Natural disasters

RECENT NEWS
The Economic Times  Apr 11  Comment 
New towns and satellite city projects across India and other developing countries are putting an increasing number of poor people at risk from natural disasters and diseases.
New York Times  Apr 8  Comment 
There is evidence that efforts to raise public concern about climate change by linking it to present-day natural disasters will backfire.
NPR  Apr 8  Comment 
Dozens of people lost their homes in the massive slide in Oso, Wash., but few are likely to see an insurance payout. That's because mudslide coverage is not included in a typical homeowner's policy.
TheStreet.com  Mar 28  Comment 
NEW YORK (TheStreet) -- Were you the victim of a tornado, flood, fire, hurricane or other natural disaster last year? According to the Federal Emergency Management Agency, there were 62 declared disasters across the U.S. last year. Aside from...
guardian.co.uk  Mar 18  Comment 
In the aftermath of the Malaysia Airlines Flight MH370, Reuters’ photographer Jason Lee attended a Tianjiao Special Guard/Security Consultant bodyguard training camp in Bejing, China. The trainees practice emergency evacuation procedures and...
Sydney Morning Herald  Feb 13  Comment 
Queensland MP and businessman Clive Palmer is calling for a national emergency fund to provide speedier relief for businesses and communities following natural disasters or industry crises.     
Insurance Journal  Feb 11  Comment 
The Oklahoma tornadoes of May 2013 not only caused significant loss of life but also contributed to its designation last year as the costliest state for natural disaster related insurance payouts, according to the Insurance Information Institute...
DailyFinance  Jan 29  Comment 
OTTAWA, ONTARIO -- (Marketwired) -- 01/29/14 -- Office of the Minister of National Defence Defence Minister, Robert Nicholson and Public Safety Minister, Steven Blaney, today announced investments of approximately $14.5 million to fund...
Financial Times  Jan 26  Comment 
Insurers are creating their own system that aims to transform the way in which natural disasters are modelled
Insurance Journal  Jan 21  Comment 
Travelers Cos., the property/casualty insurer in the Dow Jones Industrial Average, said fourth-quarter profit more than tripled as claims costs from natural disasters fell a year after Superstorm Sandy. Net income rose to $988 million, or $2.70 a...




 
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A natural disaster is the consequence of a natural hazard (e.g. hurricane, volcanic eruption, earthquake, landslide) which moves from potential in to an active phase, and as a result affects human activities[1]. Business is one such activity.

The International Red Cross, which publishes an annual World Disasters Report, says the economic cost of natural disasters has skyrocketed. In the past two decades alone, direct economic losses from natural disasters multiplied five fold to US$629 billion. Annual direct losses from weather-related events increased from an estimated $3.9 billion in the 1950s to $63 billion in the 1990s[2].

Natural disasters tend to affect insurance companies as well as local businesses affected by the disaster. The impact on other businesses can vary. For example, disruption in the oil drilling and refining activities in the Gulf of Mexico during the 2005 hurricane season caused some companies to lose revenue due to the loss of productive capacity, but also caused the price of oil to increase thus benefiting others in the industry. Landstar System, which has a contract to provide trucking services to the U.S. Government in the aftermath of natural disasters, was also a beneficiary[3].

Some studies have suggested that commodities provide an effective hedge against natural disasters because disasters such as floods, drought and hurricanes can affect commodity supply (see oil example above) and increase the price. However, the effect can differ across commodities - a drought could cause a shortage of corn and increase corn prices. The higher corn prices raises feed prices, which could cause ranchers to slaughter cattle earlier than usual and depress the price of that commodity in the short term.

Companies with negative exposure

Many companies are adversely impacted by the threat or actuality of natural disasters. Some include:

  • Property & Casualty insurance companies
  • Homebuilders and REITs with exposure to earthquake or hurricane prone regions
  • Travel and vacation companies, including cruise lines like Carnival (CCL) and Royal Caribbean Cruises (RCL) who operate in the Caribbean, where hurricanes are most common.
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