Florida, Berkshire arrange hurricane fund backstop.

The Florida Hurricane Catastrophe Fund will pay Berkshire Hathaway (A.M. Best # 18343) $224 million in return for the Warren Buffett-owned company's promise to purchase $4 billion in state bonds should a hurricane cause major damage to the Sunshine State this year.

Berkshire will buy the tax-exempt bonds if insured losses from hurricanes this year exceed $25 billion, according to Dennis MacKee, spokesman for the state board that oversees Florida's cat fund.

The cat fund will pay Berkshire from its reserves of about $6.3 billion, MacKee said. The 30-year bonds come with 6.5% interest, he said.

MacKee said the cat fund can cover about $29 billion in potential liability. Before bonding, the fund is prepared to cover about $15 billion of insured losses. With the arrangement with Berkshire, MacKee said the fund is now prepared for a 1-in-44 year event.

Under the deal, MacKee said, Berkshire is bound to buy the bonds for the length of the hurricane season this year.

An A.M. Best Special Report recently alluded to the possibility that the cat fund would examine other products and financial options in light of a troubled bond market. A "put option" product, like this one, was one solution the report considered.

The report said the cat fund and Citizens Property Insurance Corp., the state-run insurer which has grown into the largest homeowners insurer in the state, would be dependent on post-event bond offerings to cover shortfalls in the event of a major storm.

Hurricane season began June 1. Colorado State University's hurricane forecasting team upped its predictions for the 2008 Atlantic storm season, and now anticipates 15 named storms, eight hurricanes and four intense hurricanes.

According to CSU, the odds of a major hurricane making landfall in the United States in 2008 is 69%, compared with a 52% average over the past century.