Good morning. When he campaigned to be California’s insurance commissioner, Ricardo Lara warned about the risk of climate change. Insurers agreed, so they tried to jack up rates and cut back on coverage.

When Lara blocked their rate increases, insurers, including Allstate, State Farm and Farmers Insurance, stopped or restricted new home-insurance business. That put Lara in the middle of the biggest insurance crisis in the country.

“For many Californians, this is an insurance emergency,” Lara told state legislators last week.

• The problem? Insurers have lost billions in California because of wildfires and other climate-related disasters. The state also has some of the strongest rules in the country that protect customers from big rate increases. The two have come into conflict, leaving homeowners in some parts of the state unable to get affordable coverage.
   
• Lara's goal: With his pledge to “defend all Californians from the threat of climate change” seemingly in tatters, the 49-year-old regulator is trying to make deals to bring insurers back to the state.
   
• The dilemma: “This is a no-win situation—it’s a question of what Lara is willing to settle for,” said Ellen Carney, an insurance analyst at research firm Forrester Research. “I would hate to be a state regulator.”
   
• What's at stake? Lara faces a make-or-break year as he races to woo back the insurers. His approach could influence other state regulators wrestling with their own insurance no-go areas.

Activision Blizzard to pay more than $50 million to settle lawsuit that spurred Microsoft’s takeover.

Activision Blizzard has agreed to pay more than $50 million to settle a high-profile lawsuit by a California regulator that helped spur Microsoft’s October takeover of the videogame company.

The state’s Civil Rights Department sued Activision in mid-2021, alleging its leadership ignored numerous employee complaints of sexual harassment, discrimination and pay disparity.

California’s Civil Rights Department said Friday the settlement resolves allegations over discrimination and pay disparity, including by denying promotion opportunities and paying women less than men for doing substantially similar work.

Abramovich's $3 billion pledge for Ukraine war victims is frozen in the U.K.

Two weeks after Russian tanks rolled into Ukraine, Russian oligarch Roman Abramovich said he would sell his soccer club Chelsea FC and donate the billions of dollars in proceeds to the victims of the war in Ukraine. At the time, it seemed an elegant solution for a billionaire under growing scrutiny in the West for his ties to Russian leader Vladimir Putin.

Yet more than a year and a half later, the $3 billion donation is sitting frozen in a U.K. bank account amid a long-running dispute with the British government over how the vast sum should be spent.

• The Securities and Exchange Commission on Friday denied a long-shot petition by Coinbase Global that asked regulators to write special rules for cryptocurrency markets rather than enforce existing ones.
   
• A jury said Trump campaign lawyer Rudy Giuliani must pay $148 million for falsely accusing two Georgia election workers of rigging the 2020 presidential contest.
   
• Gene-sequencing company Illumina said Sunday it will divest itself of cancer blood test maker Grail, following Illumina’s loss in its legal battle against U.S. antitrust regulators.
   
• Hundreds of banks use Federal Reserve’s new instant-payment service, but universal availability could remain a long way off.
   
• Southwest Airlines faces a civil penalty totaling $140 million after the U.S. Department of Transportation said the airline violated consumer protection laws during its holiday meltdown last year.
   
• Navy Capt. David Lausman, once the commanding officer of an aircraft carrier in the Pacific, stood front and center in a trial that capped one of the biggest military corruption cases in U.S. history.
   
• A Vatican court on Saturday found Italian Cardinal Giovanni Angelo Becciu guilty of embezzlement and fraud and sentenced him to 5½ years in prison.
   
• The most high-profile case of Hong Kong’s yearslong effort to snuff out dissent after protests rocked the city began on Monday as newspaper tycoon Jimmy Lai went on trial under the national security law imposed by Beijing.

Sysco questioned over alleged forced labor issues in seafood supply chain.

Sysco faces questions over the alleged use of forced labor in its seafood supply chains. A California congressman wrote to the food service company Thursday, recounting a meeting between the company and his office but demanding more information on Sysco’s efforts to address the problem. A copy of the letter was obtained by The Wall Street Journal.

“Because Sysco holds a large share of federal government contracts, I want to ensure that Sysco will demonstrate its commitment to upholding the law by severing ties with any entity that violates human rights standards,” Rep. Jared Huffman, a Democrat, wrote. He said the company hasn’t addressed its relationship with processing plants “that can be linked to forced labor of workers from Xinjiang,” the region of China that is home to the Uyghur people and other minority groups.

Sysco said it has "zero tolerance for forced labor" and that its "U.S. broadline operation" has severed ties with one seafood processor after an investigation. The company is working on ensuring that all its businesses globally sever ties with that supplier, adding that internal investigations into its supply chain are ongoing.

Lawmakers from both parties have pressed the Biden administration to address the use of forced labor in the China-dominated seafood industry.

–Richard Vanderford

U.S. business activity expands at fastest pace in five months, PMI data suggest.

U.S. business activity expanded slightly in December, a little stronger than the prior month, as new orders improved despite a still weak environment for the manufacturing sector, a purchasing managers’ survey said Friday.

The S&P Global Flash U.S. Composite PMI—which gauges activity in the manufacturing and services sectors—climbed to a five-month high of 51.0 in December, from 50.7 in November.

• Despite Record Home Prices, Housing Is About to Drag Inflation Down
• Home Buyers Are Ready to Buy. But Sellers Aren’t Selling.

Big Four accounting firms overhired. Now they’re starting to lay off partners.

Ernst & Young is laying off dozens of U.S. partners, The Wall Street Journal reported this week, a rare tactic that extends ongoing job cuts to the top echelon of one of the Big Four firms. That followed the roughly 5% cuts to KPMG’s U.S. workforce this summer, which also included partners.

What happens when partners are laid off. While EY, KPMG and Deloitte have collectively laid off thousands of U.S. workers this year, partner layoffs are far less common in the industry. Firms generally have to buy out the partner’s equity and make an additional payment based on the person’s seniority and tenure when they leave, said Tom Rodenhauser, managing partner at Kennedy Research Reports, which tracks the consulting industry.

• Building China-free supply chains is tough. Sometimes it means dealing with lizards that don’t have legs and sands that are radioactive.
   
• Shipping and logistics majors A.P. Moller-Maersk and Hapag-Lloyd have stopped their ships from entering the southern entrance of the Red Sea on Friday after attacks on their vessels.
   
• The death of three Israeli hostages in Gaza shot and killed by Israel’s own military Friday in a case of mistaken identity has sparked fresh anger among the families of captives kidnapped by Hamas and renewed questions about the conduct of the war.
   
• Higher interest rates are choking off construction of warehouses that feed America’s growing e-commerce appetite, putting an end to a building boom that remade vast swaths of the country.
   
• Hawaii lawmakers say the state must change how it oversees vacant lands, staffs its fire departments and deals with property owners who fail to adequately prevent wildfires, months after a deadly blaze on Maui destroyed the town of Lahaina.
   
• Rich countries are raising more money from taxpayers than they have in decades to finance a burst of state spending as surging interest rates make borrowing less attractive.
   
• China’s economic slowdown has become a big problem for banks that serve the rich.

Intelligence researchers to study computer code for clues to hackers’ identities.

Government researchers in the U.S. are studying methods to help identify hackers based on the code they use to carry out cyberattacks.

The Intelligence Advanced Research Projects Activity, the lead federal research agency for the intelligence community, plans to develop technologies that could speed up investigations for identifying perpetrators of cyberattacks.

• A quarter of a mile from a civilian border crossing between Israel and northern Gaza lies what Israel’s military says is the largest tunnel discovered in the enclave.
   
• America’s most senior intelligence and defense officials are beginning a new round of on-the-ground diplomacy aimed at resurrecting talks to release hostages still held by Hamas in Gaza and bringing Israel’s war there to a conclusion.
   
• United Nations officials called for an investigation into an Israeli military raid on a Gaza hospital during which patients died and the armed forces said they detained scores of Hamas militants and recovered a trove of weapons and other military equipment.
   
• More than half the country now thinks Biden’s policies have done them harm and nearly as many voters think Trump’s policies helped them, a foreboding sign for the incumbent heading into a likely rematch with his 2020 foe.
   
• The U.S. ambassador to Russia visited jailed Wall Street Journal reporter Evan Gershkovich on Friday.
   
• A WSJ investigation shows Epstein continued ensnaring young women for abuse after his 2008 conviction. This is their story of what happened.

Follow us on X at @WSJRisk. Follow Risk & Compliance editor David Smagalla @DSmagalla_DJ and reporters Mengqi Sun @_MengqiSun, Dylan Tokar @dgtokar and Richard Vanderford @VanderfordRich.

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