rates have prompted credit-ratings firms to downgrade more of these CDOs, causing the value of policies underwritten by the bond insurers, in the form of credit-default swaps, to fall in value on their balance sheets. While the insurers emphasise that downgraded CDOs don't necessarily translate into losses, Fimalac SA's Fitch Ratings and Moody's Corp.'s Moody's Investors Service last week announced that they are re-evaluating whether the bond insurers have sufficient capital to support them in the event of worse-than-expected losses.

This is a bad time to raise capital through the stock or debt markets, where most investors are trying to steer clear of any exposure to subprime risk.

This is where Mr. Buffett comes in. Berkshire, as the only triple-A-rated reinsurer in the world, has long been willing to write insurance policies on risks that nobody else will touch.

"Using reinsurance is clearly a way the industry can help improve their capital positions," Thomas Abruzzo, managing director at Fitch, said about bond insurers. He said buying reinsurance could be enough to save the ratings of bond insurers that have only minimal shortfalls in capital.

Berkshire isn't the only option available. The insurers also can seek commitments of capital, for a fee, from cash-flush sources such as private-equity or hedge funds. These days, however, few funds have much appetite to provide this "contingent capital," analysts said.

It isn't likely the bond insurers would seek coverage from Berkshire or other reinsurers on CDOs backed by risky mortgage debt. However, they could reinsure other structured credits, such as those backed by auto-financing or commercial assets.

"You don't necessarily need to reinsure the business that is less attractive from the risk perspective," said Sean Leonard, chief financial officer of Ambac. He said 85 percent of its $556 billion portfolio isn't mortgage related and Ambac would seek to reinsure some of that if it was necessary and inexpensive enough. He declined to comment about whether Ambac had approached Berkshire.

Mr. Buffett wouldn't shy away from picking through some of the bond insurers' riskier mortgage-related CDO portfolios, including the subprime-backed "mezzanine CDOs," to find loans that have been "mispriced" due to the market panic. Berkshire likely would charge bond insurers hefty premiums to reinsure such risks. Mezzanine CDOs are securities backed by below-investment-grade structured loans, most of which are subprime mortgages.

As Mr. Buffett has done in the past, he has been betting that investors are overestimating the risks in certain credit assets. Berkshire recently disclosed that it collected premiums of $2.5 billion this year from the sale of derivative contracts. While it is unclear whether some of those contracts were for CDOs, it signals that Mr. Buffett is starting to sniff out opportunities in the credit markets.

Another way Berkshire could help bond insurers is to provide "cut-through" policies to their customers. In the event of a default, owners of bonds insured by the guarantors could "cut through," or go directly to, Berkshire to collect payments. In exchange, Berkshire could receive fees from the bond insurers or the premiums directly.

Finally, Berkshire could enter the bond-insurance business, said people familiar with the matter. While it is unlikely Berkshire would acquire a bond insurer outright, it is possible Mr. Buffett could set up a financial guarantor that, like its reinsurance business, takes advantage of high prices and pulls back when prices become unfavorable.