2014 Climate Risk Disclosure Analysis

Industry Group: Insurance Services

Standard Industrial Classification: Fire, Marine & Casualty Insurance

Index Membership: S&P 500, Russell 3000

Financial Year End: Dec 2013

Disclosure Breakdown

Disclosure Rank

90th percentile in Russell 3000

Disclosure Abstract

item 1. Business
10 Relevance:
Drilling contracts may also provide for reductions in rates during periods when the rig is being moved or when drilling operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other circumstances.
11 Relevance:
Governmental Regulation: Diamond Offshore's operations are subject to numerous international, foreign, U.S., state and local laws and regulations that relate directly or indirectly to its operations, including regulations controlling the discharge of materials into the environment, requiring removal and clean-up under some circumstances, or otherwise relating to the protection of the environment, and may include laws or regulations pertaining to climate change, carbon emissions or energy use.
20 Relevance:
In September of 2009, the EPA adopted regulations under the Clean Air Act requiring the monitoring and reporting of annual greenhouse gas ('GHG') emissions by certain large U.S. GHG emitters. Affected companies are required to monitor their GHG emissions and report to the EPA. Oil and gas exploration and production companies that emit more than 25,000 metric tons of GHG per year from any facility (as defined in the regulations), including High Mount, are required to monitor and report emissions for facilities that meet the emissions threshold. High Mount filed its GHG report in March of 2013 for the 2012 reporting year.
item 1a. Risk Factors
24 Relevance:
These events can be natural or man-made, and may include hurricanes, windstorms, earthquakes, hail, severe winter weather, fires, floods, riots, strikes, civil commotion and acts of terrorism. The frequency and severity of these catastrophe events are inherently unpredictable. In addition, longer-term natural catastrophe trends may be changing and new types of catastrophe losses may be developing due to climate change, a phenomenon that has been associated with extreme weather events linked to rising temperatures, and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow.
27 Relevance:
Oil and gas prices have been, and are expected to continue to be, extremely volatile and are affected by numerous factors beyond Diamond Offshore's control, including:
 * - worldwide demand for oil and gas;
 * - the level of economic activity in energy-consuming markets;
 * - the worldwide economic environment or economic trends, such as recessions;
 * - the ability of the Organization of Petroleum Exporting Countries, commonly called OPEC, to set and maintain production levels and pricing;
 * - the level of production in non-OPEC countries;
 * - the worldwide political and military environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities in the Middle East, other oil-producing regions or other geographic areas or further acts of terrorism in the United States or elsewhere;
 * - civil unrest;
 * - the cost of exploring for, producing and delivering oil and gas;
 * - the discovery rate of new oil and gas reserves;
 * - the rate of decline of existing and new oil and gas reserves;
 * - available pipeline and other oil and gas transportation and refining capacity;
 * - the ability of oil and gas companies to raise capital;
 * - weather conditions;
 * - natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills;
 * - the policies of various governments regarding exploration and development of their oil and gas reserves;
 * - development and exploitation of alternative fuels or energy sources;
 * - competition for customers' drilling budgets from land-based energy markets around the world;
 * - laws and regulations relating to environmental or energy security matters, including those addressing the risks of global climate change;
 * - domestic and foreign tax policy; and  * - advances in exploration and development technology.
Diamond Offshore's business involves numerous operating hazards which could expose it to significant losses and significant damage claims. Diamond Offshore is not fully insured against all of these risks and its contractual indemnity provisions may not fully protect Diamond Offshore. Diamond Offshore's operations are subject to the significant hazards inherent in drilling for oil and gas offshore, such as blowouts, reservoir damage, loss of production, loss of well control, unstable or faulty sea floor conditions, fires and natural disasters such as hurricanes. The occurrence of any of these types of events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury or death to rig personnel, damage to producing or potentially productive oil and gas formations, and oil spillage, oil leaks, well blowouts and extensive uncontrolled fires, any of which could cause significant environmental damage. In addition, offshore drilling operations are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather.
34 Relevance:
Projects of this type are subject to risks of delay or cost overruns inherent in any large construction project resulting from numerous factors, including the following:
 * - shortages of equipment, materials or skilled labor;
 * - work stoppages;
 * - unscheduled delays in the delivery of ordered materials and equipment;
 * - unanticipated cost increases or change orders;
 * - weather interferences or storm damage;
 * - difficulties in obtaining necessary permits or in meeting permit conditions;
 * - design and engineering problems;
 * - disputes with shipyards or suppliers;
 * - availability of suppliers to recertify equipment for enhanced regulations;
 * - customer acceptance delays;
 * - shipyard failures or unavailability; and  * - failure or delay of third party service providers, civil unrest and labor disputes.
35 Relevance:
Diamond Offshore has elected to self-insure for physical damage to rigs and equipment caused by named windstorms in the GOM. Because the amount of insurance coverage available to Diamond Offshore has been limited, and the cost for such coverage is substantial, Diamond Offshore has elected to self-insure for physical damage to rigs and equipment caused by named windstorms in the GOM.
38 Relevance:
The prices of natural gas and NGLs fluctuate in response to changes in supply and demand, market uncertainty and a variety of additional factors, including:
 * - worldwide economic conditions;
 * - weather conditions, seasonal trends and hurricane disruptions;
 * - the relationship between the available supplies and the demand for natural gas and NGLs;
 * - new supply sources;
 * - the availability of adequate transportation capacity;
 * - storage inventory levels;
 * - the price and availability of oil and other forms of energy;
 * - the effect of energy conservation measures;
 * - the nature and extent of, and changes in, governmental regulation, new regulations adopted by the EPA for example greenhouse gas legislation and taxation; and  * - the anticipated future prices of natural gas, oil and other commodities.
It is difficult to predict future changes in natural gas and NGL prices. However, the economic environment that has existed over the last several years generally indicates a bias toward continued downward pressure on natural gas prices. Sustained low natural gas prices could negatively impact producers, including those directly connected to Boardwalk Pipeline's pipelines that have contracted for capacity with them which could adversely impact revenues, earnings and distributable cash flow.
Conversely, future increases in the price of natural gas could make alternative energy sources more competitive and reduce demand for natural gas.
45 Relevance:
We are subject to physical and financial risks associated with climate change. As awareness of climate change issues increases, governments around the world are beginning to address the matter. This may result in new environmental regulations that may unfavorably impact us, our subsidiaries and their suppliers and customers. We and our subsidiaries may be exposed to risks related to new laws or regulations pertaining to climate change, carbon emissions or energy use that could decrease the use of oil or natural gas, thus reducing demand for hydrocarbon-based fuel and related services provided by our energy subsidiaries. Governments also may pass laws or regulations encouraging or mandating the use of alternative energy sources, such as wind power and solar energy, which may reduce demand for oil and natural gas. In addition, changing global weather patterns have been associated with extreme weather events and could change longer-term natural catastrophe trends, including increasing the frequency and severity of hurricanes and other natural disasters which could increase future catastrophe losses at CNA and damage to property, disruption of business and higher operating costs at Diamond Offshore, Boardwalk Pipeline, High Mount and Loews Hotels. There is currently no federal regulation that limits GHG emissions in the U.S. However, several bills were introduced in Congress in recent years that would regulate U.S. GHG emissions under a cap and trade system. Although these bills were not passed into law, some regulation of that type may be enacted in the U.S. in the near future. In addition, in 2009 the EPA adopted regulations under the Clean Air Act requiring the monitoring and reporting of annual GHG emissions by operators of facilities that emit more than 25,000 metric tons of GHG per year, which includes Boardwalk Pipeline and High Mount. Numerous states and several regional multi-state climate initiatives have announced or adopted plans to regulate GHG emissions, though the state programs vary widely. The establishment of a GHG reporting system and registry may be a first step toward broader regulation of GHG emissions.
item 6. Selected Consolidated Financial Data
52 Relevance:
The prior year catastrophe losses included $171 million (after tax and noncontrolling interests) related to Storm Sandy.
66 Relevance:
Insurance claims and policyholders' benefits increased $407 million, primarily due to higher catastrophe impacts, including $171 million (after tax and noncontrolling interests) from Storm Sandy, and decreased aggregate favorable net prior year development.
70 Relevance:
Diamond Offshore is self-insured for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico. If a named windstorm in the U.S. Gulf of Mexico causes significant damage to Diamond Offshore's rigs or equipment, it could have a material adverse effect on its financial condition, results of operations and cash flows. Under its insurance policy that expires on May 1, 2014, Diamond Offshore carries physical damage insurance for certain losses other than those caused by named windstorms in the U.S. Gulf of Mexico for which its deductible for physical damage is $25 million per occurrence.
96 Relevance:
These risks and uncertainties include, among others: Risks and uncertainties primarily affecting us and our insurance subsidiaries - the risks and uncertainties associated with CNA's loss reserves, as outlined under 'Results of Operations by Business Segment - CNA Financial - Reserves - Estimates and Uncertainties' in this MD&A, including the sufficiency of the reserves and the possibility for future increases, which would be reflected in the results of operations in the period that the need for such adjustment is determined;
 * - the risk that the other parties to the transaction in which, subject to certain limitations, CNA ceded its legacy A&EP liabilities will not fully perform their obligations to CNA, the uncertainty in estimating loss reserves for A&EP liabilities and the possible continued exposure of CNA to liabilities for A&EP claims that are not covered under the terms of the transaction;
 * - the performance of reinsurance companies under reinsurance contracts with CNA;
 * - the impact of competitive products, policies and pricing and the competitive environment in which CNA operates, including changes in CNA's book of business;
 * - product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew underpriced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;
 * - general economic and business conditions, including recessionary conditions that may decrease the size and number of CNA's insurance customers and create additional losses to CNA's lines of business, especially those that provide management and professional liability insurance, as well as surety bonds, to businesses engaged in real estate, financial services and professional services, and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;
 * - conditions in the capital and credit markets, including continuing uncertainty and instability in these markets, as well as the overall economy, and their impact on the returns, types, liquidity and valuation of CNA's investments;
 * - conditions in the capital and credit markets that may limit CNA's ability to raise significant amounts of capital on favorable terms;
 * - the possibility of changes in CNA's ratings by ratings agencies, including the inability to access certain markets or distribution channels, and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices;
 * - regulatory limitations, impositions and restrictions upon CNA, including the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies;
 * - regulatory limitations and restrictions, including limitations upon CNA's ability to receive dividends from its insurance subsidiaries imposed by regulatory authorities, including regulatory capital adequacy standards;
 * - weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow;
 * - regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
 * - man-made disasters, including the possible occurrence of terrorist attacks and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;
 * - the unpredictability of the nature, targets, severity or frequency of potential terrorist events, as well as the uncertainty as to CNA's ability to contain its terrorism exposure effectively; and  * - the occurrence of epidemics.
Risks and uncertainties primarily affecting us and our energy subsidiaries - the impact of changes in worldwide demand for oil and natural gas and oil and gas price fluctuations on E&P activity, including possible write-downs of the carrying value of natural gas and NGL properties and impairments of goodwill and reduced demand for offshore drilling services;
 * - the effects of the Macondo well blowout;
 * - timing and cost of completion of rig upgrades, construction projects and other capital projects, including delivery dates and drilling contracts;
 * - changes in foreign and domestic oil and gas exploration, development and production activity;
 * - risks of international operations, compliance with foreign laws and taxation policies and seizure, expropriation, nationalization, deprivation, malicious damage or other loss of possession or use of equipment and assets;
 * - government policies regarding exploration and development of oil and gas reserves;
 * - market conditions in the offshore oil and gas drilling industry, including utilization levels and dayrates;
 * - timing and duration of required regulatory inspections for offshore oil and gas drilling rigs;
 * - the worldwide political and military environment, including for example, in oil-producing regions and locations where Diamond Offshore's offshore drilling rigs are operating or are under construction;
 * - the risk of physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico;
 * - the availability, cost limits and adequacy of insurance and indemnification;
 * - the impact of new pipelines or new gas supply sources on competition and basis spreads on Boardwalk Pipeline's pipeline systems, which may impact its ability to maintain or replace expiring gas transportation and storage contracts and to sell short term capacity on its pipelines;
 * - the costs of maintaining and ensuring the integrity and reliability of Boardwalk Pipeline's pipeline systems;
 * - the impact of current and future environmental laws and regulations and exposure to environmental liabilities including matters related to global climate change;
 * - regulatory issues affecting natural gas transmission, including ratemaking and other proceedings particularly affecting Boardwalk Pipeline's gas transmission subsidiaries;
 * - the timing, cost, scope and financial performance of Boardwalk Pipeline's recent, current and future acquisitions and growth projects, including the expansion into new product lines and geographical areas; and  * - the development of additional natural gas reserves and changes in reserve estimates.
item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
171 Relevance:
(b) Net income (loss) for the fourth quarter of 2012 includes a ceiling test impairment charge of $97 million at High Mount related to the carrying value of its natural gas and oil properties and catastrophe impacts incurred, net of reinsurance and including reinstatement premiums of $171 million recorded at CNA related to Storm Sandy.

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