California Insurance Commissioner Dave Jones calls for insurance industry divestment from coal

News: 2016 Press Release

HUNTINGTON BEACH, Calif. — Today, California Insurance Commissioner Dave Jones asked all insurance companies doing business in California to voluntarily divest from their investments in thermal coal. Complying with this request would include making no new investments, not renewing any existing investments and selling or withdrawing from existing investments in thermal coal.

Commissioner Jones also announced that in April of this year he will initiate a data call that requires insurance companies to disclose annually their carbon-based investments including those in oil, gas and coal. These required financial disclosures will be made public and will be used by the Department of Insurance to assess the degree of financial risk posed to insurance companies by their investments in the carbon-based economy.

Commissioner Jones is the first insurance regulator in the nation to call on insurance companies to divest from thermal coal. Jones is also the first to announce that he will require insurance companies to provide detailed and public disclosures of their investments in the carbon economy.

Commissioner Jones regulates the largest insurance market in the United States and the sixth largest in the world, where insurance companies collect $259 billion in premiums from Californians annually.

Commissioner Jones issued the following statement:

"Today I ask insurance companies doing business in California to voluntarily divest from investments they hold in thermal coal.

"I am also announcing that insurance companies doing business in California will be asked to provide to the Department of Insurance detailed and specific financial disclosures of their investments in the carbon economy including coal, oil and gas. We will make this new information public so that investors, policyholders, regulators and the general public can know the extent to which insurance companies are invested in the carbon economy.

"The Department of Insurance will use this new information to evaluate the potential financial risk to insurance companies posed by investments in the carbon economy.

"My decision to ask insurance companies to divest from thermal coal and to require insurance companies to disclose investments in the carbon economy arises from my statutory responsibility to make sure that insurance companies address potential financial risks in the reserves they hold to pay future claims.

"As utilities decrease their use of coal and other carbon fuel sources, as states like California limit the ability of the private sector to use coal and other carbon fuels for power generation and require their pension funds to divest from coal, as states like California and the United States impose more stringent air quality requirements which limit the ability to burn coal and other carbon fuels, and as nations across the world begin to implement the commitments they made to reduce their use of carbon at the recent United Nations COP21 Climate Summit in Paris, investments in coal and the carbon economy run the risk of becoming a stranded asset of diminishing value.

"The movement away from coal and the rest of the carbon economy poses a potential financial risk to insurance companies investing in coal and the carbon economy. The potential risk of continuing such investments is that they lose value over time or that they lose value quickly. In either case, such investments pose a potential financial risk to those who invest in them.

"Last year global temperatures were higher than ever before. Climate scientists tell us that without dramatic reductions in the use of carbon, we will continue to see increases in global temperatures and major changes in climate with negative consequences.

"At some point nations and states may dramatically restrict the use of carbon. At that point, or earlier in anticipation of those restrictions, investments in coal mines, in oil and gas wells, in companies that extract coal, oil or natural gas, in utilities that rely on coal, oil or gas, among others, could drop dramatically in value. Before that happens it is important for insurance companies and insurance regulators to understand the scope of these investments by insurance companies and to take steps to mitigate financial risks. Divestment from thermal coal in particular will help protect insurance companies from holding an investment dropping in value, and which is likely to suffer substantial additional decline in value during a transition to a reduced carbon economy.

"California is decarbonizing its economy and transitioning to clean, pollution free energy resources. Utilities have been required by law to dramatically reduce their reliance on carbon. California's cap and trade program also results in raising the cost of carbon and reducing its use. Two of the world's largest pension funds—CalSTRS and CalPERS—have been required by the state legislature to divest their thermal coal investments by July 2017.

"A number of insurance companies have also recognized the risks of continued investment in thermal coal. Allianz, which is not only an international insurance company but one of the world's largest financial asset managers, announced that it would decrease investments in companies using coal and boost funding in those focused on wind power. Similarly, Axa Insurance Company announced last year that it will remove from its portfolio, and refrain from future investment in, companies that derive more than half of their income from coal mining. This policy will also apply to electrical utilities that derive more than half of their energy from thermal coal plants.

"Today, I am asking all insurance companies to phase-out their thermal coal investments by refraining from making new investments, refraining from renewing existing investments, and by eliminating any existing thermal coal holdings. I realize that it will be challenging for some insurers to immediately eliminate all of their existing thermal coal investments, but I strongly encourage them to move in this direction.

"To determine the current level of financial exposure in the Insurance sector to risks from carbon economy investment, I am launching an effort to collect detailed financial data about the level and types of carbon-based investments held by all insurance companies that write $100 million or more in premium nationally. Knowing how much money insurers have invested in oil, gas, coal, and related companies, should inform us about any financial vulnerability the insurance industry has to a decarbonized economy, and help insurers and regulators determine how best to address this risk, including additional divestment.

"I am inviting insurance companies to meet with my Department to provide technical input on how we can best collect this information.

"I do not want to sit by and then discover in the near future that insurance companies' books are filled with stranded assets that have lost their value because of a shift away from the carbon-based economy, jeopardizing their financial stability and ability to meet their obligations, including paying claims to policyholders. Insurance companies divesting thermal coal assets will help reduce coal combustion, the single largest contributor to global climate change in the United States."

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Media notes:

• Commissioner Jones leads a national, multi-state insurance regulators group that surveys annually more than 1,000 companies regarding their response to climate risk, capturing approximately 77 percent of the entire U.S. insurance market. Survey results can be found on the California Department of Insurance's website.
• Commissioner Jones will speak about his work to get insurance companies to address climate risk at the 2016 Investor Summit on Climate Risk at United Nations Headquarters in New York City on Wednesday, January 27^th.    
• Video of the press conference is available for viewing.
• Photos are available on CDI's Flickr site.