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Risky business: Climate change turns up the heat on insurers, policyholders

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November 11, 2021

By Noor Zainab Hussain and Carolyn Cohn

(Reuters) – Tony and Jhan Dunn never thought they would leave California, where they grew up, built a life together and planned to retire.

But after a wildfire swept through their Northern California town of Paradise three years ago, burning their home to the ground, they could not get insurance to buy another.

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“We basically got priced out of California,” Dunn, a retired planning specialist, told Reuters from the couple’s new home in North Carolina.

There are thousands of homeowners and businesses from California to Australia in a similar position because the insurance industry, known for its readiness to cover anything from Bruce Springsteen’s vocal chords to alien abductions, has trouble factoring in climate change.

The tried and tested approach, where decades’ worth of historical data serve to estimate future claims, falls short when weather patterns change and hurricanes, floods, heat waves or snowstorms become more extreme and unpredictable, industry experts say. And the British hosts of the U.N. climate conference in Glasgow acknowledged on Wednesday that current pledges to cut greenhouse gases were not enough to avert climate catastrophe.

Insurance broker Aon said in a report last week that “highly anomalous” floods in Germany and China this year caused record insured losses in those regions.

“Insurers are pulling out because nobody wants to be in the business of losing money,” says Attila Toth, chief executive at specialist risk analytics firm Zesty.ai. “And if they don’t trust their traditional models, then they are concerned that they will be losing money.”

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Zesty.ai, whose customers include Farmers Insurance, reinsurer Berkshire Hathaway and Aon, uses artificial intelligence trained on more than 1,400 wildfire events to produce climate change risk scores for any individual property.

In the same vein, reinsurance broker Willis Re is using data from AI firm Cloud to Street to help clients price flood reinsurance.

Insurance statistics show an urgent need for such innovation.

For example, the average number of large U.S. wildfires has risen by 30% over the past 15 years and by nearly a fifth in just the last five, according to Lloyd’s of London insurer Chaucer.

In all, insured losses for so-called “secondary” perils such as floods and wildfires – rather than more closely modelled perils such as hurricanes – nearly doubled over the past decade, data compiled by Swiss Re shows.

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The reinsurer expects no let-up, forecasting a 30-63% rise in insured losses for all types of natural catastrophes in advanced markets by 2040. China, Britain, France and Germany, could even see those soaring between 90% and 120%.

Given the momentum, it is no surprise that traditional models cannot keep up, Bruce Carnegie-Brown, chairman of insurance market Lloyd’s of London told Reuters.

“If you’ve reached an exponential part of the curve where suddenly, something’s accelerating, it’s almost certain that we are underpricing the risk that we’re taking.”

FEELING THE HEAT

Policyholders are already feeling the heat, with coverage getting costlier or harder to come by.

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Broker Marsh estimates U.S. property insurance rates have risen by 10% in the third quarter.

In California, non-renewals of homeowners’ insurance policies rose 31% from a year earlier in 2019 to more than 235,000, the state’s Insurance Department’s most recent data showed. The data for 2020 could be similar, according to Carmen Balber, executive director of Consumer Watchdog LA.

Across the northern border, the Insurance Bureau of Canada warned on its website homeowners might not be able to buy a new insurance policy if they have suffered a fire.

Among those pulling back from home insurance in California are some household names such as Liberty Mutual, Nationwide and State Farm. Liberty Mutual said it was a “difficult but necessary step to reduce overall exposure to wildfires,” a sentiment echoed by other insurers.

Some insurers aim to reduce their exposure by helping clients become more resilient. Commercial insurer AXA, for example, offers a consulting service for clients such as manufacturers, identifying their vulnerabilities and suggesting remedies, such as erecting flood barriers, its chief risk officer Renaud Guidee told Reuters.

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“This is really an alignment of interest.”

U.S. insurer Chubb is also working with clients to help them make their infrastructure sturdier, said Paul J Krump, Vice Chairman, Chubb Group, Global Underwriting and Claims.

Reinsurers, with their global scope and long history of underwriting catastrophe risks, also have a role to play in helping the industry adapt to climate change, analysts say.

Ernst Rauch, chief climate and geo scientist at Munich Re, said the group had the expertise and willingness to take on climate risk.

The 141-year-old company set up a team to work on natural catastrophes and climate change in the 1970s after noticing loss patterns starting to change for weather related events, Rauch said.

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“We observed a continuation of years with losses significantly higher compared to the last 35 years or so. And that’s reflected in our models,” he said.

Yet there was a gap between what the reinsurer considered a fair premium and what insurers were prepared to pay.

“We can only transfer this risk on our balance sheet if we get the premium which we need to cover these risks, based on our own assessment,” Rauch said.

Ratings agency S&P Global warned even reinsurers could be underestimating their exposure to climate risk by as much as 50%, describing their efforts to account for climate change as “nascent” in a recent report.

Industry experts also say disasters such as hurricanes in Florida with a long history of causing severe damage, are more closely modelled than floods or wildfires, which have only in recent years begun to cause major losses.

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That calls for reinsurers and independent risk modelling firms such as RMS and KCC to try new ways of approaching natural catastrophes.

One such approach is scenario modelling, where insurers are provided with a number of possible climate impacts on their portfolios over years, to take account of “the whole range of uncertainty,” said Laurent Marescot, senior director, EMEA and CIS, at RMS, which sells its risk models to insurers.

Another involves machine learning, which can be used to take existing models of floods in a particular region, for example, and map them to other parts of the world, Marescot said.

But any developments in making insurance more available and affordable will come too late for the Dunns.

“It was sad because we both spent our whole lives in California, we both grew up in San Diego,” Tony Dunn said. “I never had any intentions ever of leaving California.”

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(Reporting by Noor Zainab Hussain in Bengaluru and Carolyn Cohn in London; Editing by Tomasz Janowski and Elaine Hardcastle)

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Bukele steps up El Salvador’s bet on sliding bitcoin; buys another 150 coins

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December 5, 2021

SAN SALVADOR (Reuters) – El Salvador President Nayib Bukele said the Central American country had acquired an additional 150 bitcoins after the digital currency’s value slumped again, enlarging his bet on the cryptocurrency despite criticism.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down about 30% from the year’s high of $69,000 on Nov. 10. Bukele said last week that El Salvador had acquired 100 additional coins to take advantage of the currency weakening.

Late on Friday, Bukele announced the government had stepped into the market again.

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“El Salvador just bought the dip! 150 coins at an average USD price of ~$48,670,” Bukele wrote on Twitter.

Until Nov. 26, El Salvador had 1,220 bitcoins.

In September El Salvador became the world’s first nation to adopt bitcoin as legal tender, a move that generated global media attention but also attracted criticism from the opposition and foreign financial institutions.

The International Monetary Fund (IMF) said on Monday that El Salvador should not use bitcoin as legal tender, considering risks related to the cryptocurrency.

(Reporting by Nelson Renteria; Writing by Drazen Jorgic; Editing by Daniel Wallis)

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Bitcoin falls 9.2% to $48,782

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December 4, 2021

(Reuters) – Bitcoin dropped 9.29% to $48,752.15 at 22:01 GMT on Saturday, losing $4,991.54 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is down 29.3% from the year’s high of $69,000 on November 10.

Ether, the coin linked to the ethereum blockchain network, dropped 3.61% to $4,070.52 on Saturday, losing $152.28 from its previous close.

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(Reporting by Juby Babu in Bengaluru; Editing by Daniel Wallis)

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Trump’s social media venture says it has raised $1 billion

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on

December 4, 2021

By Krystal Hu and Juby Babu

(Reuters) – Donald Trump’s new social media venture said on Saturday it had entered into agreements to raise about $1 billion from a group of unidentified investors as it prepares to float in the U.S. stock market.

The capital raise, details of which were first reported by Reuters on Wednesday, underscored the former U.S. president’s ability to attract strong financial backing thanks to his personal and political brand. He is working to launch a social media app called TRUTH Social that is at least several weeks away.

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Digital World Acquisition Corp, the blank-check acquisition firm that will take Trump Media & Technology Group Corp public by listing it in New York, said it will provide up to $293 million to the partnership with Trump’s media venture, taking the total proceeds to about $1.25 billion.

The $1 billion will be raised through a private investment in public equity (PIPE) transaction from “a diverse group of institutional investors,” Trump Media and Digital World said in a statement. They did not respond to requests to name the investors.

Trump Media inked its deal with Digital World to go public in October at a valuation of $875 million, including debt. The social media venture is now valued at almost $4 billion based on the price of Digital World shares at the end of trading on Friday. Trump supporters and day traders snapped up the stock.

Many Wall Street firms such as mutual funds and private equity firms snubbed the opportunity to invest in the PIPE. Among those investors who participated were hedge funds, family offices and high net-worth individuals, Reuters reported on Wednesday. Family offices manage the wealth of the very rich and their kin.

Some Wall Street investors are reluctant to associate with Trump. He was banned from top social media platforms after the Jan. 6 attack by his supporters on the U.S. Capitol amid concerns he would inspire further violence. The Capitol attack was based on unsubstantiated claims of widespread fraud in last year’s presidential election.

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“As our balance sheet expands, Trump Media & Technology Group will be in a stronger position to fight back against the tyranny of Big Tech,” Trump said in a statement on Saturday.

The deal also faces regulatory risk. U.S. Senator Elizabeth Warren asked Securities and Exchange Commission Chairman Gary Gensler last month to investigsate the planned merger for potential violations of securities laws around disclosure. The SEC has declined to comment on whether it plans any action.

Trump Media and Digital World said the per-share conversion price of the convertible preferred stock PIPE transaction represents a 20% discount to Digital World’s volume-weighted average closing price for the five trading days to Dec. 1, when Reuters broke news of the capital raise.

If that price averages below $56 in the 10 days after the merger with Digital World has been completed, the discount will grow to 40% with a floor of $10, the companies added. Digital World shares ended trading on Friday $44.97.

Trump had 89 million followers on Twitter, 33 million on Facebook and 24.5 million on Instagram at the time he was blocked, according to a presentation on his company’s website.

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Investors attending the confidential investor road shows were shown a demo from the planned social media app, which looked like a Twitter feed, Reuters reported.

FIRST-QUARTER ROLLOUT

Since Trump was voted out of office last year, he has repeatedly dropped hints that he might seek the presidency in 2024.

Special purpose acquisition companies such as Digital World had lost much of their luster with retail investors before the Trump media deal came along. Many of these investors were left with big losses after the companies that merged with SPACs failed to deliver on their ambitious financial projections.

TRUTH Social is scheduled for a full rollout in the first quarter of 2022. It is the first of three stages in the Trump Media plan, followed by a subscription video-on-demand service called TMTG+ that will feature entertainment, news and podcasts, according to the news release.

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In a slide deck on its website, the company envisions eventually competing against Amazon.com’s AWS cloud service and Google Cloud.

(Reporting by Juby Babu in Bengaluru and Krystal Hu in New York; Editing by Daniel Wallis and Cynthia Osterman)

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