Natural disasters

RECENT NEWS
Forbes  Feb 26  Comment 
I chair my town’s committee on emergency preparedness, so I know something about dealing with natural disasters. I’m familiar with the Federal Emergency Management Agency (FEMA) and its role in providing training, organizational information...
USDA  Feb 26  Comment 
WASHINGTON, Feb. 26, 2015 - Agriculture Secretary Tom Vilsack announced today that USDA's Natural Resources Conservation Service will invest an additional $84 million through the Emergency Watershed Protection Program (EWP) to help disaster...
Clusterstock  Feb 5  Comment 
We all live with natural disasters happening all around us all the time. Volcanos, tsunamis, earthquakes, it's all around us. But we don't often think about how it could affect us, and we very rarely think about how it could affect society at...
Insurance Journal  Jan 13  Comment 
Impact Forecasting, Aon Benfield’s catastrophe model development team, has released its Annual Global Climate and Catastrophe Report, which evaluates the impact of the natural disaster events that occurred worldwide during 2014. The report...
Cloud Computing  Dec 20  Comment 
For more than a decade we have heard constant warnings about the coming of “cyber war” and “cyber terrorism.” The prophets of cyber doom have promised that cyber attacks are just around the corner that will be on par with natural disasters...
Forbes  Dec 9  Comment 
David Miliband, best known as the Miliband sibling who lost the British Labour party to his brother Ed, has a new job. Miliband is now the CEO of the International Rescue Committee (IRC), the New York City based organization dedicated to helping...
The Hindu Business Line  Nov 23  Comment 
Amid rising incidences of natural disasters, national reinsurer GIC Re has proposed to set up a natural catastrophe disaster fund/pool to cover the country’s entire population for a minimum specif...
Reuters  Nov 19  Comment 
U.S. regulators are poised to adopt new rules that would require stock exchanges and some larger trading platforms to take steps to protect against market disruptions such as technology glitches or natural disasters.
New York Times  Nov 13  Comment 
“Nature’s Fury: The Science of Natural Disasters” examines the immense forces wielded by earthquakes, volcanoes, tornadoes and hurricanes.
Red Orbit  Nov 9  Comment 
Brett Smith for redOrbit.com - Your Universe Online Every year, wildfires exact a toll on humanity and a new research paper in the journal Nature suggests a rethinking of how we approach these massive blazes. According to the international...




 
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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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