NEW YORK (Bloomberg) — MBIA Inc., owner of the world's largest bond insurance company, should fire its top executives, return management bonuses and reimburse its insurance unit for losses related to tax liens, according to investor Pershing Square Capital Management LP.The requests by Pershing Square, a $3 billion hedge fund run by activist investor William Ackman, come after MBIA on January 29 agreed to pay $75 million to close a probe by regulators into a series of reinsurance contracts improperly used to offset losses in 1998. Regulators required the company to hire an outside consultant to review its dealings with Capital Asset Holdings, an MBIA unit that purchased tax liens.

"These steps will undo the Capital Asset wrongdoing, but more importantly will help restore the financial wherewithal of MBIA Insurance," Ackman wrote in a 32-page letter dated March 2 to John Siffert, who was hired by MBIA as part of the settlement.

Pershing has a so-called short position on Armonk, New York- based MBIA, meaning the fund will profit from a decline in the company's share price. MBIA shares have gained 10.6 percent in the past 12 months.

MBIA spokesman Michael Ballinger declined to comment.

A call to Siffert, a partner at Lankler Siffert & Wohl LLP in New York, wasn't returned.

MBIA Insurance Corp., the company's insurance unit, has taken losses of least $185 million, due to management improperly shifting Capital Asset tax-lien risk from MBIA Inc. to the subsidiary, Ackman wrote. MBIA's insurance unit guaranteed the payment on three series of bonds backed by the Capital Asset tax liens between 1997 and 1999.

Siffert should recommend MBIA chief executive officer Gary Dunton and Chairman Joseph Brown be removed because of their involvement with the Capital Asset transactions, certain management bonuses be returned and that the insurance company be overseen by independent directors rather than MBIA employees, according to Ackman's letter.

Pershing Square's bearish investments in MBIA's holding company don't conflict with the interests of MBIA Insurance policyholders, according to the letter.

"We believe MBIA Insurance needs to improve its capital position so that it is better able to satisfy its obligations to it policyholders," Ackman wrote. At the end of 2006, MBIA had insured $940 billion of debt, including municipal and structured- finance bonds, net of reinsurance, according to a company regulatory filing.

In addition to seeking repayment from MBIA Inc. on the tax- lien losses, Ackman said the insurance unit should be reviewed by an independent party to determine whether it has sufficient capital.

"While MBIA might claim that the ratings agencies effectively serve this function, we believe that the rating agencies have actual and perceived conflicts of interest" because MBIA is one of the rating companies' largest customers, the letter said. Moody's Investors Service, Inc. Standard & Poor's and Fitch Ratings all assign MBIA Insurance top triple-A credit ratings.

In 2002, Ackman wrote a report calling MBIA's Insurance's top triple-A credit ratings "undeserved," saying that the company was overleveraged and under-reserved.

Last month, MBIA cited that report to win dismissal of a securities lawsuit related to the company's restatement of the 1998 improper reinsurance contracts. MBIA argued investors waited too long to file suit and should have heeded Ackman's 2002 report in which he said the contracts were intended to smooth earnings and defer losses.