 Market Risk Advisory 

Committee Meeting

 U.S. Commodity Futures 

Trading Commission

 June 12, 2019

 Dave Jones

 CA Insurance Commissioner, 

Emeritus

 Director, Climate Risk Initiative

 UC Berkley Law School, Center for 

Law, Energy and Environment/

 ClimateWorks Foundation

 Senior Director, The Nature 

Conservancy

1
• $310 billion a year in insurance premiums.

• Largest insurance market in the United States.

• Fourth largest insurance market in the world. 

• Approximately 1300 admitted insurance companies with over 

$5.5 Trillion in assets

2
 Physical  Transition  Liability

3
4
 Climate Change contributing to wildfires severity/frequency

 86 lives lost in CampFire 2018

 14,400 homes destroyed

 $12 Billion in insured losses for 2018 fires

 Small insurance company insolvent due to fire claims

 Pacific Gas and Electric (PG&E) files for Ch. 11 bankruptcy 

reorganization -$30 Billion potential liability from causing 

fires

5
 NAIC Climate Risk Disclosure Survey 2011-18

 Climate Risk Carbon Initiative 2016-2018

 Task Force on Climate Related Financial 

Disclosures (TCFD) Recommendations 2017

 Founded Sustainable Insurance Forum 2017

 2 Degree Scenario Analysis: Insurer 

Investment Portfolios 2018

6
• Developed by National Association of Insurance Commissioners 

(NAIC) in 2010.

• How are insurers addressing climate risk in underwriting, 

reserving and business operations?

• Lead states (CA, NY, WA, NM, CT) administer annually since 2011. 

• Insurers with $100 Million+ in premiums surveyed.

• Surveying 1000 insurers = Over 70% of U.S. insurance market.

• Results made public on CA Dept. of Insurance searchable website

7
 61% of insurers have climate change risk 

management policy

 69% of insurers consider impact of climate change 

on investment portfolio

 60% of insurers altered investment strategy in 

response to climate risk considerations

 Insurers more focused on underwriting risk but 

much less focused on climate risk to investments

8
• Market forces: Decline in prices per kilowatt hour for renewable 

energy.

• Regulatory measures at local, state, and national levels that 

reduce use of fossil fuels

• Paris Agreement

• Coal losses already a reality.

◦ Dow Jones U.S. Coal Index dropped 92.9% from 2011 to 2017.

◦ CalPERS/CalSTRS lose $840 Million 

◦ 42 US coal companies bankrupt.

◦ Global insurers divesting.

◦ Banks decline lending to coal

9
• Climate Change ”Transition Risk” poses financial risk to 

investments in oil, gas, coal, and utilities. 

• Objective: Increase insurers’ consideration of climate risk to 

investments in oil, gas, coal and utilities 

• Objective: Increase regulators’ understanding of insurers’ 

investments in oil, gas, coal and utilities and exposure to 

transition risk

10
• Fossil Fuel Holdings Disclosure Requirement

◦ 670 insurers with $100+ million of U.S. premiums.

◦ Required insurers to report/disclose oil, gas, coal and 

utility investments.

◦ Results made public in searchable database

• Thermal Coal Divestment Request

◦ All 1300 insurers.

◦ Divest from thermal coal investments.

◦ Pledge to refrain from future thermal coal investments.

◦ Voluntary.

◦ Public disclosure.

11
• $555 Billion in fossil fuel related investments.

• $21.4 Billion invested in thermal coal enterprises.

• $4 Billion thermal coal and fossil fuel investments divested.

• Additional $944 Million of thermal coal investments 

committed to be divested.

• 670 insurers divested some or all or had no coal holdings

• 325 insurers said will refrain from future coal investments

12
13
14
• G-20 Financial Stability Board created TCFD

• TCFD led by private sector

• TCFD Report provides framework for corporations to 

assess and report their climate related risks and risk 

management strategies

• Governance, Strategy, Risk Management, Metrics/Targets 

• Climate risk disclosures should be made in annual 

financial filings

• Investors, including insurers, should undertake climate 

risk scenario analysis of investment portfolios

15
 Engaged 2 Degrees Investing Initiative to perform scenario 

analysis of insurers’ investment portfolios

 Analyzed 670 insurers with $100M+ premium annually

 $4.25 Trillion in assets

 Analysis of each portfolio relative to transition to low carbon 

economy consistent with limiting global warming to 1.5 and 2 

Degrees Celsius 

 Most recent scenario analysis (1.1.2019) included both 

physical and transition risks to investments 

16
17

• Aggregate results 

published online.

• Individual insurer reports 

sent to top 100 insurance 

companies (by investment 

portfolio) and those with 

thermal coal exposure 

beyond the 95th percentile.
• Thermal coal investments are very misaligned with 2 Degree 

scenario. 

• Automobile sector (gas burning) investments are not aligned 

with 2 Degree scenario. 

• Oil production investments are not aligned with 2 Degree 

scenario.

• Gas production investments are aligned with 2 Degree 

scenario.

• Under investment in renewable energy sector as compared to 

investment consistent with 2 Degree Scenario

18
 Founded 2017

 Founding Chair

 25 Insurance Regulators from across the globe

 Develop/Share Best Practices on Addressing 

Climate Risk from Supervisory Standpoint

 Joint Working Paper on Best Practices 2018

 Endorsed TCFD Recommendations

 Surveying Insurers on Take Up of TCFD (2019)

19
 34 Central Banks & Bank Supervisors

 Best Practices for Climate Risk and Bank 

Supervision

◦ Macro

◦ Micro

◦ Credit Enhancement for Green Investment (?)

 Action Plan April 2019

20
 1.5 Degree: 13.6% of portfolio value at risk 

(transition)

 Value Loss of $10.7 Trillion

 Utilities, Transportation, Ag, Mining & 

Petroleum Greatest Risk

 Green Profits at 2 Degrees: $2.1 Trillion

 More Risk/Loss if Governments Delay Action

21
 Climate Change Poses Material Risks to Financial 

Sector

 Disclosure Increasing In Financial Sector (TCFD)

 Financial Regulators Increasing Requirements

 Investors Demanding Disclosure/Divestment

 Inevitable Policy Response Poses Greatest Risk of 

Loss

 Regulators Should Engage on Micro & Macro Risks

22