Industry set to weather storm . . . from home
HURRICANE Sandy has closed New York's sharemarkets as the city prepares for the worst but although finance chiefs may be sitting it out at home they are already trying to calculate the costs.
HURRICANE Sandy has closed New York's sharemarkets as the city prepares for the worst but although finance chiefs may be sitting it out at home they are already trying to calculate the costs.The storm is sweeping across a densely populated area of the country, an area that accounts for 20 per cent of the US population, some of its largest business hubs and much of its most expensive real estate.Dr Tom Jeffery, chief hazard scientist for analyst CoreLogic, said the storm was likely to cause massive disruption to business and infrastructure and threatened nearly 284,000 residential properties valued at almost $US88 billion."The obvious comparison is with Irene last year, but the impact of Sandy is likely to be much, much greater," he said.Expected storm surges of 1.8 metres to 3.3 metres in Long Island Sound and 1.2 metres to 2.4 metres in New York City would hit transport systems and some of the world's most expensive properties. "There's likely to be a lot more damage this time," Dr Jeffery said.The hurricane or rather, the threat of the hurricane has caused a shutdown in most of the financial markets, including the New York Stock Exchange and the NYMEX Commodities Exchange, although the bond markets were open for half a day. Morgan Stanley's chief operating officer, Jim Rosenthal, told Bloomberg TV that the firm had certain essential employees at its headquarters in Manhattan and was prepared for an "indefinite period" of storm disruption.Tom Larsen, senior vice-president at risk analyst EQECAT, said economic damages, direct losses associated with the storm and intangibles such as business interruption, additional living expenses, damage to infrastructure, utilities, roads and municipal buildings that might or might not be insured, were expected to be $US10 billion to $US20 billion. Only about half that sum ($US5 billion-$US10 billion) would be insured.Insurers do not believe Sandy will prove as deadly, or as costly, as previous US storms. The most costly remains hurricane Katrina in 2005, which killed 1833 people and cost $US105.8 billion, more than twice its closest rival, 1992's hurricane Andrew.Ed Noonan, chief executive of insurer Validus Holdings, has predicted that Sandy would cause a "low to mid-single digit billions of insured loss". There are a number of factors that make Sandy "a potentially significant event," Mr Noonan told analysts at his company's earnings conference call, including the unusual nature of the storm, lunar tides and warmer seas that will all lead to "extraordinary levels of participation".But the losses he is predicting would place Sandy outside the National Hurricane Centre's top 20 most costly storms. Mr Noonan said he expected insurers' losses to be similar to hurricane Irene, where insurers were hit with bills for wind damage but many residential losses were not covered by flood insurance.The predicted high levels of flood damage are likely to push much of the cost onto the National Flood Insurance Program, the government insurer that covers more than 5.5 million at-risk homes across the US. NFIP paid out $US1.28 billion in losses last year from Irene. The insurer is part of the Federal Emergency Management Agency (FEMA) and makes insurance available to at-risk communities that agree to adopt flood management systems.But the size of indirect damages are unknowable at present. Investment banks such as Morgan Stanley and Goldman Sachs make millions of dollars a day in profits from trading stocks and bonds, and the loss of two full days of trading may have an impact. Shopping, tourism, eating out all those consumer activities that make up the lion's share of the US economy are on hold.On the other hand, rebuilding after storms creates jobs. Economist Peter Morici, of the University of Maryland, sketched out an estimate that such rebuilding would create $US20 billion-$US25 billion "in new direct private spending likely more as many folks rebuild larger than before."Another economist, Jim O'Sullivan of IHS Global Insight, also noted that hurricanes might be "highly disruptive and even devastating to many families and businesses" but rarely affected the national economy.Mr O'Sullivan noted that effects of hurricanes were minor, causing a "fairly insignificant impact on the now near-$US16 trillion GDP"."Even hurricane Katrina, which caused an estimated $US110 billion in damages and devastated New Orleans in 2005, had a relatively modest impact on national GDP," he said."Extreme weather typically holds down economic activity initially, but can boost spending and output afterward . . . In some cases, spending is even boosted modestly beforehand. Grocery stores were certainly packed in New York City on Sunday". GUARDIAN
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