Wednesday, September 19, 2007

SEC Pressed on Climate-Change Disclosures and When will Warren Buffett get on Board the Love Train?*

From the Wall Street Journal Online with observations by Climateer.

Nearly two dozen state officials, big investors and others plan to prod the Securities and Exchange Commission to require more rigorous analysis and disclosure of the risks posed by climate change.

The group, which says it manages more than $1.5 trillion in assets, says it plans to file a petition with the SEC today that says disclosure is "inconsistent and inadequate" across industries and needs to be improved.

The petitioners, including the New York attorney general, finance officials from California and Florida, environmental groups and the California Public Employees' Retirement System, the nation's biggest public pension fund, assert that climate change poses a threat whose "material adverse" effect must be disclosed to satisfy SEC reporting rules....MORE

What the heck are we going to do with Warren Buffett?

Nowhere in the Berkshire Hathaway annual report is there any discussion of how global warming will affect See's Candies!

Sure, the man, through Berkshire Hathaway runs some insurance stuff** and some other businesses*** but certain high-quality analysts go straight to the See's results (ho-hum) or the stores (Ho-Ho-Ho) and care more about Ghanaian cocoa than winding down some silly-assed derivatives book you didn't want in the first place.

If you search the BRK 2006 annual report, you won't find the term "global warming". Nor do you find "climate change". Using the keyword "climate" gets you:

In 2007, our results from the bread-and-butter lines of insurance will deteriorate, though I think they will remain satisfactory. The big unknown is super-cat insurance.

Were the terrible hurricane seasons of 2004-05 aberrations? Or were they our planet’s first warning that the climate of the 21st Century will differ materially from what we’ve seen in the past? If the answer to the second question is yes, 2006 will soon be perceived as a misleading period of calm preceding a series of devastating storms. These could rock the insurance industry.

It’s na├»ve to think of Katrina as anything close to a worst-case event. Neither Ajit Jain, who manages our super-cat operation, nor I know what lies ahead. We do know that it would be a huge mistake to bet that evolving atmospheric changes are benign in their implications for insurers.

Don’t think, however, that we have lost our taste for risk. We remain prepared to lose $6 billion in a single event, if we have been paid appropriately for assuming that risk. We are not willing, though, to take on even very small exposures at prices that don’t reflect our evaluation of loss probabilities. Appropriate prices don’t guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses.

Rates have recently fallen because a flood of capital has entered the super-cat field. We have therefore sharply reduced our wind exposures. Our behavior here parallels that which we employ in financial markets: Be fearful when others are greedy, and be greedy when others are fearful.

The only other reference is a throwaway line:

All that said, a confession about our 2006 gain is in order. Our most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation. After hammering us with hurricanes in 2004 and 2005 – storms that caused us to lose a bundle on super-cat insurance – she just vanished. Last year, the red ink from this activity turned black – very black.

One of the signatories on the petition sent to the SEC is Calpers, the inconceivably large retirement fund/medium-sized country. They own 6,983 of Berkshire's "A" shares.****
I'm sure they want to know: "What's Buffet hiding, re: Global Warming risk to See's?"
(besides melting and/or bloom):

Question: What About See's Chocolate?

* Love Train, The O'Jays:
...Start a love train (love ride), love train
The next stop that we make will be soon
Tell all the folks in Russia, and China, too
Don't you know that it's time to get on board...

**GEICO, one of the four largest auto insurers in the United States and two of the largest reinsurers in the world, General Re and the Berkshire Hathaway Reinsurance Group. Other subsidiaries that underwrite property and casualty insurance include National Indemnity Company, Medical Protective Company, Applied Underwriters, U.S. Liability Insurance Company, Central States Indemnity Company, Kansas Bankers Surety, Cypress Insurance Company and several other subsidiaries referred to as the “Homestate Companies.” p.2

***73 business at year-end 2006 including the Manufacturing, Service and Retailing grouping, which would be See's home on the organizational charts, if Mr. Buffet kept such things. He describes it as:
"This motley group, which sells products ranging from lollipops to motor homes, earned a pleasing 25% on average tangible net worth last year."

****Worth $831,675,370 as of 11:15 am EDT. I get a kick out of the last print $119100.01.