Flood Damage Erodes Companies’ Long-Term Value: FM Global

July 28, 2020

Flood_Damage_Erodes_Companies_Long-Term_Value_ FM_Global

“The brunt of value destruction from natural disasters used to be felt by (re)insurers, who paid for the losses, and by banks, through the deterioration of their loan portfolios and compromised lending capacity. The evidence presented shows that the stock market is now recognizing the cost of disruption to non-financial corporations."

“Seventy one of the world’s largest publicly traded companies reported financial damage from a major flood event in recent years. Twelve months after those flood losses, their shareholder value had declined by an average of 5%, equivalent to a collective $82 billion (US)."

“Given that share prices are forward-looking, the $82 billion (US) in lost shareholder value represents not the physical damage, nor even the immediate loss in profits, but the long-term impact of disruption to the business. This includes, for example, the reputational loss from missing targets, the growth opportunities that are gone forever and a strategic plan that is now awry. Investors have reassessed the future and it is 5% worse. That would seem to dwarf the cost of investing in flood protection.” - FM Global with data from Pentland Analytics.