Survey results of insurer investments tied to thermal coal released

News: 2018 Press Release

SACRAMENTO, Calif. — Insurance Commissioner Dave Jones released the results of the 2018 Climate Risk Carbon Initiative Coal Divestment Follow-Up Survey, which reflects an increase in the number of insurers that divested or are committing to divest from thermal coal investments following the Commissioner’s pioneering efforts to address climate-related financial risk. In particular, an additional 57 insurers committed to divesting some or all of their thermal coal investments compared to 2016.

“Climate change poses potential financial risks to insurers’ investments. In 2016 I asked insurers to divest from thermal coal because of the risk thermal coal could become a stranded asset on the books of insurance companies as consumers, businesses, markets and governments transition away from thermal coal as a source of energy,” said Insurance Commissioner Dave Jones. “The most recent results of our survey of insurers show that more insurers are divesting or committing to divest some or all of their thermal coal holdings and are considering the climate-related transition risks to these investments. While there is still more work to be done by insurers in this area, more are moving in the right direction.”

Not surprisingly, the survey results also revealed that companies without existing thermal coal assets were significantly more likely to pledge not to invest in thermal coal assets compared to companies with existing thermal coal assets. Companies with existing thermal coal assets were more reluctant to change their investment strategy.

The survey included responses from 1,185 property-casualty and life insurance companies. The survey results also suggest larger companies, as measured by their assets under management, were more likely to have identified thermal coal divestments, significantly less likely to divest from thermal coal and unlikely to pledge to not invest in thermal coal assets compared to smaller companies.

Commissioner Jones is the first financial regulator in the United States to ask for divestment from thermal coal due to the climate-related financial risk that thermal coal could become a stranded asset, the first to identify and disclose the oil, gas, coal and utility investments of insurance companies, and the first to perform climate-risk scenario analysis on the portfolios of insurance companies.

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Media Notes:

As an international leader on climate risk, and as the regulator of the largest insurance market in the nation, Commissioner Jones has led a multistate effort since 2011 to require insurers to respond to the Climate Risk Disclosure Survey adopted by the National Association of Insurance Commissioners (NAIC) in 2009.

In early 2016, Jones launched the Climate Risk Carbon Initiative because of the potential for investments in coal, oil, gas, and utilities relying substantially on burning carbon, to become "stranded assets" on the books of insurers with declining value as governments, consumers, businesses and markets, in an effort to address climate change and in response to market forces, may slowly or dramatically reduce the demand for carbon-based fuels causing the value of these assets to drop.

In May, Commissioner Jones became the first financial regulator in the U.S. to conduct a climate-related financial risk scenario analysis of insurance companies' investment portfolios. The Department engaged 2° Investing Initiative, an established climate risk modeler, to conduct this climate risk scenario analysis for the 600 insurers in California's insurance market with over $100 million in annual premiums—the most comprehensive climate-related financial risk scenario analysis ever conducted for the insurance sector. The sector wide scenario analysis indicted that insurers’ investment in thermal coal faces significant climate related transition risk, consistent with Jones' Climate Risk Carbon Initiative determination that thermal coal as an investment faces climate-related financial risks of becoming a stranded asset, despite any short-term fluctuations in market price and federal policy signals.