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Paul Zimmerman

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Proposal Calls for CA Insurers to Divest From Coal

On January 25, 2016, California Insurance Commissioner Dave Jones asked California insurers to voluntarily divest their investments in the thermal coal industry. In addition, beginning in April 2016, California insurers writing $100 million or more in premiums nationally will be required to disclose their investments in carbon-based industries, including coal, oil, and natural gas to the California Department of Insurance (CDI) on an annual basis. Such disclosures will be made public so that interested parties “can know the extent to which insurance companies are invested in the carbon economy.”  The goal of this initiative, as stated in the CDI press release, is to mitigate the financial risk to insurance companies posed by investments that are shrinking in value as the state turns to clean, renewable fuels.

In 2010-2012, the CDI initiated a program whereby any insurer investments in specifically-named businesses that dealt with Iran would be treated by CDI as non-admitted assets. In response to litigation, however, CDI ultimately backed away from this program and resolved the matter through a settlement that required insurers to report investments in designated Iran-related businesses. Although CDI published the names of the insurers which had such investments, it appeared to have no impact upon the California insurance market.

It is not yet clear whether CDI will publish a specific list of carbon industry businesses which must be reported, as they did in the Iran effort, or they will ask insurers to provide the information based only upon a description of the type of investment to be reported. CDI is expected to issue a formal data call document which should answer these questions. 

One other element of the current effort is the Commissioner’s call for insurers to divest voluntarily of any investments in “thermal coal.”  Again, the scope of this request is unclear. The precise investments which CDI wants to be divested have not been specifically identified. Unless and until the specific investments are identified insurers will probably withhold making any investment decisions based upon this relatively vague request. 

Although the current effort evokes memories of the highly-controversial Iran Investments Initiative, it appears to be a much more low-key effort, developed with a greater sensitivity about the limits of the Department’s regulatory power.  M&R will keep you advised of developments in this effort as they become known. 

The Commissioner’s press release announcing this effort is available HERE.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.