Florida officials agreed to pay Warren Buffett's Berkshire Hathaway $224 million for a conditional pledge to buy $4 billion of state hurricane bonds during 2008, a state spokesman said on.
Vulnerable to big storms, Florida runs a reinsurance operation called the Hurricane Catastrophe Fund that can issue tax-free bonds to pay insurers' claim losses beyond agreed caps.
The Berkshire agreement, approved on Wednesday by Florida's governor, chief financial officer and attorney general, requires Berkshire to buy $4 billion of 30-year tax-free bonds with a 6.5 percent coupon, if the state fund incurs total storm-related claims this year of more than $25 billion.
The bonds, if issued, would be paid back by fees levied on property insurance buyers in the state, according to spokesman Dennis MacKee of the State Board of Administration, which oversees the hurricane fund.
"It's more or less a put option to issue bonds," MacKee said. "What this does is guarantee liquidity."
The state fund has reinsurance exposure of $29 billion, a limit raised last year by state legislators trying to lower skyrocketing property insurance costs in Florida. The fund now has about $8 billion in cash on hand.
The same state officials last month gave the hurricane fund clearance to issue $625 million of bonds to help pay property insurance claims from 2005's Hurricane Wilma. Wilma caused $11 billion of insured damage in Florida.
With a vast coastline, Florida is exposed to destructive storms during the North Atlantic hurricane season, which began June 1 and continues until Nov. 30. A tropical storm formed Thursday in the far eastern Atlantic Ocean near the Cape Verde Islands but was expected to remain far from land, for at least the next five days, according to U.S. weather forecasters.