Buffett highlights hurricane risk, but makes no mention of climate
In his annual letter to Berkshire Hathaway Inc. stockholders, Chairman Buffett said hurricanes last year cost the company about $3 billion and the insurance industry $100 billion, adding that natural disasters almost always cost more to clean up than expected.
“The pattern with most mega-catastrophes has been that the initial loss estimates ran low,” Buffet wrote.
The cost to reinsurance companies — companies that provide insurance to insurers — could have doubled with a small change in direction, he said. “The damage to them could have been far worse: Had Irma followed a path through Florida only a bit to the east, insured losses might well have been an additional $100 billion.”
2017 was the most expensive hurricane season in U.S. history, and three of the storms — Hurricanes Harvey, Maria and Irma — rank among the five most costly hurricanes in the country’s history, according to NOAA data.
Buffett estimated a 2 percent annual chance of a megacatastrophe causing $400 billion or more in U.S. losses, with increasing risk over time. But he attributed the increased risk to the growing number of structures in vulnerable areas, rather than to an increase in the size of the vulnerable areas or the storms themselves. “Risk increases over time because of growth in the number and value of structures located in catastrophe-vulnerable areas,” he wrote. Buffett did not mention climate change in the letter.
Buffett, to many the most influential investor in U.S. history, has downplayed the risks of climate change in his previous company meetings and annual stockholder letters, which every year are among the most picked-over and scrutinized documents on Wall Street.
Buffett drew fire from environmental advocates in 2016 when he compared climate science to Y2K and played down the physical threats of climate change.
“It seems highly likely to me that climate change poses a major problem for the planet,” he said at the time. “I say ‘highly likely’ rather than ‘certain’ because I have no scientific aptitude and remember well the dire predictions of most ‘experts’ about Y2K.”
In response to shareholders worried about climate risks, Buffett discounted such concerns, saying that insurance policies could be renewed every year to keep pace with the risk.
“Insurance policies are customarily written for one year and repriced,” he said, “to reflect changing exposures.”
And Berkshire Hathaway the same year rejected a proposal from its shareholders who wanted the firm to study its exposure to climate change risk (Climatewire, May 3, 2016).