Natural disasters

RECENT NEWS
Insurance Journal  May 25  Comment 
The U.S. Chemical Safety Board on Thursday urged chemical plants to weigh the risks of natural disasters just as they would the integrity of pipes and production equipment. “Such facilities should perform an analysis to determine their...
Insurance Journal  Apr 10  Comment 
Global insured losses from natural catastrophes were US$144 billion in 2017, the highest-ever recorded in a single year, according to the latest sigma study from the Swiss Re Institute. The biggest losses came from Hurricanes Harvey, Irma and...
MarketWatch  Mar 28  Comment 
One cluster of tornadoes changed Accuweather’s Mike Smith’s life forever
Financial Times  Mar 21  Comment 
Major claims double after string of natural disasters
Insurance Journal  Mar 19  Comment 
Natural disasters from droughts to floods are costing farmers in poorer countries billions of dollars a year in lost crops and livestock, and it’s getting worse thanks to climate change. Agricultural losses from weather events in developing...
MarketWatch  Mar 14  Comment 
Hurricane Irma teaches a daughter key lessons about protecting her 97-year-old mother.
Insurance Journal  Mar 4  Comment 
AXA SA agreed to buy XL Group Ltd. for $15.3 billion in cash, seeking to capture a bigger slice of the U.S. property and casualty market as premiums rise after last year’s natural disasters. The French insurer is paying $57.60 …
247WallSt  Feb 7  Comment 
While parts of the United States and much of Puerto Rico are still recovering from devastating hurricanes last year, a recent report from the St. Louis Fed noted that hurricanes are not the costliest...
Insurance Journal  Feb 7  Comment 
Although clear challenges can come with the increasing cost and frequency of global natural disasters, there could also be untapped opportunity for insurers to tackle coverage gaps, according to panelists at the Insurance Information Institute’s...
Wall Street Journal  Jan 30  Comment 
The Mexican economy staged a recovery in the fourth quarter, expanding at its fastest pace in more than a year as the country shook off the impact of natural disasters that contributed to a contraction in the previous quarter.




 
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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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