bufet

new tag 2/16

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huffpo
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Warren Buffett doesn't want you to know how his empire is preparing

to deal with the disastrous effects of climate change. In fact, he said

in a letter released Saturday, he isn't exactly sure this whole "climate

change" thing is real, anyway.

In his <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":0}}" href="http://www.berkshirehathaway.com/letters/2015ltr.pdf" target="_blank">annual letter to investors</a>

in his conglomerate Berkshire Hathaway, the billionaire investor fought

back against a proposed shareholder resolution demanding his insurance

subsidiaries measure and disclose the risks that climate change poses to

their business and how the company is responding to the threat. Buffett

compared fears over climate change to the brouhaha around apocalyptic

Y2K predictions.

“It seems highly likely to me that climate change poses a major

problem for the planet,” the 85-year-old wrote in the letter, released

Saturday morning. “I say ‘highly likely’ rather than ‘certain’ because I

have no scientific aptitude and remember well the dire predictions of

most ‘experts’ about Y2K.”

Insurance companies take on losses after major weather disasters

(think droughts, Hurricane Katrina and other big storms), so it makes

sense they'd be <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":1}}" href="http://www.nytimes.com/2013/05/15/business/insurers-stray-from-the-conservative-line-on-climate-change.html?r=0" target="blank">concerned about climate change</a>. If that's true, why would Buffett say he's not so sure this is real? Because skepticism is better business.

Buffett isn’t denying climate change, but rather using <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":2}}" href="http://www.latimes.com/opinion/op-ed/la-oe-maibach-gop-climate-change-position-20151016-story.html" target="_blank">language climate deniers feel comfortable with</a>

and will likely cite in future attempts to derail environmental policy.

Climate change affects Buffett's business: He owns a Nevada utility

that has fought <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":3}}" href="http://www.bloomberg.com/news/articles/2015-12-21/buffett-s-utility-wins-as-sun-sets-on-nevada-home-solar-subsidy" target="blank">and won against solar development</a> in that state, and his railroad, Burlington Northern, in large part depends on the <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":4}}" href="http://www.bloomberg.com/news/articles/2015-01-13/buffett-trapped-by-oil-plunge-after-bnsf-commits-to-rail-upgrade" target="blank">demand for coal and oil</a>.

Buffett argues in favor of seeing climate change as a likely risk to

the world, but against the need for more oversight, transparency or

regulation of his companies. It’s a position he’s taken before --

Buffett argued against designating <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":5}}" href="http://www.fsb.org/wp-content/uploads/r_141106a.pdf" target="blank">reinsurers</a>, of which he owns the world’s <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":6}}" href="http://www.theactuary.com/news/2015/07/munich-re-takes-number-one-spot-in-top-15-global-reinsurers-rankings/" target="blank">fifth-largest</a>,

as too-big-to-fail institutions. Though he said he never spoke directly

to regulators about the issue, he made his views public. Regulators,

thus far, have agreed.

Why Buffett's Words Matter

</div>

Markets, governments and companies aren’t properly pricing the risk

of climate change. For instance, are beachfront homes in low-lying areas

as valuable as their owners believe? Experts reckon that only once

markets and others attach a price to the threat of climate change will

the rest of the world finally move to limit the potential

consequences. If insurers -- which must grow their assets in order to

make good on their guarantees -- measure the potential losses they could

incur as a result of climate change, they can then price that risk.

Then everyone else could follow.

Buffett's views against disclosure put him in sharp disagreement with

Bank of England Governor Mark Carney, who has said that financial

markets can help limit the effects of climate change, but only if

companies -- such as insurers -- supply the kind of information that

Buffett doesn't want to disclose.

In <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":7}}" href="http://www.bankofengland.co.uk/publications/Pages/speeches/2015/844.aspx">September remarks</a>

to the insurance industry, the chief overseer of the world’s

third-largest insurance sector warned about the numerous economic and

financial risks posed by climate change. Carney urged companies,

particularly insurers, to start taking seriously their responsibility to

measure their potential losses. Their own solvency could be at stake,

Carney warned.

Insurance companies invest their money in places like the stock

market. But “stranded" oil, gas and coal reserves, left in the ground

due to the world’s commitment to halt rising temperatures, could render

related financial assets worthless. Or the disruption of trade resulting

from an extreme weather event could affect related investments.

Cynthia McHale, director of the insurance program for <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":8}}" href="http://www.huffingtonpost.com/entry/get-investors-to-save-planet_us_5672c8b9e4b0688701dc60a4">Ceres</a>,

a nonprofit group that pushes investors to pay attention to the

financial risks of climate change, said in an interview earlier this

month that neither insurers nor their government overseers have a good

handle on the risks that climate change poses to insurers’ various

financial assets.

McHale compared the situation to the one faced by big banks in 2008,

when few sufficiently realized the magnitude of potential losses from

the U.S. property bust.

<h4>Weathering Heights</h4>

Buffett's case against the resolution boils down to this: “Thinking

only as a shareholder of a major insurer, climate change should not be

on your list of worries.”

First, he said, his company can handle any possible losses thanks to

rising premiums. Because insurance policies are typically written for

one year and repriced annually, Buffett's company can hike premiums to

better account for the heightened risk of climate change-driven losses.

Second, Buffett asserts that climate change has produced

neither “more frequent nor more costly hurricanes nor other

weather-related events covered by insurance.”

But eight of the 10 costliest hurricanes in U.S. history, in terms of insured losses, have occurred since 2000, <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":9}}" href="http://www.iii.org/fact-statistic/hurricanes">according to</a>

the Insurance Information Institute. Nine of the 10 costliest floods in

U.S. history, when measured by payouts from the federal government’s <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":10}}" href="https://www.fema.gov/national-flood-insurance-program">National Flood Insurance Program</a>, also have occurred since 2000, <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":11}}" href="http://www.iii.org/fact-statistic/hurricanes">according to</a> the insurance group.</div>

NOAA

The U.S. experienced five different types of extreme weather last year. 

</figcaption>

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<div class="content-list-component text">Munich

Re, the world’s biggest reinsurer, estimated that extreme weather

events led to $510 billion in insured losses from 1980 to 2011.

Carney said that according to Lloyd’s

of London, the world’s oldest insurance market, the roughly 8-inch rise

in sea level at the tip of Manhattan since the 1950s increased the

insured losses from Hurricane Sandy by 30 percent in New York alone.</div>

<figcaption class="image__caption">A house in Staten Island, New York, hit in Hurricane Sandy. Scientists

say we should prepare for more weather events like the massive storm.

</figcaption>

</figure>

<div class="content-list-component text">Insurance companies should

care about climate change from a selfish perspective if they want to

stay in business. Carney has warned that insurers that jack up premiums

or exit markets after realizing the potential losses associated with

climate change could unwittingly cause the value of their own assets to

shrink.

He also warned about potential losses from claims on policies written

by insurers. For example, insurance companies could be forced to make

massive payouts if victims of climate change successfully hold

accountable companies that contributed to it. He likened the situation

to the one faced by <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":12}}" href="http://www.iii.org/issue-update/asbestos-liability">U.S. insurers stung</a> by tens of billions of dollars in losses from asbestos claims.

In fact, Carney said that as a result of recent weather trends, some

now estimate that insurers are undervaluing their potential losses by as

much as 50 percent.

Insurance companies caught unprepared for the effects of climate

change could cause problems for government officials and put taxpayers

at risk.

For example, governments may have to cover markets that insurers dump

as a direct result of climate change, the Bank of England chief said,

putting taxpayers on the hook.</div>

...<figcaption class="imagecaption">Mark Carney, the U.K.'s top central banker, says insurers may be undervaluing their potential risks by 50 percent.

</figcaption>

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<h4>What Could Change If Insurers Opened Up About This Risk</h4>

Disclosing climate change information

would improve policymaking, Carney said. It could make climate policy

more like monetary policy, where officials who set interest rates often

tinker with their stance based on markets’ reactions.

The <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":13}}" href="http://www.fsb.org/about/">Financial Stability Board</a>, a global group of the world’s financial regulators, <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":14}}" href="http://www.fsb.org/wp-content/uploads/FSB-Chair-letter-to-G20-Ministers-and-Governors-February-2016.pdf">wants</a> financial companies to disclose their risks, too.

state insurance regulators in the U.S. are demanding insurers take the

threat posed by climate change into account when investing their

customers’ money and underwriting insurance policies. Washington state’s

insurance regulator, Mike Kreidler, has criticized some insurers for

failing to take climate change risks seriously, <a data-beacon="{"p":{"mnid":"entry_text","lnid":"citation","mpid":16}}" href="https://docs.google.com/viewerng/viewer?url=https://www.ceres.org/resources/reports/insurer-climate-risk-disclosure-survey-report-scorecard-2014-findings-recommendations/at_download/file">arguing</a> their own solvency was at risk.

Buffett sounded more alarmed by the

prospect of climate change in 2007, when scientific evidence of the

impacts of climate change was less well-understood. In his annual letter

that year, Buffett wondered aloud whether the deadly and expensive

hurricanes of 2004 and 2005 marked the first warning of a new type of

climate.

“It would be a huge mistake to bet

that evolving atmospheric changes are benign in their implications for

insurers,” Buffett wrote in his letter.

He warned that it was “naïve” to

think of Hurricane Katrina -- the costliest hurricane in U.S. history --

“as anything close to a worst-case event.”

“These could rock the insurance industry,” Buffett added.
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