NEW YORK (Bloomberg) — Value investor Martin Whitman increased his stake in MBIA Inc. to 10 percent, saying the world's largest bond insurer will be able to keep its AAA rating and resume writing new policies.

Whitman, who has spent more than 50 years profiting from undervalued stocks, said his flagship mutual fund at Third Avenue Management LLC bought 10.6 million MBIA common shares at $12.15 each in February, according to a letter to shareholders.

The 83-year-old investor said MBIA is being "victimised" by short seller William Ackman and called the ratings companies' assessments of bond insurers "arbitrary and capricious." The $2.6 billion in capital MBIA has raised in stock and note sales since December means the company deserves to keep its AAA rating and talks of a bailout are misplaced, Whitman said.

"MBIA is now strongly capitalised," he wrote. "It ought to qualify easily for an AAA rating with a $17 billion claims paying ability. If so qualified, MBIA would be in a position to underwrite a large amount of profitable new business."

Whitman's Third Avenue Value Fund also increased its stake in Ambac Financial Group Inc., the world's second-largest bond insurer after Armonk, New York-based MBIA. The fund also bought shares of MGIC Investment Corp., the biggest US mortgage insurer, and Radian Group Inc., the third-largest insurer.

"There is much profit to be made in these issues at these prices whether the companies continue as going concerns, or enter into a period when the companies run-off their books of business in whole, or in part," Whitman wrote.

MBIA has lost more than 80 percent of its market value in the past year. Ambac is down about 89 percent. MBIA yesterday climbed 33 cents to $12.95 as of 2:50 p.m. in New York Stock Exchange trading, while Ambac rose 86 cents to $10.80. Radian has tumbled 89 percent in the past 12 months, and MGIC is down 76 percent.

MBIA, Ambac and other bond insurers have been scrambling to raise money after downgrades of securities they insured that are backed by subprime mortgages.

"MBIA is being victimised by an apparently well-organised bear raid," Whitman said, citing critical reports Ackman released on the bond insurers. Ackman, who has short positions on MBIA and Ambac, doesn't understand the insurance business, Whitman said.

MBIA's AAA bond insurance credit rating was affirmed by New York-based credit rating companies Moody's Investors Service and Standard & Poor's last week with a negative outlook. MBIA said in a regulatory filing last Friday that it had done little business since its ratings came under scrutiny late last year.

New York-based Third Avenue, which Whitman founded in 1986, also bought $197 million of the $1 billion in MBIA surplus notes sold in January. MBIA raised $1.1 billion last month in the sale of 94.6 million new common shares.