Insurers are at the vanguard of a movement to put a value today on the unpredictable future of a warming planet
When a wildfire engulfed the Canadian oil-sands boomtown of Fort McMurray two years ago, it hit insurance company Aviva PLC out of nowhere.
The British firm had been active in Canada since 1835. Its actuaries long believed wildfire risk to homes in the area was almost nonexistent, it says. Yet flames on the town’s outskirts roared across an area larger than Delaware, forcing 100,000 people to evacuate and leaving insurers with $3 billion in damages to cover.
“That is not a type of loss we have experienced in that part of the world, ever,” says Maurice Tulloch, the Toronto-based chief executive of Aviva’s international insurance division. “The previous models wouldn’t have envisioned it.”
Aviva studied the incident and concluded the wildfire was an example of how the earth’s gradually warming temperature is changing the behavior of natural catastrophes. Aviva increased premiums in Canada as a result.
The price of homes on the U.S.’s eastern seaboard battered by fiercer storms and higher seas is lagging behind those inland. The price of farmland is rising in North America’s once-frigid reaches, partly because of bets it will become more temperate. Investors are turning fresh water into an asset, a wager in part that climate change will make it scarcer.
.. After the Canadian wildfire, Aviva’s changes to its risk models filtered into its home-insurance premiums in Canada, which increased by roughly 6% since 2016, partly because of its research into catastrophe risks.
For most insurers, rates aren’t rising—yet. A flood of capital into the industry from pension and hedge-fund investors, driven by low interest rates, has increased competition and pushed down property-catastrophe reinsurance prices in the past decade.
And property insurance and reinsurance contracts typically last one year, so an insurer can recalibrate yearly as risks change. “Global warming may be occurring. Probably is,” says Warren Buffett, chief executive of Berkshire Hathaway Inc., which has a major reinsurance business. “But it hasn’t hurt the reinsurance industry. And people are pricing still as if it won’t, on a one-year basis.”
If reinsurance contracts covered 30 years, he says, “I’d be crazy not to” include the risks.
.. Insurers such as Swiss Re Group say hurricanes like Harvey and Florence, which caused widespread flooding, could represent a more common occurrence in the coming decades.
.. The insurance industry has historically changed after big disasters. Natural-catastrophe modeling took off after Hurricane Andrew struck Florida on Aug. 24, 1992, causing an estimated $15.5 billion of insured losses. Thirteen insurance companies were ordered liquidated
.. The climate has grown about 1.8 degrees Fahrenheit warmer since the late 19th century. A consensus of scientists puts blame substantially on emissions of greenhouse gases from cars, farms and factories.
.. Munich Re researchers found a significant increase in storms with hailstones larger than a penny in diameter between 1979 and 2016 in central and southern Europe, causing higher losses during that period.
.. A 2015 study from professors at Princeton University and the Massachusetts Institute of Technology found the warming planet is increasing the chance that a major hurricane could enter the Persian Gulf, home to hundreds of billions of dollars of petroleum equipment and assets.
Such cyclones periodically hit Oman and Yemen but have never been observed in the Persian Gulf, climate researchers say. The researchers found that, with new conditions due to warming, some cyclones could enter the Gulf in the future and could also form in the Gulf itself.
.. A 2013 study in the journal Nature projected average flood losses for the world’s 136 biggest coastal cities could rise from $6 billion a year in 2005 to $52 billion a year by 2050 due to increased population and development. When taking climate change and a sea-level rise into account, flood losses could exceed $1 trillion a year by 2050, the study concluded, unless the cities invested about $50 billion annually in adapting.
.. But Hurricane Harvey, which hit Texas in August 2017, spent weeks absorbing 33 trillion gallons of water, according to the National Oceanic and Atmospheric Administration. It dumped more than 60 inches of rain and caused tens of billions of dollars in flood damage.
.. The probability of a Texas storm dropping about 20 inches of rain was about 1% a year between 1981 and 2000, but will likely increase to 18% a year by 2100
.. Increased flood damage also presents an opportunity to insurers. As more regions become exposed to flooding, insurers expect the market for flood insurance to grow.
.. Allianz, one of the world’s largest insurers, says it sold the retail business of U.S. insurer Fireman’s Fund Insurance Co. in 2015 in part because climate change is increasing the risk of losses to coastal homes in California and Florida.
Putin’s Unlikely Ally in His Standoff With the West: His Central Banker
Elvira Nabiullina has earned an unusual degree of freedom to buttress an economy buffeted by sanctions
After Russia’s central-bank chief, Elvira Nabiullina, moved to shut down a large lender last year for allegedly falsifying accounts, the nation’s top prosecutor’s office issued an order to leave the bank alone.
She closed it anyway.
In her five years in office, Ms. Nabiullina has closed hundreds of weak banks, stymied the exodus of Russian wealth abroad and transformed monetary policy to bring inflation to record lows. That has earned her an unusual amount of freedom to make tough decisions, even if that means treading on powerful interests.
.. As President Vladimir Putin bids to return Russia to great-power status, challenging the U.S. and Europe from Syria to Ukraine, it’s her job to shore up the economy against volatile oil markets and sanctions. Russia’s ability to continue its quest rests in large part on whether Ms. Nabiullina can keep the financial system stable.
Ms. Nabiullina has earned public praise from
- Mr. Putin, who rarely commends subordinates, as well as from abroad. Last year at the Kremlin, Mr. Putin told her that “under your leadership, the central bank has done a great deal to stabilize the economic situation.” Managers at big investment funds, from
- Pacific Investment Management Co. to Pictet Asset Management, call Ms. Nabiullina one of the world’s most skilled central bankers.
- Christine Lagarde, managing director of the International Monetary Fund, lauded her in May for setting “standards of quality for macroeconomic policy.”
.. In 2006, the central-bank official responsible for revamping the system, Andrey Kozlov, was shot dead in his car. Russian financier Alexey Frankel, whose banking license Mr. Kozlov had revoked earlier that year, was later convicted of organizing the killing.
.. She has earned a reputation for bookishness, personal honesty and fixation on detail
.. Industry veterans said that before Ms. Nabiullina took over, banking licenses were mostly used as mechanisms to funnel money abroad and process insider deals.
.. When she took over the institution, banks and companies were moving $5 billion out of the country every month, and inflation topped 7%.She shut down 70 banks in her first year... Ms. Nabiullina stopped a longstanding policy of spending billions of dollars from the country’s reserves to try to prop up the ruble. In December 2014, with the ruble continuing to fall, the central bank nearly doubled its key lending rate to 17% at an emergency late-night meeting.
.. The rate increase restored calm to markets but strangled the country’s consumer-fueled growth. The country’s emerging middle class, which had become used to foreign vacations and European cars, is still feeling the effects of the ruble’s collapse... Since she took office, she has halved the number of Russian banks, shutting down about 440 lenders. She has reduced capital outflows by about 50% to $2.5 billion a month... Many of the banks she closed had been considered untouchable, analysts said. Some, such as Promsviazbank, counted lawmakers and state-company executives among its shareholders and held money for national oil companies and the Orthodox Church... Others, like Bank Sovetskiy, had served political objectives, providing banking services in Crimea, the Ukrainian region the Kremlin annexed in 2014... When the central bank took over Yugra last June following repeated warnings, it said it found a $600 million deficit in its balance sheet masked with bad loans. Just hours before the bankrupt bank’s license was due to expire, the prosecutor’s office ordered a halt to the closure, calling the bank “a financially stable credit organization.” Ms. Nabiullina rejected the order.
.. “It was a test of will, and she won,” said banking analyst Mr. Lukashuk... In January, inflation hit a record low for the post-Soviet period of 2.2%, a result of Ms. Nabiullina’s decision to keep interest rates high after the Crimea sanctions. Some tycoons have urged a faster reduction... Still, she has struggled to regulate Russia’s lesser, underperforming state-owned banks, whose executives often treat them as fiefs, analysts said. These banks are kept afloat by constant injections of state funds, which the executives have funneled into unrelated assets ranging from supermarkets to railroad cars... Almost a trillion rubles of public capital, about $16 billion at today’s rate, went to just three state-owned banks—
- VTB,
- Gazprombank and
- Rosselkhozbank—
in the first four years of Ms. Nabiullina’s central-bank term, according to Fitch Ratings. All are still saddled with bad debts or illiquid assets.
.. Her modest economic forecasts have consistently lagged behind Mr. Putin’s goals, which she said can only be achieved through deep, unpopular changes to the system.
Even if the price of oil rose to $100, from around $65 today, she said, “it’s very unlikely that our economy can grow above 1.5% to 2%” a year.
We wanted Turkey to be a partner. It was never going to work.
American officials have often insisted on seeing Turkey, a NATO ally since 1952, as a close partner, which is why the recent fallout seems so shocking. Don’t these two countries share interests and values?
Not really. When you strip away all the happy talk, it’s clear the two nations aren’t really, and have never been, that close. This is a relationship doomed to antipathy.
Alliances are never perfect, of course, and there have been moments over the past seven decades that justify Turkey’s image as a close partner of the United States: President Turgut Ozal shut down pipelines carrying Iraqi oil through Turkey during the run-up to the Gulf War, at great cost to the Turkish economy, for instance. A decade later, the Turkish government was among the first to condemn the 9/11 terrorist attacks and quickly committed troops to Afghanistan. Turkey became an important and valued component of the NATO-led International Security Assistance Force in that country.
By that time, American officials had become accustomed to seeing Turkey as a partner, like their closest allies in Europe and East Asia. The country’s failure to live up to this role reveals more about our own desperation for Turkey to be something it isn’t, and about Cold War strategies, than about Turkish shortcomings.
.. In the decades since the Cold War ended, problems between the United States and Turkey have piled up, but Washington and Ankara no longer share a threat that mitigates these differences.
.. In 2016, Erdogan threatened to allow tens of thousands of refugees to enter Europe, apparentlybecause of suspended talks on Turkey’s European Union membership. “You did not keep your word,” he said in a speech in Istanbul. The threat, repeated months later by Turkey’s interior minister, stoked fears in Europe and the United States that such a move — intended or otherwise — would help further empower populist, nationalist and racist political forces already roiling the politics and potentially the stability of the E.U., a core strategic interest of the United States.
.. The danger from Moscow no longer justifies overlooking these significant differences in priorities. In fact, the Turkish government is buying an air defense system from the Russians that could provide Moscow with information about the American F-35 fighter jet, the newest high-tech plane in the U.S. arsenal, which Turkey also plans to fly. Under these circumstances, lamenting the end of our partnership with Turkey seems absurd.
.. A staggering number of Turks believe that Washington was complicit in the attempted 2016 coup d’etat. One poll conducted online in 2016 by a Turkish newspaper found that almost 7 in 10 Turks blamed the CIA. This patently false idea (which Erdogan and other officials have nurtured) along with Trump’s tweet makes Erdogan’s latest accusation that the United States is attempting an economic coup all the more plausible to the Turkish public.
.. The speed with which relations deteriorated after the deal to free the clergyman imploded highlights a relationship marked by frustration and mistrust, not common aims. It is no wonder the Turks seldom, if ever, defend their relationship with Washington. They believe America seeks to do them harm.
Minnesota Pipeline Replacement Threatens a Repeat of ‘Standing Rock’
The centerpiece of the House GOP tax package is an extension of last year’s tax cuts beyond their 2025 expiration date; that is unlikely to draw enough Democratic votes to become law. But Mr. Brady said he hoped the new retirement bill will attract bipartisan support.
.. Emergency savings are a big focus of this year’s House Republican effort.
Rep. Kenny Marchant (R., Texas), said the bill could include a universal savings account, funded with posttax dollars but with tax-free earnings and more flexible withdrawal rules than existing retirement accounts.
.. The Line 3 project, which would carry crude oil from Alberta, Canada, across Minnesota to a terminal in Wisconsin on Lake Superior, is a replacement of a pipeline built in the 1960s. Enbridge said the existing pipeline requires as many as 900 repairs over six years. It has reduced capacity on the current line to 390,000 barrels a day, from 760,000 barrels a day, out of safety concerns.
.. “It feels like a gun to our head that somehow compels us to approve a new line because of the risks of that existing pipeline,” he said.
.. His main argument is that Minnesota’s refineries would get enough oil without a new pipeline, a conclusion reached by a state Commerce Department study. “There’s just simply no need for this,” Mr. Plumer said.