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Buffett bets Mother Nature
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November 20, 1996: 8:52 p.m. ET
Financier wagers $1.5 billion Big One won't happen in Calif. before 2001
From Correspondent Casey Wian
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LOS ANGELES (CNNfn) - Warren Buffett is a Wall Street legend because of his knack for smart investments. Now is going to test his skills against Mother Nature.
Scientists say it's just a matter of time before a major earthquake hits California. Buffett's company, Berkshire Hathaway, is wagering that won't happen in the next four years.
He's agreed to commit $1.5 billion for four years to the newly-created California Earthquake Authority to help pay claims in the event of a big quake.
In return, Buffett will collect a $590 million premium.
Tony Ross, insurance analyst for Shelby Cullon Davis said Buffett can certainly afford it but that time would tell whether it was a good investment.
Buffett's legendary Midas touch made Ross pause in criticizing the deal too much. "I would never bet against Warren Buffett if I were sitting at a poker table with him."
Berkshire Hathaway will only have to pay if insured claims exceeded $7 billion. That would take a jolt even bigger than the 1994 Northridge earthquake. (495K QuickTime movie)
That's because California's Earthquake Authority has limited the damage insurance covers in an effort to keep insurance companies writing policies in a state where they've suffered huge losses recently because of quakes, fires, and floods.
California's Insurance Commissioner Charles Quackenbush said Buffett offered a better deal than Wall Street. (119K WAV) or (119K AIFF)
Insurance actuaries estimated the odds of Buffett having to pay up at about 20-1.
The only way investors can get a piece of Buffett's action is to buy Berkshire Hathaway stock. The Earthquake Authority said it has all the outside money it needs to cover losses in the event of a major quake. 
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