Study: Hurricanes can harm long-term company value

  • Fm Global

A new first-of-its-kind analysis links hurricane damage to a loss in shareholder value and, conversely, property protection to value preservation, according to research commissioned by FM Global, one of the world’s largest commercial property insurers. The upshot: Well-prepared companies preserve their value, and poorly prepared companies may not.

The findings were uncovered when FM Global commissioned Pentland Analytics, an independent strategic advisory firm, to conduct the research that expanded on FM Global’s whitepaper “Master the Disaster: Why CFOs Must Initiate Natural Catastrophe Preparedness in 2019 and Beyond.” Dozens of large publicly traded companies that reported hurricane-related financial damage to the U.S. Securities and Exchange Commission in their 10-K annual statements collectively lost 5% of their shareholder value over the year following the storms. 

A separate dataset shows that FM Global clients fared better in shareholder value terms when they followed the insurer’s property protection advice prior to those same hurricanes. Companies that followed all of the insurer’s engineering advice relating to storm protection collectively outperformed clients that hadn’t by 10%.

 

The lessons are clear,” said Deborah Pretty, founding director of Pentland Analytics. “First, hurricanes damage shareholder value as well as property values. Second, property protection pays off.

 

Methodology

Pentland Analytics modeled the stock prices of 52 U.S.-based companies reporting financial damage from hurricanes Harvey, Irma or Maria. The companies collectively lost US$18 billion in market value by August 2018 stemming from a collective 5% hit to shareholder value. The companion study reviewed loss-prevention and financial data of 109 clients of FM Global who had significant property in regions affected by the same hurricanes. 

About FM Global
Established nearly 200 years ago, FM Global is a mutual insurance company whose capital, scientific research capability and engineering expertise are solely dedicated to property risk management and the resilience of its client-owners. These owners, who share the belief that the majority of property loss is preventable, represent many of the world’s largest organisations, including one of every three Fortune 1000 companies. They work with FM Global to better understand the hazards that can impact their business continuity in order to make cost-effective risk management decisions, combining property loss prevention with insurance protection.