If the Florida Hurricane Catastrophe Fund needs to float an emergency bond issue to pay for major storm losses, Berkshire Hathaway has agreed to buy up to $4 billion worth, a state official said. D The SBA with input from a nine-member council directs the Florida Hurricane Catastrophe Fund. Under the deal with the Omaha, Neb.-based firm, Florida will pay Berkshire Hathaway $224 million, which will be taken from the Cat Fund’s reserves, in exchange for a guarantee that the insurer will purchase as much as $4 billion in tax exempt 30-year bonds at 6.5 percent. The agreement also includes a requirement that the state’s losses exceed $25 billion before the bond obligation takes effect. The Florida Hurricane Catastrophe Fund provides coverage for insurers at low rates, and funds those payments via bond offerings. Spurring the need for a deal, Mr. MacKee said, was not a concern about the Cat Fund and its system, but about the market in which the bonds would be offered. In the event of a major storm or difficult season, Mr. MacKee noted that Florida wouldn’t be the only state offering bonds to recoup losses, and he said the state wanted to ensure that the Cat Fund would be able to provide swift payments. Without reaching the arrangement with Berkshire Hathaway, he said, “you really don’t know how quickly you could turn it around, get the funding and do the reimbursement.” The state could have purchased reinsurance for itself, he noted, but added “we saw it as a liquidity issue more than a transfer of risk issue.” Mr. MacKee acknowledged that “there has been some debate” about the arrangement, given that the state is only paying to ensure that Berkshire will assume its obligation and that “it’s not cheap.” The odds of a $25 billion event, he added, are also “fairly narrow,” but the state opted for what it felt was the safer strategy in making the arrangement. “The decision was to be prepared,” he said.
Tuesday, July 8, 2008
Berkshire Hathaway To Buy Fla. Bonds After A Cat