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California tallies insurer investments in traditional energy industry

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Insurers operating in California have $521 billion in fossil fuel-related securities in their investment portfolios, according to California’s insurance commissioner, who is discouraging insurers from investing in the oil, gas and coal sectors.  

The Climate Risk Carbon Initiative launched by California Insurance Commissioner Dave Jones in January 2016 required insurers with $100 million in annual premiums doing business in California to disclose investments in fossil fuels and asked all insurers operating in the state to divest investments in thermal coal, according to a statement issued by the California Department of Insurance on Wednesday.

Insurers have divested more than $4 billion in thermal coal and fossil fuel investments and have committed to divesting an additional $882 million in thermal coal investments since the launch of the initiative, which singles out thermal coal because of the risk that it is likely to or has already become a stranded asset.

More than 300 insurers have analyzed the concentration of carbon risk in their investment portfolios while another 81 have agreed to do so in the next 12 months.

Insurer responses also revealed that 670 companies divested some or all their coal holdings or had no coal holdings to divest while 325 companies said they would refrain from making future investments in thermal coal.

“Investments in carbon – oil, gas, coal – face significant potential financial risk from climate change as governments, private companies and markets continue to move to reduce the burning of carbon,” Mr. Jones said in the statement. “As a financial regulator, I want to make sure that insurance companies are invested in assets that retain value, not decrease in value, so that insurers have sufficient assets to pay claims.”

The commissioner launched the initiative because of the potential for investments in fossil fuels to become stranded assets on the books of insurers, meaning they have little or no value amid regulatory and market changes.

"The volatility in energy prices over the past few years has demonstrated the hard way why fiduciaries like the insurance industry need to consider how climate risks might impact their fossil fuel holdings, particularly coal," Amy Myers Jaffe, executive director, energy and sustainability of University of California, Davis, said in the statement. "We have already seen write downs on energy holdings dent returns for many institutional investors in 2015 and 2016 and the long-term risks could be more significant."

The initiative also features a searchable online public database disclosing insurer responses.