California Urges Insurers to Divest Coal Bets to Cut Riskby
Commissioner Jones asks insurers to make no new investments
Jones will also require insurers to disclose oil, gas holdings
California Insurance Commissioner Dave Jones is urging insurers to voluntarily divest from thermal coal, citing the risks of climate change and the danger of losses on assets backing policyholder obligations.
Jones, who oversees the sixth-largest insurance marketplace in the world, is the first U.S. state regulator of the industry to call for the divestment of such assets, the California Department of Insurance said Monday in a statement. The commissioner is also requiring insurers to annually disclose their carbon-based investments, including holdings in oil, gas and coal.
Political leaders met in Paris last month to endorse an international agreement that would limit fossil-fuel pollution, with French President Francois Hollande hailing the deal as “a major leap for mankind.” Insurers including France’s Axa SA and London-based Aviva Plc have announced plans to either divest from some fossil fuels or target more investments in renewable energy.
“The movement away from coal and the rest of the carbon economy poses a potential financial risk to insurance companies,” Jones said in the statement. “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.”
Insurers seek diversity in their portfolios to help generate returns for policyholders and need flexibility to invest based on their obligations, according to Robert Hartwig, president of the Insurance Information Institute, an industry group. Ruling out one sector creates a slippery slope, where insurers might come under pressure to get rid of even more holdings, he said.
“There is no end to the different sectors of the economy that you could single out,” Hartwig said in a phone interview. “Each and every insurer makes its own investment decisions, but all of them have portfolios that are extremely well diversified and, generally speaking, there is going to be an energy component in the portfolio of virtually every insurer.”
Insurers’ investments must first ensure the security of its policyholders, according to the property-casualty trade group for California. The organization said it’s communicating with its members about Jones’s request.
“We appreciate that the commissioner’s approach avoids overly restrictive mandates,” Mark Sektnan, president of the Association of California Insurance Companies, said Monday in a statement. “Insurers use investment income to offset repair and litigation costs to lower policyholders’ premiums. Insurers must retain the freedom to manage their investments so they can keep rates affordable for their customers.”