SEC May Join NAIC in Mandating Climate Risk Disclosures

For U.S. insurers, the climate change forecast for a public disclosure front could be met with a high-pressure system from Washington, D.C.

As the National Association of Insurance Commissioners prepares to implement its new Climate Risk Disclosure Survey, the U.S. Securities and Exchange Commission is considering new rules of its own that would require publicly traded companies to reveal climate risk information -- possibly including the impacts of emissions, potential regulations and property damage from windstorms -- in annual 10-K filings or through other means. In a recent speech, SEC Commissioner Elisse Walter said it is time for the SEC to consider specific steps to govern what climate change-associated risks must be disclosed.

In addition, she said "If I were drafting disclosure for a registrant today, I would carefully consider whether that company's particular facts and circumstances raise any disclosure obligations under the current rules."

John Nester, director of public affairs for the SEC, said commission staff are developing proposals around these ideas, but that no formal recommendation has been made.

In March, the NAIC adopted a long-debated mandate that insurance companies inform their respective state regulators of the financial risks they foresee from climate change ? and what steps they are taking to address those risks. It applies to all insurers with annual premiums of $500 million or more and has an initial reporting deadline of May 1, 2010, for 2009 data (BestWire, March 17, 2009).

Pennsylvania Insurance Commissioner Joel Ario said he would welcome SEC involvement. Wisconsin Insurance Commissioner Sean Dilweg has held discussions with SEC officials about steps the commission has under consideration.

"We would be happy to see other regulators pick up the mantle of better disclosure," said Ario, chairman of the NAIC's Climate Change and Global Warming Task Force. "More information that is made available can only enhance the public policy process."

Any information mandated by the SEC should be consistent or complementary with that requested by the NAIC, said Andrew Logan, director of insurance programs for Ceres, a network of investors and environmentalists that strongly supported the climate-risk disclosure plan. "The information should be essentially the same," he said.

While saying any comment on SEC action would be premature, American Insurance Association Associate General Counsel David Snyder said insurance companies are planning to follow with the NAIC plan. "Regulators and insurers are working together to determine what information needs to be gathered in terms of compliance," he said.

After opposing earlier drafts that consisted of as many as 30 detailed interrogatories, the AIA supported a final draft that includes a includes a scaled-back question-and-answer burden on insurance companies and removes the disclosure filing from insurers' annual financial statements (BestWire, March 17, 2009). The mandate now consists of eight questions, all of which may be answered using solely qualitative responses.

Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies, said the disclosure plan does not provide enough guidance for insurers to determine how extensive their disclosure must be. He said individual insurance regulators, who have direct oversight over companies in their states, have yet to formally request this data. NAMIC opposed all versions of the disclosure proposal.

"There's an uncertainty over what's expected," Detlefsen said.

Ario said the plan reflects repeated industry requests for flexibility. Still to be determined is just how the NAIC will aggregate the data and make it public. However, raw data will also be available for review and potentially for integration with other tools for evaluating the results, he said.

"We definitely want to do more than simply post those answers in a PDF on a Web site," Ario said. "People will be able to get individual answers on individual companies."