The two big insurers still betting on fossil fuels

The buying by State Farm and Berkshire Hathaway’s insurance companies was so big that it helped offset a decline in the rest of the industry, according to an analysis by The Wall Street Journal of data from the National Association of Insurance Commissioners, a group of state regulators.

Property-and-casualty insurers overall reduced the proportion of their portfolios dedicated to fossil fuels to a median 1.8% last year from 3.4% in 2014, according to the Journal’s analysis. The increases from State Farm and Berkshire drove the industry’s overall exposure to fossil fuels higher, pushing it to 4.4% of their portfolios from 3.8%, the analysis found. The energy sector accounts for 3.5% of the S&P 500’s market capitalization.

The value of fossil-fuel holdings by the property-and-casualty industry rose to $84.6 billion last year from $57 billion in 2014, driven by market appreciation and the buying by the two insurers.

The insurance industry plays an outsize role in addressing climate change. Insurers are already pricing in the risks of storms, wildfires and the like and passing the costs on to their customers.

The industry also invests customers’ premiums in stocks and bonds, which provide funding for companies, including producers of the fossil fuels that are the main cause of climate change. Insurers also provide coverage for projects such as coal mines and pipelines that couldn’t be built without it.

State Farm, the nation’s biggest home and auto insurer, has stopped selling new home insurance in California and aggressively raised rates after big losses. Insurers owned by Berkshire, including Geico and General Reinsurance, an industry giant, have also raised rates.

State Farm invested nearly $4.8 billion in stocks and bonds of companies such as Chevron, Diamondback Energy and Exxon Mobil. The insurer increased the share of fossil-fuel companies in its $142.7 billion portfolio to 3.6%, up from 2.6% a decade earlier, according to the Journal’s analysis.

A core reason for State Farm’s Golden State pullback was its “rapidly growing catastrophe exposure" from wildfires, State Farm said. The National Oceanic and Atmospheric Administration says climate change makes wildfires bigger and riskier.

State Farm is one of many insurers to say climate change is having a significant impact on their company. “Being a good steward of our planet just makes sense," State Farm says on its website.

A State Farm spokesman declined to comment.

More than half of 236 insurers with fossil-fuel holdings in 2014 cut their investments in fossil-fuel producers. Some nearly eliminated the holdings. French insurer Axa cut its investments in oil, gas and coal stocks and bonds from 6% of its portfolio in 2014 to 0.05% last year, the Journal’s analysis found.

The insurer’s chief executive, Thomas Buberl, said the higher claims caused by fossil fuels outweighed any financial benefit from investing in them. “Every insurer should look at that equation," he said.

It is irresponsible for insurers to still invest in fossil fuels, Buberl said. “The issue is if one of us does it and everybody else doesn’t, the industry as a whole remains in a bad spot," he added.

Berkshire’s insurers reported spending $39.9 billion on oil, gas and coal securities last year, increasing fossil fuels to more than a fifth of their overall $183 billion in holdings, the analysis found.

The main reason behind the jump is Berkshire Chief Executive Warren Buffett’s big bet on Occidental Petroleum, which accounted for 85% of the increase from 2014 to 2023 in spending on fossil-fuel investments by insurers as a whole.

Buffett last year praised Occidental, saying its “vast oil and gas holdings" in the U.S. were helping the nation achieve energy self-sufficiency. Occidental is also making one of the biggest bets on technology that pulls carbon dioxide out of the air, which could reduce the carbon footprint of oil and gas.

Berkshire declined to comment.

Insurers are cutting back on coverage for some fossil-fuel projects. Global insurer Chubb has emissions rules for the fossil-fuel projects it will underwrite, including caps on methane from oil and gas and strict curbs on insuring heavy-emitting thermal coal and oil-sands developments.

Chubb has sharply cut its ownership of fossil-fuel producers but has continued to invest in heavy emitting companies. It put $1.6 billion in fossil-fuel companies last year, including bonds issued by thermal coal producer Glencore and oil-sands producer Suncor Energy.

A Chubb spokeswoman said its policy is to make no new investments in companies where thermal coal accounts for more than 30% of revenue, and it began in 2022 to sell its existing stakes in such companies. “Chubb supports the transition to a net zero economy," the spokeswoman said.

“The reality is the world’s energy is coming from fossil fuels," said John Neal, CEO of insurance marketplace Lloyd’s of London, a leading underwriter of oil, gas and coal projects. “So you want to understand that and get the transition right, rather than ignore it."

Lloyd’s was one of a string of insurers to last year quit an insurance-industry effort to coordinate action on climate change. The Net-Zero Insurance Alliance, formed in 2021, came under pressure from Republican state attorneys general, who last year threatened antitrust lawsuits. The alliance was disbanded earlier this year.

Some home insurers that have pulled back from disaster-prone areas have reduced their exposure to fossil fuels, but still retain significant investments.

Allstate, which has stopped selling new home insurance in California, says it is in its interests to take action on global warming. “Weather-related catastrophes caused by climate change negatively impact our customers and shareholders," its latest sustainability report said.

In 2022, the Northbrook, Ill.-based insurer pledged to achieve net zero emissions by 2030, but that excludes its investments and underwriting.

Allstate last year reported owning fossil-fuel securities costing $1.8 billion, which made up 4.3% of its overall portfolio, more than double the industry median. Its investments include major oil companies ConocoPhillips and Occidental.

An Allstate spokesman said the insurer has been “working to mitigate the impact of more severe weather on customers for over 25 years."