State to pay $224 million to prop up storm insurance fund

Jul 30, 2008

Daytona News-Journal--July 30, 2008

Tallahassee bureau chief

TALLAHASSEE — Gov. Charlie Crist and Florida Chief Financial Officer Alex Sink signed off Tuesday on an agreement to pay $224 million to Berkshire Hathaway Inc. to help prop up a state insurance fund if a major hurricane hits.

Crist, Sink and Attorney General Bill McCollum, who serve as the State Board of Administration, voted earlier this month to move forward with the deal. Tuesday’s vote approved a detailed agreement.

Under the plan, the state Hurricane Catastrophe Fund will pay the money to Berkshire Hathaway, which is headed by billionaire businessman Warren Buffett. In exchange, Buffett’s firm will agree to buy $4 billion in bonds to help the catastrophe fund pay claims if a devastating hurricane hits.

The catastrophe fund provides low-cost reinsurance — an important form of backup coverage — to private insurers and the state’s Citizens Property insurance Corp. Along with receiving the $224 million in upfront money, Berkshire Hathaway would also collect interest on any bonds that it buys.

McCollum voted against the detailed agreement Tuesday, saying it was a ‘$224 million opportunity for Berkshire Hathaway to make money’ on the state.

‘I just don’t think it’s a good deal for the state,’ McCollum said.

But Crist and Sink said they would reluctantly support the deal, as the state grapples with the financial risks of a catastrophic storm.

‘I don’t like us being in the position we’re in either,’ Crist said.