Warren Buffett's bet on mild Florida storm season faces test with Hurricane Idalia

(Bloomberg) --Berkshire Hathaway Inc. bet big earlier this year that Florida's reinsurance market would deliver huge premiums with minimal losses. Hurricane Idalia is about to offer a test of that calculus, with months of potential storms left this season.

Warren Buffett's firm ramped up its reinsurance exposure to the state, looking to take advantage of rising prices. The move has left the firm exposed to as much as $15 billion of losses in the event of a major storm, Berkshire's head of insurance said in May, while it could lead to several billions in gains. 

"We have a very unbalanced portfolio," Ajit Jain, vice chairman of insurance operations, said at the conglomerate's May investor event. "What that means is, if there is a big hurricane in Florida, we will have a very substantial loss."

A representative for the company didn't respond to an emailed request for comment on Tuesday. 

The riskiness of the approach is coming into focus now as Hurricane Idalia bears down on the state's Gulf Coast, where it's expected to make landfall Wednesday. Water temperatures are warm enough to set the storm up to intensify further before then, however the sense is that it still won't deliver major losses for insurers, and thus won't be a big blow for Berkshire's reinsurance business.

The Atlantic hurricane season runs through November. Depending on its path, Idalia is forecast to cause a fraction of the cost Hurricane Ian inflicted when it struck the state in September as a Category 4 storm, killing at least 150 people and causing more than $112 billion in damage.

"I am skeptical that this will impact them much," said Matthew Palazola, an analyst at Bloomberg Intelligence. "This event is not what they were describing when they were talking about a worst case."

Reinsurance capital has been hard to come by in Florida due to the severity of losses from insurance fraud in the state. When policies came up for renewal on April 1, "prices zoomed up again" and created a window for Berkshire to deploy capital, Jain said at the event in May.