| 22276 |
| Berkshire Hathaway Specialty Insurance Company |
| Property & Casualty |
| Y |
| 0031 |
| Berkshire Hathaway |
| Does the company have a plan to assess, reduce or mitigate its emissions in its operations or organizations? If yes, please summarize. |
| Y |
| The responses included herein are submitted on behalf of the Berkshire Hathaway group of insurance companies and intended to address the 2020 Insurer Climate Risk Disclosure Survey. This response is submitted on behalf of all insurance companies within NAIC Group Code 0031. Berkshire Hathaway Inc. (“Berkshire”) is a holding company owning subsidiaries engaged in a number of diverse business activities. These activities include insurance business conducted on both a direct and reinsurance basis. Berkshire is domiciled in the state of Delaware and headquartered in Omaha, Nebraska. Berkshire’s insurance and reinsurance business activities are conducted through numerous domestic and foreign-based insurance entities (the “Group”). Berkshire’s insurance businesses provide insurance and reinsurance of property and casualty risks worldwide and also reinsure life, accident, and health risks worldwide. Berkshire’s insurance companies maintain capital strength at high levels. This strength differentiates Berkshire’s insurance companies from their competitors. Collectively, the combined statutory surplus of Berkshire’s U.S.-based insurers was approximately $237.6 billion on December 31, 2020 and maintained an aggregate GAAP equity of $277.5 billion. As of the report date, all of Berkshire’s major insurance subsidiaries are rated AA+ by Standard & Poor’s and A++ (superior) by A.M. Best with respect to their financial condition and operating performance. Berkshire’s insurance underwriting operations include the following groups: (1) GEICO and its subsidiaries, (2) Berkshire Hathaway Reinsurance Group, and (3) Berkshire Hathaway Primary Group. The sub-groups within Berkshire’s Insurance Group consider initiatives to reduce Greenhouse Gas (“GHG”) emissions as part of the strategic planning process. This informal process typically estimates the rate of return on investments in carbon-reduction technologies and the overall benefit to the environment. On-going GHG initiatives within the Group include the following: Advocating the recycling of paper, glass, and plastics to all personnel and providing options to make recycling convenient at office locations; Encouraging electronic communication versus paper usage; Supporting the use of reusable cups to reduce one time use products, including providing personnel with washable/reusable mugs and water bottles; Promoting the use of technology to the customer base to reduce the amount of paper distributed; Employing imaging technology to replace paper usage and long-term information storage; Analyzing the potential for electricity and natural gas usage savings in both new and existing office space and data centers; Implementing technology, equipment, and processes to reduce electricity and natural gas usage, such as transitioning from fluorescent to LED lighting, motion sensor August 31, 2021 INSURER CLIMATE RISK DISCLOSURE SURVEY - REPORTING YEAR 2020 2 lighting, installing high efficiency window blinds, and computer controlled thermostats; and Updating computer equipment to take advantage of cutting-edge technology, often reducing energy usage as well as adding more computing power while using less equipment. Considering the benefits of increased work location flexibility. This includes assessing the carbon footprint impacts. Berkshire also owns a number of other non-insurance businesses whose operations have taken very active steps to reduce or mitigate their emissions and support green energy efforts. For example, Berkshire Hathaway Energy, is one of the largest green investors in wind and solar power in the United States. As of December 31, 2020, Berkshire Hathaway Energy had cumulative investments in wind, solar, geothermal, and biomass generation facilities of approximately $34 billion, with plans to spend approximately $3 billion more on the construction of wind-powered generating facilities, repowering certain existing wind-powered generating facilities and funding wind tax equity investments through 2022. Berkshire Hathaway Energy has also committed to comply with the Paris Agreement and is well on track to retire all of its coal-based units before 2050. BNSF, one of the largest railroads in the US, is another significant non-insurance Berkshire subsidiary. BNSF is taking active steps to manage and reduce its air emissions to help mitigate BNSF’s environmental impact in the communities in which it operates. Through advances in technology and locomotive upgrades, BNSF significantly reduced its fleet’s average emission rate of nitrogen oxides (“NOx”) and particulate matter (“PM”) over the past decade. From 2015 through 2019, BNSF’s NOx and PM emissions decreased by more than 11% and 25%, respectively. |
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| Does the company have a climate change policy with respect to risk management and investment management? If yes, please summarize. If no, how do you account for climate change in your risk management? |
| Y |
| The consideration of climate change risk is deeply embedded in the Group’s Enterprise Risk Management (“ERM”) framework and addressed by each of the insurance sub-groups. Climate change risk considerations are actively considered within a number of our key risks in our enterprise risk inventory. This includes underwriting, reputational, and investment risk categories. The Group also recently enhanced its ERM framework to include a separate stand-alone Climate Change Risk to its key risk inventory. This risk has been assigned to the Chief Compliance Officer, Berkshire Hathaway Reinsurance Group (“BHRG”) and the Deputy Chief Risk Officer, BHRG to own and continuously monitor. This includes assessing the Group’s potential exposure to Climate Change Risk and the effectiveness of the controls designed to mitigate such risk. Additionally, the Group has instituted Climate Change Risk specific stress testing (the Group’s approach to stress testing will be addressed throughout this disclosure). The ERM Committee will communicate potential areas of improvement to the appropriate sub-group executives (if needed). Board escalation would also be considered August 31, 2021 INSURER CLIMATE RISK DISCLOSURE SURVEY - REPORTING YEAR 2020 3 based on the severity of the potential exposure (if needed). This process remained consistent during the COVID-19 pandemic. To-date, the Group has not yet seen sufficient evidence that Climate Change is affecting weather trends to a degree that would significantly impact immediate underwriting decisions. The Group is also protected as its Property and Casualty (“P&C”) insurance policies are customarily written for one year and repriced annually to reflect changing exposures (increased possibilities of loss translate promptly into increased premiums). The potential impact of Climate Change on the Group’s investment management policies is addressed in response to question five. |
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| Describe your company's process for identifying climate change-related risks and assessing the degree that they could affect your business, including financial implications. |
| Y |
| Underwriting financial implications related to Climate Change are monitored by the different insurance operations in the Group. Climate change will likely have different implications for the different lines of insurance that are underwritten in the Group – personal lines, commercial liability lines, commercial property lines, and reinsurance. Each insurance business within the Group is focused on the implications for its particular underwriting specialties and will modify its underwriting approach as makes sense as the magnitude and impact of changes can be predicted based on accepted actuarial and underwriting techniques. Management of each insurance business regularly monitors potential shifts in customer demand for products, as well as market developments that affect pricing decisions. The Group believes its capital and liquidity resources provide an unsurpassed margin of safety beyond the worst-case scenario downside impact of all risks assumed, including climate risk. As of December 31, 2020, the various insurance companies within the Group held approximately $237.6 billion in statutory surplus. As a corollary to our focus on maintaining exceptional liquidity, the Group avoids transactions and contracts that would cause susceptibility to significant and sudden demands for cash. For example, the Group shuns contracts that would require the instant posting of significant collateral. The Group also avoids selling products, such as certain types of life insurance products, which would allow policyholders to demand cash at their option. Stress test modeling is performed in an effort to understand how certain key solvency-related financial statement values of the Group companies are affected by modifications in key asset valuations (equity holdings) or key liability valuations (losses and loss expenses). Climate risk is specifically included in our stress testing modeling. There is no consideration of utilizing external ceded reinsurance for either the Group’s direct or reinsurance operations in capital assessments. The Group historically has not utilized material amounts of external ceded reinsurance nor does it have any plans to do so in the foreseeable future. Annually, the ERM Committee analyzes the potential impact of the Group’s key risk inventory (including climate risk). Frequency of this analysis will increase if risk tolerance August 31, 2021 INSURER CLIMATE RISK DISCLOSURE SURVEY - REPORTING YEAR 2020 4 breaches occur. As part of this process, the ERM Committee developed a combined view of exposure to Climate Change impacted perils that include the following risks: Natural Catastrophe Risk – The Group is exposed to physical risks of Climate Change, including a potential increase in severe weather-related events. Transition Risk – The Group is at risk of the investment portfolios facing sudden drops in asset values or increased credit risk as a result of the transition to a greener economy. Litigation Risk – The Group is at risk of parties who have suffered losses and damages from Climate Change seeking to recover from insureds who they believe are responsible. Pricing Risk – The Group is at risk of Climate Change affecting current weather events to a degree that could significantly impact immediate underwriting decisions. Underwriting Risk – The Group is at risk of the decrease in demand for insurance in industries that produce non-renewable resources (i.e. coal, natural gas, and oil). |
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| Summarize the current or anticipated risks that climate change poses to your company. Explain the ways that these risks could affect your business. Include identification of the geographical areas affected by these risks. |
| N |
| The Group has not yet seen sufficient evidence that Climate Change is affecting current weather events to a degree that would significantly impact immediate underwriting decisions. The Group is also protected as its P&C insurance policies are customarily written for one year and repriced annually to reflect changing exposures (increased possibilities of loss translate promptly into increased premiums). For the Life, Annuity, and Health portfolio any mortality and morbidity impacts would display some degree of offset from the annuity business. The Group’s risk decisions are solely dictated by an expectation of an economic profit within our aggregate risk tolerance limits regardless of marketplace acceptance of those risk decisions. The Group has demonstrated willingness to assume multiples of our current levels of risks if the opportunities exist and an equal demonstrated willingness to assume only a fraction of our current level of risks if market conditions do not allow our risk assessments to prevail. For direct operations, the Group assesses the capital requirements of business segments presuming annualized premium and exposure volumes possibly doubling over the next year. The Group also assesses the capital effects of fixed cost charges for each business segment against no offsetting premium revenues within the next year. The Group considers one-year fixed operations costs without any recovery to be an operational business commitment to reinforce its discipline of only accepting risks at an expectation of an economic profit. This assessment is a continuous one, such that intermediate (within a year) growth or contraction is reassessed on the basis of either doubling or experiencing extreme declines over the next year from each point in time even after sustained periods of either significant growth or contraction.
For reinsurance operations, the Group utilizes the same assessment criteria as direct operations for transactional assumed reinsurance business segments. For significant individual assumed reinsurance agreements (defined as generating either annual premium or an increase in aggregate exposure in excess of USD one billion), future capital requirements are specifically assessed prior to the acceptance of the agreement. Directors and Officers Liability and Commercial General Liability insurance policies written by the Group insure certain parties, and include certain terms and conditions, and are customarily written for one year and repriced annually to reflect changing exposures. The Group uses a combination of a limits-based approach combined with Probable Maximum Loss estimates in determining its maximum catastrophe exposure. Stress tests are performed to ensure capital adequacy. Group Management also has a process to continuously monitor catastrophe aggregates prior to assuming new business, proactively controlling accumulations. The design and effectiveness of this process is assessed at least annually. |
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| Has the company considered the impact of climate change on its investment portfolio? Has it altered its investment strategy in response to these considerations? If so, please summarize steps you have taken. |
| Y |
| N |
| Berkshire’s corporate office senior management participates in and is ultimately responsible for the significant capital allocation decisions and investment activities of the Group. The Group’s investment portfolio has experienced superior long-term performance in comparison to its peers. There are also various mechanisms of control in place to ensure the Group has the liquid assets to meet cash needs under current conditions or possible future environments. This has remained true in light of the past year’s market volatility spurred by the COVID-19 pandemic. These controls include stress test modeling that presents how certain key solvency-related financial statement entries of the insurance companies are affected by modifications in key asset valuations (stocks and bonds). The modeling links risks associated with investments and underwriting activities. As noted above, the stress testing exercises also include scenarios that contemplate Transition Risk. These stress testing exercises involve a detailed analysis of Transition Risk for each entity in the Group. As part of the Transition Risk Assessment, the investment portfolios for the insurance companies are assessed to identify holdings that are susceptible to sudden drops in asset values or increased credit risk as a result of the transition to a greener economy. The Group also considers regulatory changes that may adversely impact future operating results. Over time, in response to financial market crises, global economic recessions, and social and environmental issues, regulatory initiatives were adopted in the United States and elsewhere. These initiatives impact all businesses, albeit in varying ways. Increased regulatory compliance costs could have a significant negative impact on Berkshire’s operating businesses as well as on the businesses in which Berkshire maintains a significant, but not controlling economic interest. |
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| Summarize steps the company has taken to encourage policyholders to reduce the losses caused by climate change-influenced events. |
| Y |
| The Group has taken measures to encourage policyholders within the Group to reduce the impact Climate Change has to the planet. The direct operations within the Group typically review their underwriting and customer base for loss control issues, which include potential Climate Change-influenced events. A reduction in claim costs can lead to a rate reduction. The reinsurance operations discuss such issues as green construction and increased catastrophe exposures with insurance company clients on an ad hoc basis. As noted above, Directors and Officers Liability, Commercial General Liability, and Professional Liability insurance policies written by the Group insure certain parties, include certain terms and conditions, and are customarily written for one year and repriced annually to reflect changing exposures. The Group continuously monitors the impact Climate Change Risk could have on these lines of business. Items considered include the potential impact on pricing as well as underwriting and risk selection. Possible outcomes could include updates to policy terms and conditions (i.e. revisions to standard pollution and environmental liability exclusions). |
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| Discuss steps, if any, the company has taken to engage key constituencies on the topic of climate change. |
| Y |
| As highlighted above, as of December 31, 2020, Berkshire Energy made cumulative investments in wind, solar, geothermal, and biomass generation facilities of approximately $34 billion, with plans to spend approximately $3 billion more on the construction of wind-powered generating facilities, repowering certain existing wind-powered generating facilities, and funding wind tax equity investments through 2022. This entity has also committed to retiring 46 coal units before 2050. As noted above, the Group has taken measures to encourage policyholders within the Group to reduce the impact Climate Change has to the planet. |
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| Describe actions the company is taking to manage the risks climate change poses to your business including, in general terms, the use of computer modeling. |
| Y |
| Natural Catastrophe Risk is one of the Group’s key risks. The largest maximum per occurrence net catastrophe exposure in 2020 was approximately $8.7 billion. Group Management uses a combination of conservative modeling (1:500 year for natural catastrophe risk) and adding up exposed limits to determine exposure accumulations. The Group believes that our capital and liquidity resources provide a very significant margin of safety beyond the worst case scenario downside impact of all risks assumed (including potential Climate Change Risk). As noted above, the Group recently began modelling specific stand-alone Climate Change stress scenarios. The Climate Change scenario results are included in the Group’s Own Risk and Solvency Assessments (“ORSA”). This scenario contemplates the combination of the following stresses: Natural Catastrophe Risk Transition Risk Litigation Risk Pricing Risk Underwriting Risk The parameters of the Climate Change scenario will be revisited by the ERM Committee at least annually to ensure that the scenario incorporates the latest data as more information regarding the effects of Climate Change becomes available. The Group assesses the post-stress Risk Based Capital (“RBC”) (or SCR for companies regulated under Solvency II) ratio of each impacted entity. The ERM Committee has determined to maintain capital that is at least 300% of the “Authorized Control Level RBC” as defined under the insurance laws and regulations of the State of Nebraska for each U.S. insurance company within the Group. A ratio below 350% requires increased management monitoring and potential corrective action. A ratio below 300% would cause the Group to re-examine its risk appetite, risk tolerance, and risk measures. |