How Berkshire Hathaway thinks about climate change

by on February 27, 2016 at 8:57 am in Economics, Science | Permalink

From their new report (pdf, pp.25-26):

…insurance policies are customarily written for one year and repriced annually to reflect changing exposures. Increased possibilities of loss translate promptly into increased premiums.

Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weather-related events covered by insurance. As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business. If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire’s insurance business would be to make it larger and more profitable.

As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.

The pointer is from Joseph Weisenthal.

1 dearieme February 27, 2016 at 9:23 am

Now you’re just inviting people to opine that Catastrophic Anthropogenic Global Warming has become just a great con trick. They’d be right, of course.

2 Nathan W February 27, 2016 at 9:48 am

Well, that depends on where you live. If you live in the interior of a large continent, no. Residents of Tuvalu might beg to differ, and many millions living in coastal areas of Bangladesh might also find the situation to be very potentially catastrophic, given that they cannot easily emigrate.

3 ibaien February 27, 2016 at 10:31 am

those foolish people living in low-lying coastal regions of the third world should have been less short-sighted. if they had just moved somewhere nice like omaha and put their money into shares of major insurers, there wouldn’t be any problems.

4 Nathan W February 27, 2016 at 11:34 am

Agreed. Definitely their fault. They chose the wrong great-grandparents.

5 J1 February 27, 2016 at 12:06 pm

No, he’s trolling for a 1000 comment thread of readers squabbling over religion. I suspect that method brings more hits than naked celebrity photos, for a lot less money and effort.

6 Heorogar February 27, 2016 at 10:49 am

The point is Buffett’s insurance companies are de-emphasizing hurricane insurance products b/c recent years have required fewer pay-outs and they can’t increase related premiums. And, how years with few insurance losses may be as bad as high claims/insurance losses years. Is that actually beneficial to insurance companies? Likely so, assuming the bad years don’t occur too frequently. .

There is nothing new under the Sun. See Ecclesiastes.

Assuming Tuvalu is a low-lying atoll-type place, its residents and their ancestors have been inundated by desultory typhoons over hundreds of years. Jack London depicted several such catastrophes among his excellent short stories.

Dearieme is correct. AGW is a socialist scam that’s earned hucksters, like Al Gore, billions of dollars.

7 ibaien February 27, 2016 at 11:12 am

‘desultory’ typhoons? that’s a new one. and it’s not as though the island has to be entirely under water to see catastrophic damage from sea level rise – enough saline infiltration of the limited aquifers will render the islands unable to be cultivated. but perhaps that’s a socialist scam too.

8 Harun February 27, 2016 at 3:31 pm

Over long periods, land changes.

Small islands get blown up, or get eroded away. Forests become deserts.

These all happen slowly, so man either adapts or moves away in a very slow, painless process.

See Americans moving from rust belt to sun belt. It was not particularly painful.

Bangladeshis have frequent natural disasters – its not as if their current land is “safe”

p.s. recent studies show ocean levels are not rising as fast as thought because of “thirsty” continents.

Seriously, over 100 years time, we can relocated the Tuvalu residents who don’t already want to move to New Zealand or Australia to Canada where huge swathes of land will open up.

9 Nathan W February 27, 2016 at 3:59 pm

Harun, were it the case that Western (or other) nations were open to the idea of accepting climate refugees, I think it would be possible to write off one of the more obviously concrete and pressing concerns.

While I’ve always been doubtful that this would be an easy sell, observing the general rise in hostility to immigration in many Western countries, I think it would be naive to assume that we will a priori just do the right thing. The time to start making the case for accepting climate refugees is now, and the time will continue for a very long time.

10 Nathan W February 27, 2016 at 11:43 am

Your premise that AGW is a scam would be true if the following were true.

CO2 is not a greenhouse gas. (But it is.)

We are not putting more CO2 into the atmosphere. (But we are.)

It’s really not that complicated.

The fact that Tuvalu experienced typhoons historically does not THEREFORE mean that their situation is not dire.

Just because Al Gore is rich doesn’t mean that AGW THEREFORE is false. Or what … are people only allowed to work on the biggest and most important global problems if they do so for $0 per hour, while we venerate the next billionare who invents some dumb addictive app that doesn’t actually do much of anything useful for anyone? Anyways, here’s a short story on Gore’s pathway to wealth, starting off privileged but a legitimate entrepreneur:

Man oh man, where do you get your climate change misinformation from? Really. Where?

11 Alain February 27, 2016 at 5:47 pm

Your model on climate, like all of your models, is shit.

The dunning kruger effect is so very strong in you.

12 Nathan W February 28, 2016 at 12:14 am

It’s not a model. It’s trying to explain basic principles to the people who never paid attention in high school.

C02 is a greenhouse gas (by definition this means more C02 implies warmer, all else equal). We are putting more C02 into the atmosphere. Ergo, it will get warmer (all else equal).

Unless you have some brilliant stroke of genius (unlikely, given your reliance on insult as a mode of argumentation) to demonstrate which brand new part of “all else equal” millions of brilliant minds have failed to consider, then it seems safe to conclude that you have no particular knowledge or insights to add to this question.

13 JWatts February 27, 2016 at 11:56 am

“Dearieme is correct. AGW is a socialist scam that’s earned hucksters, like Al Gore, billions of dollars. ”

No, you’re misstating Dearieme’s point. AGW is real. Catastrophic AGW is an attempt to capitalize on a real issue. Mostly it’s just social preening, but a lot of the advocates also want to use it as an excuse to attack things they don’t like. The coal industry, the transportation industry, SUV’s, etc.

What’s revealing is that they seldom every counter with advocating the build out of nuclear power, even though that’s the logical means to economically reduce carbon input into the environment. If nuclear power were subsidized to the same extend solar power is, the US would be currently building nuclear power plants.

14 Nathan W February 27, 2016 at 12:54 pm

I once ran for the Green Party and was involved in various “green” activism stuff around that time. I often felt like I was the only voice of reason in the room, being heavily ostracized for pointing out things like “the world is plain and simply not going to explode for the fact of AGW, get a hold of yourselves, this is real but you all lose credibility in exaggerating the situation” or “there are a lot of other people who value the environment less than you do, and in a democratic system you have to respect that”. Like, one time a bunch of them were campaigning to ban parking in a certain area of town because they thought it would reduce driving – my suggestion from an economics background that it would be effective to lobby for higher parking prices instead of trying to ban parking outright resulted in nearly every member of this municipal green group hating me, some of whom clearly thought I was a plant to try to disrupt their activities and deter their environmentalism.

The preference for attacking the companies which meet market demand given the current regulatory situation, to the nearly complete exclusion of working to promote ongoing marginal changes in attitudes for more ethical behaviours, is something that really bothers me about a lot of environmentalists. Like “eating meat three times a week is probably enough” as opposed to “meat eaters are EVIL EVIL EVIL”, which will never get a hearing from the people whose behaviour you might want to influence, or, “you could buy a really small fuel efficient car and just rent a big truck for the rare events you need one”.

But the fact that they are often deluded to believe truly catastrophic outcomes (for humans, the effects on most other species being essentially undeniable), or the failure to include basic economics principles in determining their advocacy strategies, does not therefore imply that we should do nothing.

15 Jan February 27, 2016 at 1:50 pm

Lots of blanket statements here. Most advocates for addressing AGW don’t just inherently dislike the coal industry. If the advocates do dislike those things (a big if; for example, I doubt they all simply hate the “transportation industry”), the reason is because they contribute to what they believe to be a disastrous outcome for the planet. I myself think more nuclear power would be a fine alternative, and so do a lot of people. Of course I can see why others are opposed to that particular option. It’s not baseless. You should also investigate how many people who advocate for addressing AGW actually stand to personally financially benefit from any of the commonly circulated policy solutions. It is a tiny fraction.

16 chuck martel February 27, 2016 at 4:36 pm

“The preference for attacking the companies which meet market demand”

Market participants want to drive cars and do so. They want to heat their homes and illuminate them. They want to eat fresh and frozen foods and do that, too. Nobody is forcing them to do those things. In fact, the same people that protest the construction of an addition to a power house in Arizona go home, turn on the lights, turn on the TV and watch themselves at the protest while they knock back a cold brew from the refrigerator. The evil corporations that spew CO2 into the atmosphere are doing it because they’re being paid to do so by consumers.

17 Nathan W February 27, 2016 at 5:43 pm

Could they drive a car half the size (of course, not if you have a family of five)? Heat somewhat smaller homes or heat them to 1C cooler and don a sweater? Prefer in-season foods and treat others as a special treat rather than a daily occurrence? Have a smaller or more energy efficient refrigerator? Install some solar capacity on their home? Run their showers using solar water heaters (almost ubiquitous in many Chinese cities)?

Moreover, recognizing people for what they are, and not counting on soft social pressure strategies, they advocate for policies where the costs are borne more evenly, for example through a carbon tax (to creative incentives both for efficiency and the development of alternative energies), incentives for home and business energy retrofits, and regulations to require car manufacturers to meet fleetwide fuel efficiency standards.

These are altogether easy-going strategies as compared to those preferred to deter activities hated by the hard right (especially hard Christian right), such as drug use, promiscuity, homosexuality, abortion or marital affairs – left to set policy as they see fit, nothing less than hard time and a permanent criminal record are the approaches that some see as appropriate.

Environmentalists who want to take us back to the stone age are mythical creatures, and for all the extremists I’ve met, I’ve never met one of those. But social conservatives who would take us back to some aspects of the stone age are a very real thing, and they number many many millions in number.

18 Evil Liberal Scientist February 27, 2016 at 12:47 pm

Thousands of scientists have conspired since the 1860’s to make Al Gore some money. God, conservatives are rabid sheep who’ll believe anything if it allows them to hate the right people.

19 The Other Jim February 27, 2016 at 4:50 pm

>conservatives are rabid sheep who’ll believe anything if it allows them to hate the right people.

Not you, though. You sound like an enlightened soul on a bold quest for knowledge, no matter where it takes you. And guided by love.

20 Cliff February 27, 2016 at 11:01 pm

“the 1860’s”

I loled

21 chedolf February 27, 2016 at 10:53 am
22 TMC February 27, 2016 at 11:06 am

The sea level has been rising, very slowly, for hundreds of years and more. All these residents of low-lying regions need to do is the same their ancestors have been doing forever.

23 JWatts February 27, 2016 at 11:59 am

“The sea level has been rising, very slowly, for hundreds of years and more. ”

Thousands of years.

You’ll note that the projected AGW sea level rises compared to the above graph would be a very small bump at the end.

24 Nathan W February 27, 2016 at 12:59 pm

I cannot imagine a graph which could have minimized the issue more. Or, wait, perhaps one that goes back 2 billion years, at which point we could just determine “what does it matter anyways, we will be extinct eventually”.

25 TMC February 27, 2016 at 3:02 pm

Here’s the short scale version – same thing:

The thing is that most of the warming and sea rise is due to us coming out of an ice age for the last 10,000 years.
JWatts’ link shows this. I know you think this is all CO2 and it’s simple. It really isn’t.

26 Nathan W February 27, 2016 at 4:16 pm

I think basically anyone who has tried to educate themselves on this matter understands that there’s more at play than CO2.

The problem is knowing that there are other factors involved, and then looking to the inherent volatility of temperature series, draw the convenient conclusion that THEREFORE CO2 is irrelevant.

For practical purposes, I tend to argue in favour of a view where we should prefer a slower rate of AGW, so that we have more time to develop adaptation strategies. For the more extreme cases of 6-8C temperature rises, major crops start to experience major problems because of heat stress and water loss, where pushing the handful of hottest days up by just a few days can have catastrophic effects on yields in a given area. It is not a given that we will be able to develop a species of corn or wheat which grows well when temperatures routinely reach 45C in the summer.

27 chuck martel February 27, 2016 at 4:42 pm

” we should prefer a slower rate of AGW”

You don’t know what the rate of AGW is now, or what it will be in the future. You’ll never know what the rate of the future will be because you won’t be here to record it. You don’t understand that the length of a human lifetime is meaningless in the context of planet earth. In terms of the universe, you, and everyone else, are inconsequential.

28 Nathan W February 27, 2016 at 5:46 pm

No, I don’t understand that human life span is short relative to the lifespan of the planet, and that’s why my first comment on this subthread discussed the relevance at the 2 billion year level.

I would like to think that the 100 year or 200 year timeframe matters to some people, since that’s your grandchildren and their grandchildren, a very tangible timeframe for some people.

29 Nathan W February 28, 2016 at 1:48 am

A new publication on the matter:

Sea levels are rising faster than any time in the last 3000 years.

30 Justin Kelly February 27, 2016 at 12:36 pm

These pacific islands claim to be facing an external threat (climate change) when their more pressing problem is internal, population growth. For example the Maldives flooding issues aren’t so much that the ocean is rising as it is their population has doubled in the past 50 years. There isn’t enough land to live on, and people are living in higher risk, lower laying areas of the island.

Politically it’s easier to come crying “climate change!” to the global community however…

31 Nathan W February 27, 2016 at 1:01 pm

The existence of one problem does not imply that the other does not exist.

32 Justin Kelly February 27, 2016 at 5:34 pm

Hence clear qualifiers such as “more pressing problem..” and “aren’t so much that” in what I said. In fact these qualifiers imply its existence.

Its funny how anyone who claims that climate change is not the number one pressing problem in the world in any situation is implied to be a “denier”. That’s downright religious, dogmatic reasoning…

33 Nathan W February 27, 2016 at 5:47 pm

Correction: the existence of one problem does not imply that action on the other should not be considered.

34 Jan February 27, 2016 at 2:28 pm

But if an area of the islands is suitable to live on today but it won’t be tomorrow, that is not a population growth problem.

35 Harun February 27, 2016 at 3:33 pm

Many islands that aren’t as popular as the Maldives face issues of depopulation, too.

36 So Much For Subtlety February 27, 2016 at 6:20 pm

Nathan W February 27, 2016 at 9:48 am

Well, that depends on where you live.

No it doesn’t. Whether you live in Tuvalu or not, AGW is either a con trick or it is not. It may be potentially catastrophic, but so far it is not a problem. Nor does it show any sign of becoming so. The seas are not rising at any particular rate. The number of hurricanes is not increasing.

Nor is there any reason to think they will.

37 Nathan W February 28, 2016 at 4:36 am

I think the prudent approach is “do something” but not go whole hog in with going back to the stone ages or anything.

There is indeed uncertainty in just how bad it will get. Since the most commonly proposed solution to reduce emissions is a carbon tax, all that is needed is to offset with other tax reductions (this would be most credible from a right wing party, but it seems that oil co’s et al must have them in their pockets or something) and the overall economic effect could even be positive. It seems like a prudent insurance policy to me, an insurance policy that may even have negative costs (that mythical free lunch) to buy.

38 Chip February 27, 2016 at 6:33 pm

So much preaching, so little data.

Sea level is rising at the same slow rate it has since the last ice age, despite predictions for an acceleration.

To persistently ignore this gorilla in the room is akin to ignoring the existence of fossils or that Copernicus was correct.

The predictions are wrong. Climate is changing much like it always has. The planet has dealt with massive spikes of CO2 in the past. It clearly has stable feedback systems. People are prone to faith even without a god to believe in.

39 Nathan W February 28, 2016 at 12:24 am

No one is hiding the data. If you can’t be bothered to find it for yourself, I doubt you will check any links posted.

When you’re talking about things that work on cycles of thousands or many tens of thousands of years, you do not throw out basic principles (CO2 is a greenhouse gas, we are putting more into the atmosphere, therefore all else equal it will get warmer) for the fact that now every single variable is behaving PRECISELY as predicted by EARLY forays into modelling.

“The predictions are wrong” – the direction of the predictions is right, things are just a bit slower than some people had initially thought according to early models. The models will get better. Claiming that the whole thing is bogus because the level of knowledge 10 or 20 years ago was incomplete or imprecise suggests facile thinking on the matter.

Question: What’s the highest level science course you’ve ever taken, ideally in physics or chemistry? Can you flip through a first or second year text in these fields and basically understand everything?

Those feedback systems you’re talking about operate on the scale of thousands and many thousands of years. What is relevant to human is the current lifetime, and perhaps the next few generations. In which case it is likely to be relevant.

40 So Much For Subtlety February 28, 2016 at 6:01 pm

Nathan W February 28, 2016 at 12:24 am

No one is hiding the data.

Yes they are. That is the whole point of Steve McIntyre’s involvement. They refuse to release or share data.

CO2 is a greenhouse gas, we are putting more into the atmosphere, therefore all else equal it will get warmer

All else being equal. But they are not equal. They cannot be equal. We know this. The planet has had much more CO2 in the past and yet we did not have a run away Greenhouse effect. No reason to think we will now. The planet has feedback mechanisms. The whole question revolves around whether they are positive and negative and how strong they are.

for the fact that now every single variable is behaving PRECISELY as predicted by EARLY forays into modelling.

That is so not true I am amazed anyone would say it in public. Nothing is working out as the early model predicted. This is not a surprise as the models are garbage. They had to be “adjusted” to produce the right answer.

the direction of the predictions is right, things are just a bit slower than some people had initially thought according to early models. The models will get better.

No they won’t. They can’t. It is inherently beyond our computing power. The direction is not right either – the planet is not warming. It hasn’t been for 17 years.

Claiming that the whole thing is bogus because the level of knowledge 10 or 20 years ago was incomplete or imprecise suggests facile thinking on the matter.

Claiming that the level of knowledge now is any less incomplete or imprecise is just as facile. And actually if they were right back then, given the state of their knowledge, it was a lucky guess. Not science.

Those feedback systems you’re talking about operate on the scale of thousands and many thousands of years. What is relevant to human is the current lifetime, and perhaps the next few generations. In which case it is likely to be relevant.

Some of them do, some of them don’t. Some of them are more immediate. Those feedbacks seem to be keeping us cool. As you would expect. The next few generations are unlikely to see any change to the climate. Whatever we do.

41 Nathan W February 28, 2016 at 8:43 pm

SMFS – If people hold the keys to all these secrets, they why aren’t they lining up to get PhDs and prevent the biggest boondoggle in modern history?

An alternative explanation is that concentrated interests in the oil industry want to obsfuscate, and wishful thinkers who want to drive drive drive and live in McMansions wish to pretend that none of this matters.

42 So Much For Subtlety February 29, 2016 at 3:45 am

Nathan W February 28, 2016 at 8:43 pm

If people hold the keys to all these secrets, they why aren’t they lining up to get PhDs and prevent the biggest boondoggle in modern history?

Why would anyone do a Ph.D. in an effort to stop themselves getting funded? You miss the point. Not one of those Ph.D.s endorses the catastrophic Warmist case. Well, virtually none of them. None of the literature does either. There is a gulf between the science and what the scientists say in public about their science.

An alternative explanation is that concentrated interests in the oil industry want to obsfuscate, and wishful thinkers who want to drive drive drive and live in McMansions wish to pretend that none of this matters.

So you prefer one conspiracy theory to another. The one without evidence as opposed to the one with – the Warmists are suppressing articles and getting people fired. The Oil industry is contributing trivial sums of money to the cause. Personally I believe that believing in conspiracy theories especially without evidence is not good for you.

43 Nathan W March 1, 2016 at 12:14 am

The conspiracy which involves highly concenrtated interests and gains, and not the conspiracy which involves highly diffuse, non-orchestrated and independent actors, is the far more credible situation. Mancur Olsen’s groundbreaking “Logic of Collective Action” is the go-to point for argumentation which will lead you to perceive this as common sense. A pdf version is at present available from The basic idea is that it’s too difficult for diffuse actors to organize their efforts because coordination costs are too high, and so we should expect more concentrated interests to better represent their group self interest (and is conducive to rent seeking).

And it’s not a crazy theory. Exxon’s internal research from the 1980s demonstrated belief in AGW, but such research was shelved out of preference for obfuscation. That is a fact, and if you can’t be bothered to find it for yourself I will look it up for you.

44 bmcburney February 28, 2016 at 11:17 am


In fact, the residents of Tuvalu and the coastal areas of Bangladesh are as unaffected by Global Warming as everyone else the planet. As noted by Berkshire Hathaway above and many others elsewhere, the dire predictions of Catastrophic Anthropogenic Global Warming have been flatly contradicted by reality. Globally, we are experiencing fewer major weather events, not more. Indeed, the one guy from Tuvalu who tried to immigrate to New Zealand based on his status as a “climate refugee” had his claim rejected and went home. Everybody in Tuvalu is fine (at least as far as the threat of Global Warming is concerned). At this point, the total number of actual “climate refugees” worldwide continues to hold at exactly zero.

The issue isn’t that there has been no increase in temperatures at all which one might plausibly attribute to Global Warming (although the case for attribution of recent increases to GW is weak and getting weaker every day), it’s that the total increase is so small that, thus far, even hysterics should agree that the increases in carbon dioxide and temperatures are beneficial to all life on the planet. Temperatures would have to increase well beyond 2 degrees C before negative effects begin to emerge and the evidence now overwhelmingly shows that the increase in temperatures will never reach that level.

45 Nathan W February 28, 2016 at 10:57 pm

On fewer storms: the evidence is mixed, not decided. But storms are larger.

On rising seas: they are rising, but not rapidly

On whether MORE CO2 is beneficial for life: All else equal, but not all else is equal – several staple crops are already grown beyond their optimal growing temperature in many tropical places. Shall they face the full brunt of costs imposed by others? Corn and wheat do not grow well at 40C – even a few days at such temperatures can be very bad for yield.

46 So Much For Subtlety February 29, 2016 at 3:55 am

Nathan W February 28, 2016 at 10:57 pm

On fewer storms there is no evidence of a problem – not more, not stronger, not larger.

On sea rise, the seas have been rising since the last Ice Age. They may be rising marginally faster now, but the rate is so small it is highly disputable and irrelevant. Whether they are rising by 1.5 mm a year or 2.7 is beside the point. That is no threat to anyone.

There is no evidence that any major food crop is suffering from global warming. Sure, oats do not do well in Bangladesh. But rice does. As far as we can tell, more CO2 and more warmth means more growth for the time being. At some point plants will get stressed but we are not even close to that yet.

Corn, meaning maize, needs higher temperatures than a lot of Europe or Russia or North America can provide. Wheat does fine with a few days over 40 C. I am happy to show you fields and fields of the stuff which does precisely this. Look at Western Australia for instance.

For the foreseeable future, more CO2 means more food.

47 Nathan W March 1, 2016 at 12:23 am

I don’t think you understand the point that, while higher CO2 benefits plant growth if all else is equal, that not all else is equal. Even just a few days of major heat stress can do major damage to yields, and much of the tropics are already warmer than optimal growing temperatures basically for this reason.

On the other points, I have already posted links many times to show which parts are disputed (number of storms classified as hurricane level) and which are not (average intensity is higher). If you chose to ignore them, then I don’t see much point … Anyways, in both cases, the take home message is that we’re looking at very long term trends in an inherently volatile data series, and it is altogether inappropriate to draw any strong conclusion regarding the empirics, regardless of what theory built from existing knowledge says.

However, storm intensity is rather peripheral to AGW concerns, so I don’t see why lack of consensus on these questions is ever perceived as a particularly big deal. The main risks relate to crop failures in tropical regions if temperatures spend too much additional time above optimal growing temperatures and rising seas.

48 Rodney February 27, 2016 at 9:54 am

Quit correct. Blog Bait for a slow weekend. But need another surefire hot button topic for tomorrow, perhaps Gun Control, Religion, or latest Krugman essay.

49 Mark Thorson February 27, 2016 at 12:38 pm

Or lesbians. Oh wait, we just did that one.

50 anon February 27, 2016 at 11:03 am

I guess this is the sub-troll then.

51 prior_test1 February 27, 2016 at 9:27 am

It is the reinsurers. and those that invest in them, that are worried – after all, odds are that in reality, Berkshire Hathaway’s insurance businesses rely on reinsurers. Berkshire Hathaway just takes a cut of the sold insurance before buying adequate coverage for the risk from a real (re-)insurer. I’m confident that all of MR’s ever so well informed commenters know how the insurance industry works, of course.

The re-insurers are a lot less optimistic about how the ‘insurance business would be to make it larger and more profitable’ after dealing with the aftermath of a major weather catastrophe. As noted at this link – – ‘Increased flooding, heatwaves, droughts and severe storms: for over 40 years, Munich Re has been researching the changes in the frequency of weather-related loss events and has made use of this knowledge to understand weather and climate risks better, and to develop solutions for them.

The current status of scientific knowledge shows that climate change is happening and that it can only be mitigated by systematic carbon reduction measures. The most effective way would be the adoption of an ambitious international climate policy by as many countries as possible. While negotiations on a global climate agreement at a political level have made little progress, we as a company are taking action. Our knowledge and our solution strategies help cushion the effects of climate change and pave the way towards a sustainable and low-carbon future.’

Of course, Munich Re is a German company, so one can expect them to just reflect the sort of extreme left perspective that so marks Germany, a nation where its Kanzlerin nationalized a German bank in the DAX and stiffed the remaining private holders of Hypo Real’s stock.

For a quick overview of that company –

And even more amusing, and ever so undoubtedly coincidental? Look at how Buffet decided the reinsurance business was unlikely to have much in the way of upside – ‘In February 2010, U.S. investor Warren Buffett became Munich Re’s largest single shareholder of the company. As of December 2015 he reduced his holdings to less than 3 percent.’ Right around the time that the Berkshire Hathaway annual report was probably being written, interestingly. The one talking about the profitability of catastrophes in terms of rate setting.

Making it important to understand that when an insurance company writes ‘But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.’ it is because they have already bought coverage from a re-insurer, pretty much washing their hands of the risk. However, as seen above, Buffet as an investor in a re-insurer is not so stupid as to think that climate change is not a major, likely negative, uncertainty.

52 Mitch Berkson February 27, 2016 at 9:31 am

Berkshire Hathaway is a reinsurer via GenRe.

53 prior_test1 February 27, 2016 at 10:48 am

The info at is quite interesting, including the AIG fraud allegations.

Since I’m not a follower of Buffet, it was interesting to see his investment be reduced in Munich Re. Gen Re seems to be in the same business, obviously – but oddly, while one sees Swiss Re and Munich Re involved in attempting to reduce their projected climate costs costs through various forms of action, Gen Re tends to be notable mainly for its absence when doing quick searches (like ‘Gen Re climate change’). Possibly in much the same way that Daimler management is also convinced of climate change being real, while the American employees of its then Chrysler subsidiary were almost universally climate change deniers, which tended to mystify their German owners. (No idea of what Chrysler’s current Italian owners think, but it is reasonable to imagine that Chrysler employees likely hold much the same beliefs as a decade ago.)

But one has to wonder how the following applies to Munich Re (apart from the international aspect), but not Gen Re – ‘Buffett’s associates foreshadowed the shrinking of their holding earlier in the year.

“What was a very lucrative business is no longer a very lucrative business going forward,”Ajit Jain, who oversees Berkshire’s reinsurance businesses, told the Wall Street Journal in July. “… Since the reinsurance business isn’t going to offer as many opportunities for the foreseeable future, we feel like we should go down the food chain.”

Buffett has previously said that one of his key criteria for deciding whether to hold or sell a company is whether he sees it doing better five years in the future that it was in the present. This was no less true for insurance.

In 1998, Buffett was seeking reinsurance companies primarily in international markets, “where the preponderance of industry growth will almost certainly occur,” he said in his 1998 shareholder letter. He also outlined the key points for evaluating an insurance company, which were the amount of float the company generated, its cost and, “most important of all, the long-term outlook for both of these factors.”’

Though almost, and very cynically, one could wonder if Gen Re is less interested in re-insuring certain types of risks (for example, letting Munich Re or Swiss Re handle it), or merely has enough foresight to avoid reinsuring longer term risks related to climate uncertainty, thus remaining a more attractive investment.

54 chuck martel February 27, 2016 at 4:47 pm

So Warren Buffett is the ultimate authority on AGW and its effects on the earth? Gee, what else does this god-like genius know that the rest of us don’t?

55 Nathan W February 27, 2016 at 5:49 pm

I don’t think there’s another person on the planet with a stronger personal financial interest to correctly understand it (assuming he actually cares about the money, and isn’t just collecting achievement placeholders by this point in time).

56 Cliff February 27, 2016 at 11:06 pm

You’re really reaching now

57 Brian Donohue February 27, 2016 at 9:49 am

Or maybe it’s just interest rates:

“The prolonged period of low interest rates the world is now dealing with also virtually guarantees that earnings on float will steadily decrease for many years to come, thereby exacerbating the profit problems of insurers. It’s a good bet that industry results over the next ten years will fall short of those recorded in the past decade, particularly for those companies that specialize in reinsurance.”

58 prior_test1 February 27, 2016 at 10:50 am

Could be – float was most definitely listed as an investment evaluation criteria.

59 Willem of Occam February 27, 2016 at 3:03 pm

Could be? Damn straight.

60 Mike Goodman February 27, 2016 at 9:48 am

Lest we forget, the National Flood Insurance Program (NFIP) has been subsidizing risky behavior and effectively incenting development in increasingly unsafe areas for decades. The political resistance to raising premiums as risks increase reinforces Buffet’s central point here…that the solvency of insurance enterprises requires risk based pricing.

It also leads to peverse incentives and regressive outcomes. See

61 JB February 27, 2016 at 11:33 pm

“The solvency of insurance enterprises requires risk based pricing.”

Anyone who has to have this argued to them is a gorram idiot. Even if your job requires you to not understand this, you had damn well better understand it.

62 meets February 27, 2016 at 10:19 am

Who is smarter, the markets or scientists?

63 anon February 27, 2016 at 11:06 am

The straightforward reading is that they have different interests. A one year insurer may adjust rates smoothly, with say sea level, no skin off his nose.

64 TMC February 27, 2016 at 11:09 am

Well Berkshire, scientists, and history all agree climate change does not increase the severity of weather.

65 anon February 27, 2016 at 11:21 am

A poor reading. Insurers observe essentially stable risk over one calendar year. And they have no longer term exposure.

66 Cliff February 27, 2016 at 11:08 pm

Severe weather has not been increasing, so your comment seems irrelevant

67 Nathan W February 28, 2016 at 12:43 am

a) Tropical storms (hurricanes) suffer from threshold issues, where, for example, the number of storms classified as hurricanes may appears similar-ish in the short term, without accounting for a larger number of large, but non-“hurricane” events.

b) These are very long-term trends we’re talking about. Trends will not be clear for quite some time.

c) While the evidence on whether we are already observing MORE tropical storms is in fact mixed, it is essentially undebated that the storms have increased in severity, consistent with the basic principle that higher water vapour content in the atmosphere plus warmer temperatures should imply stronger storms. (too lazy to look for the peer-review stuff on this right now…)

And anyways, your comment isn’t even related to what he said, except insofar as you’re both talking about storms.

68 anon February 28, 2016 at 8:21 am

Are you the same Cliff who claimed to be bright in a previous thread?

You again ignore the straightforward reading. “As a homeowner in a low-lying area, you may wish to consider moving.”

69 jim jones February 27, 2016 at 11:15 am

Who has been corrupted the most by Government money, markets or scientists?

70 anon February 27, 2016 at 11:19 am

Exxon fixing results is the only clear smoking gun. The rest is wishful thinking.

71 Nathan W February 27, 2016 at 11:58 am

Theory: 10,000 tenured independent researchers across 100% countries are all being driven in the same completely incorrect direction at the same time, for the fact of receiving grants on an abstract principle of “study this please”.

Alternative theory: highly concentrated corporate interests occasionally funnel money to researchers who appear inclined to express contrarian perspectives in a way which (coincidence of coincidences!!!) happen to be identical to doing nothing in a context where nearly every “do something” approach on the table reduces the NPV of those corporate interests.

People who attach more credibility to the second theory a) OBVIOUSLY do not have even a basic understanding of climate science, and b) have very poor understanding of the motivations and modus operandi of research scientists or businesses.

Alternatively stated: While neither method is perfect, do you have more faith in peer review science or industry funded research, on public policy matters which are of vital interest to the bottom line of that industry?

72 prior_test1 February 27, 2016 at 12:27 pm

‘highly concentrated corporate interests occasionally funnel money to researchers who appear inclined to express contrarian perspectives’

Thankfully, no names were mentioned, otherwise this insight might not have remained available to comment on.

73 Sherparick February 27, 2016 at 3:48 pm

Willie Soo is one name. Koch brothers foundation gave him $1.25 million dollars according to the Guardian. I have not heard of any libel case in the U.K. which has much stronger libel laws then the U.S.

There are really not that many “Climate Denier” scientists. Professor Judith Curry gives a platform for them on her web site and gets a lot of traffic, but she is careful to say that she accepts the overall premise of AGW, only critical of the more pessimistic predictions.

Reference sea level rise, it is accelerating, but for most human life spans it will seem pretty gradual. Because human beings in markets are usually rational short term creatures, if a house on the beach looks like a good investment for the next 10 to 15 years, I think prices will keep going up. Further, since people developing and buying beach front property tend to be in or near the 1%, politicians listen to them, and hence the Federal subsidy of flood insurance (which means we are not really getting a market price for houses on beaches and ocean estuaries since the downside of flooding losses is being picked up by the whole United States) Currently, some homes in various coastal areas (Norfolk Virginia and P are becoming more and unsaleable.

I think because people’s desire and ability to deceive themselves about something appears to by “hypothetical” leads me to believe that property values will rise until a series of catastrophes render them valueless and abandoned. This has apparently happen in Plaquemines Parrish, Louisiana.

The physics of the atmosphere and ocean really don’t care whether you believe in them or or not. They are brute facts, and will reveal themselves as such in coming years. No God is going to stop it. I am glad I live on a hill as I think that a great deal of the global warming disaster is already baked in the cake even if we took radical measures right now to stop CO2 increase. Fat chance of that happening.

74 chuck martel February 27, 2016 at 4:56 pm

What radical measures have you personally taken to abate climate change? Disconnecting your electrical service would be a good start and convincing your acquaintances to do so as well would advance the cause. Throw the car keys away and walk or bike to work, unless the work is in some way dependent on CO2 emissions, anything involving the transportation of products by means other than wind or muscle power. If so, quit your job. Even if you’re running your computer on batteries, there’s a toll taken on Mommy Earth. Sorry to see we won’t be seeing your nom de plume here anymore.

75 Nathan W February 27, 2016 at 5:57 pm

chuck – I presume you will never again in your life advocate for any foreign military intervention whatsoever, since you’re not personally at the front lines? Hypocrite, you’ll never do it. I also assume that you will refuse to drive on public roads, use public hospitals, send your children to public schools, use an American passport or American consular service overseas, or any other thing related to the central government, since you are a generally small government kind of guy. Hypocrite, you’ll never do it.

That you see this as a clever counterargument is not … half as clever as you seem to think.

Why should the vanguard sacrifice ALL while the rest double down on indifference and/or idiocy? Advocating for a more even distribution of the costs is the only sensible way to go. Demanding that advocates for reduced energy waste and policies to speed up the shift to renewables should go back to the stone ages before we dare to speak a word is not a reasonable mode of argumentation. Just like you should not have to volunteer to go to the front lines to see the sense in advocating for a particular foreign military intervention.

76 anon February 28, 2016 at 8:38 am

Chuck’s change of subject is sad on multiple levels. He asks, even if the thing is true, can the human response to that truth make it false again?

77 meets February 27, 2016 at 1:02 pm

Individual companies can be corrupt, but markets as a whole cannot be.

78 prior_test1 February 27, 2016 at 1:09 pm

Let me introduce you to the word ‘cartel.’

79 Nathan W February 27, 2016 at 1:16 pm

Shouldn’t we a priori expect markets where CEOs are required by law to maximize private benefits to shareholders to be as absolutely corrupt as law and order + consumer backlash allow them to be?

80 meets February 27, 2016 at 3:58 pm

Market prices discount that too.

81 JB February 27, 2016 at 11:35 pm

“Corrupt” relative to what?

If CEOs are required by law to maximize private benefits to shareholders, then corruption would be CEOs instead diverting money to themselves/their cronies at the expense of shareholders.

Absent other requirements of law, I don’t think corruption means what most people think it means in this instance.

82 Nathan W February 28, 2016 at 12:50 am

We would expect CEOs to try to buy off politicians and milk the public (extract rents) in the absence of laws and regulations to prevent it.

83 carlolspln February 27, 2016 at 9:15 pm

“Individual companies can be corrupt, but markets as a whole cannot be”


84 meets February 28, 2016 at 8:11 am

Same thing. Just individual companies being corrupt and misreporting the actual LIBOR price.

85 Nathan W February 27, 2016 at 11:52 am

Who knows more about climate, bankers or climate scientists?

Who knows more about banking, climate scientists or bankers?

From now on, I plan to treat climate scientists as banking experts, because AGW is a scam and I prefer logical consistency.

86 TMC February 27, 2016 at 3:06 pm

“I plan to treat climate scientists as banking experts ”

Oh boy, and you thought the industry was corrupt in 2008

87 Fargo February 27, 2016 at 1:17 pm

In this case, the markets (Berkshire Hathaway) and the science are in complete agreement:

“Climate model ensembles tend to be overconfident in their representation of the climate variability which leads to systematic increase in the attributable risk to an extreme event. Our results suggest that event attribution approaches comprising of a single climate model would benefit from ensemble calibration in order to account for model inadequacies similarly as operational forecasting systems.”

88 Boonton February 27, 2016 at 1:38 pm

“the markets” here seem to be pricing risk on a year by year basis. So if you have a 20 story hotel-resort in a low lying area that will be flooded out by rising seas in 25 years, your insurance company isn’t going to suffer much in the stock market because they are only covering you for a year or so. As the waters get higher you’re going to find your premiums rising just as fast or faster.

It would be interesting if we could have 20 year contracts trading openly in the market.

89 Alex Armlovich February 27, 2016 at 10:44 am

Love the “super cat” reference out of context.

90 melanerpes February 27, 2016 at 12:24 pm

“Super-cat” is obviously insurance industry jargon. I can guess its meaning, but I shouldn’t have to, Tyler.

91 yo February 27, 2016 at 12:20 pm

Couldn’t lower premiums be related to other factors than possible risk of property damage? For one, I’d imagine insurers lowering rates for most insured, but increasing them for some (or barring them from getting insurance outright) using better (e.g. flood) models. Another related issue could be increasing perception of government acting as an insurer of last resort, as in “build your home on the floodplain, no big deal, you may not be able to get insurance but once it gets destroyed just whine how poor you are and government will step in”.

92 Rich Berger February 27, 2016 at 12:27 pm

Seems like the harmful effects of AGW are always to come. Al Gore’s 10 year doomsday just expired:

93 prior_test1 February 27, 2016 at 12:30 pm

‘Seems like the harmful effects of AGW are always to come.’

Absolutely – at the rate things are going this year, the Northwest passage is likely to be open year round in less than a decade. No, that is not a prediction – and extrapolation is just a simple way to be wrong, of course.

94 Nathan W February 27, 2016 at 1:12 pm

Seeing through the hoax of claims that we are all on an irreversible pathway towards death, and observing that I haven’t gotten there yet, I conclude that I am immortal. Who knows? Things are always more complicated than they seem at first glance …

Anyways, Al Gore is an entrepreneur and a politician. He is not and never was a climate scientist.

95 Harun February 27, 2016 at 3:36 pm

and yet he was a great promoter and was awarded a Nobel prize.

If you don’t like your spokesmen now, when they are inconvenient, well, too bad.

96 Nathan W February 27, 2016 at 4:24 pm

I’ve never referred a single person to an Al Gore anything in my entire life. Anyways, I’m not going to judge the state of climate science based on things he said 10 or 15 years ago. The science is always improving.

97 Laura February 27, 2016 at 1:26 pm

The predicted rise is 10 inches in 100yrs. Time to get rational folks.

98 prior_test1 February 27, 2016 at 1:47 pm

Oddly, the occasional Dutch expert does not agree. But hey, who would trust on such matters – people who have experience at living below sea level today, or those telling anyone currently living on land near sea level not to worry.

‘A few months after Hurricane Sandy bore down on New York, killing over 150 people and wreaking $65 billion in damage, federal leaders cried for help to make the Northeast more flood-proof. Dutch expert Henk Ovink answered. Ovink had helped make his homeland, where 55 percent of the country is extremely flood-prone, a world pioneer in preparing for sea level rise. With Ovink at the helm, the Hurricane Sandy Rebuilding Task Force put together a groundbreaking plan to make the region more sea-level rise resistant and started a contest to sponsor innovative design plans.

Which is all to say that there aren’t many people alive who know more about helping threatened cities cope with sea level rise.

So there’s good cause to be worried when the Dutch expert says there’s no place in worse shape today than Miami. He’s begun calling the city “the new Atlantis,” after the legendary and beautiful island subcontinent that was submerged by the sea in one night.

“If we look around the world and take into account sea level rise and the increase of water related disasters, among the places in the world that have the most assets and investments at risk, Miami is leading that list,” Ovink tells New Times. “Miami will no longer be a land city, but a city in the sea.”

99 Harun February 27, 2016 at 3:37 pm

Hint: people can move. Unless it happens in the time period of a storm, people simply buy houses somewhere that is not sinking.

100 prior_test1 February 28, 2016 at 9:06 am

‘Hint: people can move.’

Hint: the Dutch don’t look at it that way.

101 Keith February 27, 2016 at 5:29 pm

Venice is far and overrun with tourists. We need a new one.

102 Nathan W February 27, 2016 at 5:59 pm

The costs of avoiding runaway climate change may not seem so crazy if you consider how many tens or hundreds of billions of dollars that would cost, just for one city.

103 Ray Lopez February 27, 2016 at 1:45 pm

TC’s comment about insurers not being worried about global warming is not entirely true. It’s only true that Berkshire is not worried because Buffett backed off from supplying insurance (“As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business”). In short, you have to be smart like Buffett is (who sometime was a Washington, DC resident, and now resides in Omaha, where the richest Greek-American Pete Peterson lives) to not have to worry about global warming, and to know when to insure (as Berkshire did a few years ago, and made money) and when to walk away when the field becomes crowded (as now). It’s still a risky game.

104 Nathan W February 27, 2016 at 4:29 pm

The reason he’s not worried is because they can reprice the risk on an annual basis and will never have an expected value of losses regardless of how bad it might get.

105 Cliff February 27, 2016 at 11:14 pm

For flooding maybe, but not for severe weather, which is what he was speaking to

106 Nathan W February 28, 2016 at 12:52 am

If there’s more flooding, then presumably there are more storms (how else do you get flooding?), even though not enough of them are passing into “hurricane” threshold to show a difference in the number (severity is getting worse) of storms classified as hurricanes.

107 Ray Lopez February 28, 2016 at 9:20 am

@Nathan W – I doubt it. You make it seem Berkshire is doing insurance arbitrage. I do understand they are a re-insurer, and do pass off risk to other insurance companies, but it’s not completely risk free. One of these years Buffett can make a mistake and take on too much risk with severe weather. I doubt the risk is open-ended (i.e., potentially infinite) but it’s not trivial or zero either.

108 Shane M February 27, 2016 at 3:09 pm

This comment makes sense to me from a risk management perspective. After a large event, super-cat reinsurance rates will expand significantly, and Berkshire will be one of the last standing with the ability to supply the sums needed to other insurers – at a price. This is similar to the loan to Goldman Sachs during the financial crisis. When the other insurers are wiped out and hurting, cash becomes king, and Berkshire will be standing with cash – at a price.

Having worked for an insurer that purchased reinsurance following hurricane Katrina – (I think we purchased from Berkshire) – I can tell you that reinsurance rates went through the roof, and few were willing to extend reinsurance. Additionally everybody in the industry was needing more reinsurance because after an event like that your reserves are running on the edge and another similar event will put the primary insurers at risk of ruin.

So at least in that context, I’m interpreting Berkshire’s letter to be saying “be greedy when others are fearful, and fearful when others are greedy.”

109 Shane M February 27, 2016 at 5:14 pm

Tyler’s post made me aware that Berkshire’s letter was out, so I’m just reading through now, but I found this quote indicating Buffett is thinking about the reinsurance business opportunistically as discussed above.

From the Berkshire Letter (pg 11):
“Indeed, Berkshire is far more conservative in avoiding risk than most large insurers. For example, if the
insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything
it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because of its
many streams of earnings. We would also remain awash in cash and be looking for large opportunities to write
business in an insurance market that might well be in disarray. Meanwhile, other major insurers and reinsurers
would be swimming in red ink, if not facing insolvency.”

110 Hazel Meade February 27, 2016 at 3:56 pm

I find it odd that they would say that the insurance business would get MORE profitable, the greater the risk of catestrophic events is. Increased risk means higher payouts. In order to become more profitable, premiums would have rise even further to cover both the increased payments and the increased profits. Normally, increased premiums would mean that fewer people would buy insurance. Thus, at least to me, the only way Berkshire’s statements make sense is if the *perception* of increased risk is expected to be even greater than the *actual* increased risk. In other words, they are counting on buyers to behave irrationally.

111 Fargo February 27, 2016 at 4:28 pm

Bingo! We have a winner. Seriously, Berkshire Hathaway is just capitalizing on the herding behavior induced by the alarmist cult. Nothing new about it at all.

112 Shane M February 27, 2016 at 5:19 pm

Yes, following a large catastrophic event demand for reinsurance surges, while supply will actually contract because the big loss will make other reinsurance providers more cautious because of their own recent losses. The risk may not have changed (assuming risk of catastrophic risks are independent, and not serially correlated), but the price will change upward due to both a) increased demand (from all the insurers who need more reinsurance now than previously due to eroded financial condition) and b) decreased supply (from reinsurers who won’t have the capacity they had prior to the catastrophic event.)

113 Hazel Meade February 27, 2016 at 6:17 pm

I see, I guess that makes a little more sense when you account for Berkshire being in the reinsurance business rather than directly in the insurance business. But then if climate change really does increase the frequency of catestrophic events then even reinsurers will end up with higher payouts. So I think the idea still holds that Berkshire expects to make money off of the irrational *fear* of an increasing rate of catestrophic events, not an actually increasing rate of catestrophic events.

114 Shane M February 27, 2016 at 8:30 pm

Hazel, that may be the case. I can’t tell for sure from the reading. Warren seems to say that since reinsurance contracts are not long-term but are renegotiated annually, that the long term trends are not as important as his ability to regularly adjust price as risk changes. From my limited exposure to the reinsurance market, however, it seems reinsurance rates can change quite a bit from year to year as risk appetites of competitors wax and wane.

That said, certainly I would agree that Buffett wants to have dry powder for the time following a catastrophic event when fear is high. This to me is very similar to how he stepped in to provide cash for Goldman Sachs during the financial crisis.

115 Shane M February 27, 2016 at 8:38 pm

…and I guess I should’ve added that higher loss costs are not necessarily bad for business. Somewhere in the letter he remarks that the GEICO business is as large and valuable as it was now because the average losses have grown considerably over the years. He points out that if losses had remained as small as they were when he purchased the company, the GEICO business would be considerably smaller and less profitable than it is today.

116 prior_test1 February 28, 2016 at 12:42 am

Berkshire Hathaway is in both (along with government bond insurance) – which is interesting in its way, since there is an opportunity to play all sorts of interesting accounting games in that framework. A comparison to AIG is not quite correct, but then Gen Re was involved tangentially to another part of the ‘insurance industry’ – – ‘In October 2000, some Wall Street analysts questioned the decline in American International Group (AIG) loss reserves.[9] In an effort to quell these concerns, AIG entered into two sham reinsurance transactions with Cologne Re Dublin, a subsidiary of General Reinsurance, that had no economic substance but were designed to add $500 million in phony loss reserves to AIG’s balance sheet in the fourth quarter of 2000 and first quarter of 2001.’

I’m sure that a company like GEICO will be able to count on Gen Re to come through for it whenever the need arises.

117 Phil King February 27, 2016 at 8:39 pm

Maybe *this* insurance executive does not lose sleep over it, but there is some executive who either is or should be (latter more likely). Most companies would hold capital adequate to cover perils far more extreme than historically observed, but if two or more occured in a single year, you could certainly see some stress in the market, which is exactly what Buffet is waiting for. Somebody is exposed to the risk and there’s never a guarantee that you’re capitalized enough. That goes double when you aren’t able to charge as much for the same risk.

Also, the government is likely supplying heavily subsidized insurance to the areas neglected by the savvier insurers which plays no small role either.

118 mulp February 27, 2016 at 10:21 pm

“nor other weather-related events covered by insurance.”

The majority of extreme weather events of late are not covered by “insurance” because the losses are handled with government bailouts.

Drought: Government bailout.
Floods: Government bailout.
Storm surges: Government bailout.
Wild fires: Government bailout.

And for those cases where losses are not covered by insurance or government bailout, there is government redistribution of wealth in bankruptcy courf: worker’s savings are redistributed to borrowers who can’t repay debts.

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