June 6 (Bloomberg) -- Harrah's Entertainment Inc., the world's biggest casino company, is paying 50 percent more for property insurance because Warren Buffett's Berkshire Hathaway Inc. is one of its only options after last year's hurricanes.

Berkshire became the lead insurer for Harrah's in December, replacing American International Group Inc. and Ace Ltd. because they declined to provide enough coverage, said Lance Ewing, risk manager for the Las Vegas-based company. Insured catastrophe losses in 2005 rose to a record $61.2 billion after Hurricanes Katrina and Rita devastated the U.S. Gulf Coast.

``Berkshire had the capacity we were looking for,'' said Ewing, who buys protection for Harrah's 40 casinos and is seeking to recover as much as $1.8 billion for four properties in Mississippi and Louisiana that were wrecked in the storms. ``When Buffett gambles, he gambles big.''

As the U.S. hurricane season begins, Omaha, Nebraska-based Berkshire is increasing its property and casualty sales just as rivals scale back. Buffett's prices are as much as 20 times higher than the rates prevalent a year ago, said Kevin Madden, an insurance broker at Aon Corp. in New York. On some policies, premiums equal half of its maximum potential payout, he said.

``We will do more than anybody else if the price is right,'' Buffett, Berkshire's 75-year-old billionaire chairman and chief executive officer, said in a May 7 interview. ``We are certainly willing to lose $6 billion on a single event. I hope we don't.''

`Smell Blood'

Berkshire, with $95.3 billion in shareholders equity, owns dozens of companies and gets about half its profit from insurance and reinsurance units, including Geico Corp., General Re Corp. and National Indemnity Co. The company's $3.4 billion in hurricane claims triggered the second annual decline in operating earnings last year, the worst streak in at least two decades.

``Berkshire is one of the few insurance companies that has the balance sheet to hold this type of risk,'' said Aon's Madden, a managing director who helps real estate developers find insurance through the second-largest insurance broker. ``They smell blood in the water, but if there is a catastrophic hurricane, they will likely pay out some of the highest losses in the industry.''

The six-month Atlantic Ocean hurricane season began June 1, and scientists at Colorado State University said five storms as powerful as Katrina will probably form, with at least one likely to hit the U.S. Katrina cost insurers $40.6 billion, almost twice the record for a single storm, according to a survey of claims by Property Claim Services in Jersey City, New Jersey.

Earnings Volatility

As Berkshire takes on new commercial accounts, companies including New York-based AIG, the world's largest insurer, as well as Bermuda-based Ace and XL Capital Ltd. say they are reducing hurricane coverage limits or increasing deductibles.

Lexington Insurance Co., AIG's biggest property insurance subsidiary in the U.S., reduced its potential hurricane claims by 25 percent since last year, said AIG spokesman Christian Murray.

Obligations on a single commercial policy can be shared by dozens of insurers. Even with Berkshire's increased appetite, companies along the Gulf Coast are getting as little as a quarter of the coverage they had before the 2005 storms, said John Bullock, head of the Mississippi office for Willis Group Holdings Ltd., the No. 3 insurance broker. Rates are three to five times higher per dollar of coverage, he said.

Berkshire's strategy may backfire should the company take on too much risk, said Mark Lane, an analyst at William Blair & Co. in Chicago. On a May 31 conference call with analysts, Brian O'Hara, chief executive officer of Bermuda-based XL Capital, called Berkshire the ``last resort'' for the largest companies.

`Every Major Account'

Most insurers are ``pulling back from the market because investors don't like the volatility in earnings,'' said Lane, who has an ``outperform'' rating on shares of AIG and Ace. ``From a short-term perspective, it's probably a good decision. Given the size of the losses, I'm not sure you can get paid enough.''

Through yesterday, the 24-member KBW Insurance Index fell 2.3 percent this year, compared with a 1.4 percent gain in the Standard & Poor's 500 Index and a 3.6 percent advance in Berkshire stock.

Buffett's assistant, Debbie Bosanek, said he wasn't available to comment on the Harrah's policy, which is shared among more than 40 insurers led by Berkshire. AIG's Murray and Robert Grieves, a spokesman for Ace, declined to comment.

The bulk of Berkshire's 2005 hurricane losses stemmed from covering other insurers. This year's opportunity to charge higher rates is leading Buffett directly to some of the country's biggest commercial policyholders, said Bullock, who finds insurance for casinos and hotels at Bermuda-based Willis.

``Every major account I've placed, those with half a billion dollars or more of coverage, had Berkshire involved,'' Bullock said. ``That was not the case prior to this year. They were not on any of those placements.''

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: June 6, 2006 09:42 EDT