Is It Safe? MBIA's Breakup Is Hard to Do

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MBIA(MBI Quote), after losing $2.7 billion in 2008, was rescued from itself by splitting off credit default swap obligations. In the first quarter, the largest U.S. bond insurer posted a profit of $697 million.

Despite the lack of failures among bond insurers, unless you include American International Group(AIG Quote), this business is not for the faint of heart. (TheStreet.com Ratings gives MBIA a D, or "sell," rating.)

Shares of Armonk, N.Y.-based MBIA dropped almost 50% in January 2008 when New York State Insurance Superintendant Eric Dinallo said it would take time to create a rescue plan for bond insurers. But as with other financial firms, its stock soared starting in early March. In the past month, short sellers pushed down the stock by 15%.

As Syncora Holdings found out, before it was delisted in December, small and specialist is a lonely place to be when the going gets tough. Originally part of XL Capital(XL Quote), the bond insurer's losses mounted during 2008 and it's headed down a highway to bankruptcy.

Among other MBIA rivals, Financial Security Assurance(FSE Quote) announced it will become part of Assured Guaranty(AGO Quote) by the end of this month, forming a stronger, better-capitalized and higher-rated company. Ambac(ABK Quote) is on its own and looking naked.

To put it lightly, there is a lot of uncertainty for bond insurers.

Still, if there were no profits to be made, why did Warren Buffett's Berkshire Hathaway(BRK.A Quote) enter the market last year? A firm that belongs to the Berkshire Hathaway holding company has written $520 million in premiums this year.