updated 2/19/2008 9:10:55 AM ET 2008-02-19T14:10:55

Bond insurer MBIA Inc. said Tuesday Joseph Brown has returned as chairman and chief executive, replacing Gary Dunton, who resigned.

Brown, 59, served as chairman and CEO until May 2004 and served as executive chairman until May 2007 before retiring. He served as a director at MBIA from 1986 until 1999, when he took over as chairman and CEO the first time.

He is currently serving as non-executive chairman of Safeco Corp. He will step down from that position in May.

MBIA has raised more than $3 billion in recent months as it tries to maintain its crucial “AAA” financial strength rating. Ratings agencies have worried recently that bond insurance claims are likely to rise to unmanageable levels in the coming months due to rising defaults among mortgages.

Bond insurers essentially need a “AAA” rating to book new business.

The ratings agencies fear a recent surge in mortgage defaults will set off a wave of defaults among bonds backed by the troubled loans and insured by companies like MBIA. That potential jump in defaults would force MBIA to increase the number of claims it pays.

Moody’s Investors Service, Fitch Ratings and Standard & Poor’s have all downgraded other bond insurers, including Ambac Financial Group Inc. and Security Capital Assurance Ltd. All have said they are reviewing MBIA’s rating and recent capital-raising efforts to determine if the company has enough cash in reserve to cover future claims.

“We clearly increased our exposure to residential real estate at the wrong time, and have made some mistakes on individual credit underwriting decisions,” Brown said in a letter to shareholders. “Nevertheless, I expect MBIA’s ability to pay claims under a wide variety of adverse scenarios to stand up extremely well under this challenge.”

Brown said he has already spoken with New York State Insurance Department Superintendent Eric Dinallo about ways to improve operations. The state insurance department regulates bond insurers and has been working with them to try and devise ways to save their credit ratings and businesses.

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