Elon Musk Takes a Gamble as Insurance Rates Skyrocket

and on Bloomberg dot com. So rates for what's being called Directors and Officers insurance they've skyrocketed because there's been a surge in lawsuits by plaintiffs seeking to sue as a group. Now the latest surgeon lawsuits coming as a response to the coronavirus outbreak and how companies may have bungled it in certain cases according to these plaintiffs. But interestingly, Elon Musk never want to shy away from making a gesture. Set in April, he was dropping the insurance policy that

protects Tesla's board from shareholder lawsuits. It doesn't mean they wouldn't be insured. It meant that he would pay out of his own pocket. It's a fantastic story today, brought to us by Jeff Phey and Catherine Chilinsky of Bloomberg News, and let's bring them in now. Jeff, why that Elon Musk have put himself on the line, Like, it's not that he doesn't have enough money, but I mean these are potentially multimillion even more lawsuits. Elon is Elon is

what I want to say to start off. Also, I mean, you're talking about an average increase over the last two years of this kind of insurance starting to get a bit out of hand, and the insurance company is insurance companies are citing a jump in the numbers of security suits and then of course the COVID thing, both of which are legitimate reasons. But I mean forty percent in a two year period, that's a that's a pretty big bump.

And you know, I mean companies are looking to conserved resources given the economic body blows of the pandemic has caused. So Elon sees this as a way of saving money. So kind I want to bring you in here. You cover all things on the insurance side on this d n O or Directors and Officers insurance market. Here, what is it typically cover? What kind of protections is it typically give a board member? Yeah, so it gives them a lot of liability protection in case they're stuit um.

It often you know, you see it occur when some shareholder files the suit that alleges, you know, they've been hurt because of a stock drop, which kind of makes this a really interesting time period for the market, um because you know, while we did see sort of the stock market crash and a bit of the first quarter,

especially in March, it was a broad based decline. So I think it's going to make a lot of these claims a little more intriguing because whether you can prove the cause, whether you were hurt by um this broad market, or if it was just something that really affected a bunch of companies at once. I think it's going to be kind of an interesting tension we'll see in these lawsuits, well,

just on that particular. In christition as well. I mean, there are some companies for whom that's more of a problem than others, and Tesla might be one of them, considering we saw it's your price cool above a thousand dollars last week. And Ellen himself has run ins with regulators from time to time, given his his round things on Twitter sometimes and they can move stocks. So is

he really putting himself on the line. I mean, what's the worst case scenario for Elon Musk in this in this in this scene, Catherine Well, I would say, I mean, obviously if there are lawfoods, then they do prove quite um successful against him. You know, he's got a lot on the line, and that's it becomes quite tricky in his case because there are some conflicts of interest that

people have raised. You know, the board members need to sort of make sure his wealth is there in a way to protect them and um, and that's where do you know, insurance always gets kind of interesting. You know, That's why a lot of people turn to sort of the traditional insurers to buy it because they want, you know, someone who's very separate from the company and the board to ensure them so that there's no conflict of interest.

And I think those were some of the concerns that you know, experts we talked to raised, is that Ellen is going to have to work over money if there is a loss, and you know, he has obviously got a lot of the Tesla and the board and they're gonna have to make sure that they can kind of keep things very independent. Yeah, Jeff, I kind of want to follow up on that. If I were a board

member Tesla, I'm much sure. I'm sure, I'm I'm drinking the Elon Tesla uh Elon Musk kool aid, But I'm not sure i'd be comfortable not having that DNO insurance policy behind me. What's the sense of other companies out there? I mean, this is really unusual, isn't it? It is? And given what Elon Musk thinks the best most journalists, I would not sit by the phone waiting for that call for your board appointment. But um um, the reality is that nobody else that we were able to find

has done this. You know, we we poked around. Ja and Jay may have had. They wouldn't comment on it. They have their own captives ensure. But here's the reality. We quote Stip McBride, who's a director at companies such as Bluebell ice Cream in Texas as an old DNO expert marketing from Mark Lane here now, and we quote him the saying he would not join the Tesla board without cutting his own separate deal with Elon Musk, That he would write that would leave him no wiggle room

on covering litigation against Skip McBride. They may have done that. That may be the way that they have handled that. They did not disclose that, by the way, in their SEC filings, what they did disclose is that the Elon's board had basically chewed over the idea of whether this left them in a conflict position when they found that it did not. So, you know, this is all one big Google lots that you've got sort of swirling around

involving COVID. You have the insurance industry saying that they faced potential losses of four hundred and eighty billion dollars. That's gonna be every month over insurance claims, business and eruption other insurance claims. D you know, for an eighty billion a month, it's really phenomenal. But I suppose, you know, I mean, if the price has gone off that much, then I guess you do get to that number pretty quickly. What's the outlook for these coronavirus cases, Jeff, I mean here,

there's going to be so many of them. Yeah, here's the deal. And you guys mentioned Tesla as being somebody who's a particular risk. I don't see them at particular risk.

You know, we note in the story used a particular risk as a Norwegian Cruise line and Princess Cruise Line, and those guys have got already got at least a half dozen security suits against them, saying not only did you bungle COVID, but in the in the example of Norwegian, you basically lied to people about you know, how bad COVID was trying to get them to keep their booking dates on the cruises that goes before a jury. And I don't even want to think of a number that

gets attached in the verdict. Jeff Philly, thanks so much for joining us. Jeff Philly is a legal reporter for Bloomberg News uh and Cat Lynskey financial reporter covering all things insurance for Bloomberg News as well, with a fascinating story the two had out today, Elon Musk effectively self ensuring his board. I. I just can't think another example of that, Bonnie. I mean, if you were counting on your CEO to ensure you poll, would you argue with him? Uh? No,

I don't think so. I mean, I just think the risk, particularly in this environment, or just too great. And I think it's, you know, it's really too much really to ask for board member. I think in this environment, yeah, exactly, I mean captive insurance trickier with dno because of conflicts of interest. As we say in the story, it's definitely well worth reading the whole story. Absolutely great stuff coming

out of Bloomberg does. Yeah, that's what he does. It's Ellen being elon Hens one of the biggest public pension plans in the country, second to maybe only one other. Let's bring in Chris Ellman, chief investment officer at callister Is the California State Teachers Retirement System. Chris, welcome back. Well, Fannie, it's good to be back. We're number two in assets, but we're number one in everyone's heart. That's what I was hinting out there. Chris, Well, let's get straight to it. Then.

Have you had to revise what you're assuming you're going to make in returns over the next several years. Well, we haven't changed our long term assumption because it's a thirty year average, Fannie. But what we have done is reassessed and the keyword was when the Fed said interest rates we're going to stay at zero through that's a powerful statement, and so the next five years will probably be lower returns, although the last time the Fed did that,

we had double digit returns for those five years. So risk assets maybe profitable during this time period we have to get through the health crisis. But I think that we're going to see very low returns. Obviously had a fixed income corporate credit uh anything was variable rates that reset, but that means that equity investments and growth investments may have a chance to use that free money that financing.

So Chris your your kind of parts. At Cowper's UH, they were talking about needing to maybe I more private equity uh to leverage and maybe even more leverage to boost returns. I making the portfolio a little bit more riskier in order to generate the returns that they need. How do you view that? Yeah, Ben Ming's uh new c I oh there, who's really taking a comprehensive look

at the portfolio? And we're all seeing a trend that the Canadians have used some of the Dutch pension plans UH and Danish pension plans have used, which is too You know, when when interest rates are zero, uh, you borrow money and leverage and you and go into growth assets. But I think there's a natural for a public pension. There's got to be a limit to that. And that's what everybody wants to explore. You want to use that lower cost money as an opportunity to buy into things

like real estate. Private equity should take advantage of it, obviously, um, but also just across the portfolio. But there are natural limits, no one has defined that. But but probably not more than leverage. Um. We have a leverage policy. We actually monitor that very closely. You take leverage in real estate. Everybody buys their home with what down maybe down, so they're leveraging over half. A public pension plan would be doing just the opposite, barely leveraging the portfolio, Paul Um.

But it's it's simply because the fact that the Fed has signaled rates are going to be so low for so long. Um, that's very inexpensive money that allows you to invest in other places. But not until the health crisis is resolved. And can I point out, Chris and correct me if I'm wrong, But you guys would actually have been doing a little bit more of this than

other retirement systems for a long time. You've always been a little more into real estate, a little riskier when it comes to venture and growth and even fund of funds and alternatives generally. Right, Well, Bonnie, uh spot on. You've known me for almost two decades. I think, UM, we we do tilt a little heavier toward real estate UM than most public pensions UH, State of Washington, ourselves, Oregon. There's a lot of funds that have a fairly large

allocation to private equity. UH. At our fund it's it's currently about ten percent going to which is a big dollar amount UM. And you know, the returns from private equity are going to come down, but they're going to be helped by this lower money. And the reason you're going to come down is simply competition. There's just too

much money chasing too few deals. And and before the health crisis, private equity companies were paying top dollar for any kind of an investment, and that usually means lower returns going forward. So we're still going to stay in the space, but it's going to be less of a return than you used to see. And the stay the nineties of the two thousands. We think a broadly diverse

side portfolio is gonna help you through this. Growth investments once we get out of the health crisis, growth investments will be attractive to people, and that could be even in US and non US stocks. You know the world has had so many geopolitical challenges. Um, if you could get its act together, Japan could finally start growing again. You've got some investment opportunities, big if at the start of those. Well again, I have to keep cavigating. We've

got to get through this health crisis. Yeah. Absolutely, that's paramount for everybody. I think you know, it goes without saying, but Chris, talk to me about your real estate holdings and what you're you on real estate is right now, because I think that sort of has split people in two, does to what they are anticipating in terms of inflation as to what they're anticipating in terms of how you know structurally, light will change after this. Good good point, Bunny.

You know, right now real estate is fairly frozen. There are no transactions, so there's no price information to figure out where things are going into This real estate was pretty much priced of perfection. The real estate our team was doing was more build two core as we describe it, so so speculative building, but leasing up the property and making it a core holding. Most of the return in real estate comes out of your lease income. It does

not come out of capital appreciation. As much as people focus on that, I think that will be true and you're right, the dynamics of the typical downtown office building are going to change. Um, this is the first time in my forty year career I've been able to work from home. But I like it. I know my staff of my staff liked it. So I think we're still

gonna have to come back to the office interact. Yeah, it is amazing, you know there, but there's less interaction, there's less dropping in in people's office and sharing ideas. We need that interaction, that that creativity and the culture. There's no culture when you're working from a zoom screen. So but I think we're going to see a new dynamic where, yes, a lot of people at least a few days a week, maybe a week a month, work from home. Um. Certainly the young families love it because

then they can be with their kids. But I can tell you that people with teenagers are happy to get back to the office. They want to get out of out. So it's a it's a split. But you know the other part of real estate apartments industrial Um, all of those wonderful Amazon fulfillment centers, those are still very profitable. There are sub segments in real estates such as UH the server centers where the internet has to be kind

of housed or hubbed. Uh, those are profitable. So you know, I've think I've always liked industrial because it's just big and bold and and not a lot of landscapes, so you don't have to water it. As long as the trucks pull up, you're making money. Um. Retail is going to be challenged, obviously, but people do want to go back to the mall. But we've been we've in retail, we've been underweight, and we have been a grocery anchored kind of local chains and centers for a long time.

And Chris, thanks so much for joining us. We always appreciate hearing your broad perspective. Chris Ailment, chief investment officer for the California State Teachers Retirement System. They've got a couple of dollars under management, about two thirty nine billion based in Sacramento, putting that money to work for all the good teachers from the state of California. Supreme Court

has been a busy here. Today, a divided US Supreme Court ruled that federal law protects gay and transgender workers from job discrimination, in a decision that gives millions of LGBT people new civil rights. To get the latest on this, we welcome Gregg's store. He covers all things on the Supreme Court for us. Greg, So give us a sense of how important this decision is. Greg, Was it expected?

What's your take? It's hugely important. Uh, more than half the U. S States don't cover sexual orientation and gender identity through their own antidiscrimination laws. And what that meant was and most of the country it was perfectly legal for an employer to fire somebody because of his or her gender identity or sexual orientation. Now that can no longer happen. And it's a ruling that came out of a pretty conservative Supreme Court. Yeah, isn't it phenomenal? Greg?

Because it's it's quite ironic that even though we had that massive decision a few years ago in two thousand and fifteen legalizing same sex mariginationwide, that still people who could have been fired from their jobs for the very same thing, for being gay. Yeah, ironic is exactly the right word for it. And it's something that a lot of people did not know. But that decision involving gay marriage was a constitutional decision. This was a matter of

interpreting uh, the nineteen sixty four Civil Rights Act. UH. That law says that you can't discriminate against somebody on the basis of sex. And the core question for the Court in this case was a somewhat technical question, which is whether that phrase words sex covers sexual orientation and gender identity. And the Supreme Court today said yes, it does. So it's interesting, Greg, I saw the conservative Justice Neil Gorsuch and Chief Justice John Roberts joined the courts for

liberals in the six three majority vote. How surprising was that to see those two conservative judges vote this way. The Chief Justice was probably more surprising. A lot of us had watched Justice Gorsers during the arguments, which were way back in October UM, and he suggested that he might actually read the statute this way, So there was at least the possibility after the argument that he would

join the liberals in the Jordy UH. Chief Justice Roberts did not suggest any such thing, And he had actually been in dissent and all the courts be gay rights decisions UH leading up to this moment, so I'm not sure I would have guessed that he would have been there. This was something that was certainly in the mix. But again, given the overall direction of the court, it's a court that has become more conservative since Donald Trump got to

appoint to justices, including gorst. Uh. You know, you have to say, wow, it's it's it's quite a surprise to see this court issue this really well. And in fact, it was actually a trio of cases they were considering, So the two gay rights cases, but also a very interesting case transgender rights case a concerned a Michigan funeral home chain that fired Amy Stevens. She was preparing to start living openly as a woman. Tragically, though she she's died now and the Supreme Court has come out with

the decision just more than a month after she died. Yes, she did. She had had a health problems for for a while. Um, you know, she she did get to see a federal appeals court rule in her favor, but of course when the Supreme Court got involved, that victory for her was was in jeopardy. Um. You know, her name will certainly be remembered as uh, someone who pushed this issue, who insisted that she should be treated equally, that she should not be discriminated against because she had

decided to begin living openly as a woman. But yes, tragic for her that she didn't live to see this day. It's interesting, Greg Tim Cook, the CEO of Apple, just came out applauding the Supreme Court decision. Here. What's the general feeling of corporate America as it relates to these types of rights and what do you think the response will be to this ruling. I think there'll be a lot more of of what you just heard from from Tim Cook. Uh, corporate America was was generally on the

side of expanding LGBT rights. Uh. In part just a calculated business decision that they want to see clear rules and now they know what the rules are, Uh, they cannot discriminate. Uh. You know, and it's a nationwide rule. They don't have to worry about a patchwork across the country. But there's also you know, when you talk to a lot of corporate leaders, they talk about how important it

is for them to maintain a diverse and welcoming workforce. Uh, And this is something that in their minds will certainly push us in that direction. Yeah, it's amazing. Just more broadly on the docket, and what's left for the rest of the year, and who will write the decisions. Greg, I know you've been keeping ride. Well. I wouldn't have guessed that Justice Courses was going to write this decision, So I don't know who's going to write what going forward.

One big one we're waiting for, we should get pretty soon, is whether President Trump can abolish the DOCTA deferred deportation program. Uh. That's obviously gonna be very contentious. We're gonna have rulings on abortion, religious rights, and then probably near the very end of the term, rulings on those subpoenas by the House and a New York Grand jury for President Trump's

financial and formation. That will no doubt be one of the most politically divisive rulings of the term, and just on which justices are left to right decisions at least, well, it could be the way it works out. I would expect Chief Justice Roberts to write some of the big ones. Uh. The whole dynamic of who writes what the opinion is dependent on the sitting in which the Court uh issues it's ruling. So at this point it's a little hard

to guess. Um. I do think Chief Justice Roberts a very good chance he will be the one writing the doctor decision. Beyond that, it's a little hard to speculate. All right, well, it is fascinating. Well, can keep an eye on all of your stories, particularly that seminal decision today from the Supreme Courts. It's amazing millions of LGBT people use civil rights. Yeah, it's really it's extraordinary. I wasn't aware that that many states did not have that

protections at the state level. So obviously this is a compelling, uh and exceptionally important ruling here by the Supreme Court. And it's always the incremental decision that makes change right our Thanks to Greg's store, Supreme Court reporter for Bloomberg, it is time for a Bloomberg Opinion segment. Max Neeson, biotech,

farm and healthcare calumnists for Bloomberg Opinion, joins us. Max, You've got a great column out and I love that the title here the headline to fight COVID nineteen this fall, get a flu shot. We'll talk to us about the flu shot. The people actually get this thing that doesn't work, and how could it help in the you know, the

pandemic nineteen world. Yeah, absolutely so. I think what we're seeing with with cases spiking in a number of U. S States is pretty clear confirmation that the COVID nineteen is is going to be around in a significant way for some time to come. Considering that, you know, many states never quite got it under control and have sort of proceeded with openings without necessarily having developed the sort of track tracing isolating capability that they need to keep

incidents flow over the long run. That means we'll have cases in the fall as um, you know, you get the seasonal return of flu and these are viruses diseases that can look similar, both of which can can land people in the hospital, and um, you know, in combination, if you get a particularly severe flu season, you have the potential to further overwhelm healthcare and hospital systems and create a lot of extra sort of confusion and fear um from people that that might think they have COVID

but could have flu, and then potentially, you know, uh go get tested and just a lot of a lot more burden on un testing and healthcare providers. So um, you know, in terms of something that that the federal government and state governments could do ahead of time, ahead of that that potential result is roll out to a greater extent um a flu vaccination program try to get

a higher proportion of the population vaccinated. And while the effectiveness of the flu vaccine can vary depending on the strain, into what extent vaccine developers get it right, I nearly always provide some degree of protection, and really, ahead of the autumn, anything that we can get to reduce the burden is worthwhile. So really, the argument max has nothing

to do with coronavirus itself. It's just this may help you not get flu, which will help the system in terms of not overwhelming hospitals or doctors offices, and it may keep you away from coronavirus plagued areas as well should they re emerge. What about the different strains of flu? What's the likelihood that the season's flu vaccine will work

better than other seasons of it all? Um, you know that that's something that we won't know much about until until we have the flu virus actually starts to circulate. But you know, I think the a couple of extra

things to add on why this effort is worthwhile. First is, you know, the flu will already have a harder time if people are taking some degree of distancing steps masking UM, you know, using greater hygiene efforts, adding even UM you know, an average or less than average of vaccine on top of that should lead to a much less acute season,

and then that's worthwhile. On top of that, any effort to expand vaccination UM, get people connected with providers, create you know, more accessible vaccination type target the sorts of population that don't always get vaccinated that can be re applied, reused in the future when we get a COVID vaccine, because you know, it's not just getting into a vaccine, but but getting it um in enough of a population that you can have that that sort of broad protective effect.

That's going to be a huge challenge. And anything we can do to build that infrastructure ahead of time while doing something else useful should should be very helpful. So, Max, I know this is a very fluid area here, but give us a sense of kind of where we are in terms of the vaccine. I know we've got many, many groups, many companies, many research universities working towards it. Kind of give us just a thirty foot view where

we are right now, still in very early stages. We we just got some limited data from the vaccine China signo vax vaccine and you know it looked it's what you want to see, some degree of immune reaction, no severe safety events. But it has with madurna pretty limited data disclosure. Um, you know, we're really there. There's going to be sort of a low bar for moving into larger studies because we we want to try as many

different vaccine approaches as possible. It's gonna be some time before we have a really solid sense of what's likely to succeed and when and what what the most effective vaccines will be. So still early days, but but lots of progress being made now. We have openings in a lot of places. Retail outlets in England selling non essential items open today for the first time. Obviously, places like

New York are beginning to reopen as well. But Dr Anthony Fauci suggested bands on travel to the United States may remain untilvaccine arrives. How likely is that, Max, You know, I think it depends on the situation going forward. And you know some of those will be you know, relative directed at other countries, other countries that cleft to your outbreaks. Other countries may be hesitant about letting people travel here just be considering that the virus continues to circulate that

I rates. It all depends on the extent to which um, you know, states take action to keep for new outbreaks under control, continue to do all of the many things governments can do independent of the vaccine to keep incidents low in the long run. Well, I would urge everybody to keep up with Max's writings. He's writing a lot of Bloomberg opinion pieces on the actual infection. Yeah. Absolutely, money, and it's you know, it's interesting to see here. There's

a couple of paths here. We've got the path towards treatments of uh, the illness as well as vaccines. And we know that the again healthcare companies, research universities, doctors and scientists across the world are working towards this, and you know, people are just kind of waiting beta breath to see kind of how this progresses, and hopefully we can get a vaccine sooner rather than later. Yeah, exactly. Thanks to Max Nis and Bloomberg Opinion columnist. Thanks for

listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn. And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio