5 Catastrophes And The Stocks They Hurt

By Ryan C. Fuhrmann | June 17, 2011 AAA
5 Catastrophes And The Stocks They Hurt

The past decade has seen a large number of natural disasters that have struck without warning through most of the world. The disasters have severely disrupted the lives of people and the businesses they operate, the last of which has adversely impacted certain stocks of publicly-traded companies. Below are five of the most severe catastrophes in recent years and the stocks they have hurt.

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1. Midwest Tornadoes
Already 2011 is the most deadly tornado season since 1953 in the United States. Tornadoes in Alabama and Missouri qualify as the worst in state history. With summer arriving, the dangerous spring season has largely passed but has resulted in hundreds of casualties and billions in property damage.

One estimate suggested insurance losses of $7 billion for the May tornadoes and up to $6 billion for those that occurred in April. Reinsurer PartnerRe projected between $50 million and $70 million in losses and has seen its stock price drop almost 13% from early April. Trucking firms were also adversely affected, especially in Alabama, including a Petro truck stop owned by TravelCenters of America (NYSE_AMEX:TA) that was destroyed. Shares of TravelCenters have fallen more than 40% since early May, though not all of this is due to the loss of one of its stores. (For related reading, see 5 Natural Disaster Scams To Watch For.)

2. Japanese Earthquake/Tsunami
In March 2011, a massive earthquake shook the northeastern coast of Japan. It measured 9.0 on the Richter scale and resulted in a devastating tsunami that flooded the coast line, destroying thousands of homes, businesses and personal property. It also caused the near meltdown of Fukushima Daiichi nuclear power plant as the loss of power left it largely unable to control and stem the damage to its nuclear reactors caused by the disasters.

Tokyo Electric Power (OTCBB:TKECF), the owner of the nuclear plant, recently announced a $15 billion loss as it decommissions Fukushima Daiichi and canceled plans to construct two other nuclear plants. Its stock price has plummeted since. Nearly all companies operating in Japan have seen at least some level of lost revenue, including upscale retailers Tiffany & Co (NYSE:TIF), Burberry Group (OTCBB:BURBY), and insurers such as Beazley and Aviva (NYSE:AV). The disaster initially hit all stocks trading in Japan, including these and other firms. (For related reading, see Why The Yen Is So Strong.)

3. Hurricane Katrina
Hitting New Orleans in August 2005, Hurricane Katrina was of the worst hurricane disasters and the costliest natural disaster in American history. The failure of a major levee system in New Orleans played a major part in flooding damage that has taken years to repair and continues today.

As with most hurricanes, the companies and stocks adversely affected were property and casualty insurers. Damage estimates neared $100 billion, with insured losses estimated at half of this amount. An industry report shortly after the hurricane listed severe stock price declines from reinsurers including Goshawk, Montpelier Re (NYSE:MRH) and PXRE, while major insurers including Allstate (NYSE:ALL) and State Farm were placed on credit watch over the large level of claims they ended up handling. (For related reading, see 6 Huge Insurance Claims.)

4. European Ash Cloud
In April 2010, the Eyjafjallajökull volcano in Iceland erupted. The eruption itself was not seen as major, but it did result in the spewing of volcanic ash that eventually made its way to Northern Europe. The ash severely hampered airline travel in Europe and had a resulting domino effect on travel throughout the rest of the world.

Within a few days, thousands of flights were cancelled and hundreds of millions of dollars of flight revenue from airlines was lost. Major firms affected included British Airways, Air France, Delta (NYSE:DAL), United and Continental, as well as Ryanair and Easyjet. All offered refunds and rescheduling, with the overall adverse impact estimated at $2 billion for the airline industry as a whole. (For related reading, see Vacation Destinations Affected By Natural Disasters.)

5. Gulf Oil Spill
The explosion of the Deepwater Horizon oil rig on April 20, 2010 is the worst oil spill in U.S. history since the Exxon Valdez spill in Alaska in 1989. The Gulf disaster resulted in the spilling of as much as 200 million barrels of oil, though it's difficult to say for certain how much oil actually flowed from the well and there are disputes over whether the 200 million government estimate is off by 10%, as the government suggests, or as high as 50%. It took several months to fully stem the flow of oil from the well.

The catastrophe had the most adverse impact on energy giant BP plc (NYSE:BP), which was leasing the Deepwater Horizon from Transocean Ltd. Anadarko Petroleum was also a minority owner in the well and Mitsui owned 10% while BP has also worked to implicate oil services firm Halliburton and Cameron International, the last of which was reported to have made the blowout preventer that failed. All have seen some level of fallout from the disaster, as have energy firms that rely on offshore drilling for their exploration and production activities. (For more, see The Real Cost Of Natural Disasters.)

The Bottom Line
With the unpredictable nature of natural disasters, the impact on companies and their underlying stocks can clearly not be known in advance. Just recently, a May 2011 eruption from a neighboring volcano caused a similar ash cloud, but has turned out to be much less severe than the disaster last year. The upside is that natural disasters almost always provide an economic boost on rebuilding efforts and insurers tend to benefit in the long run from higher premiums they charge in regions where disasters occur. (For related reading, see The Economics Of Natural Disasters.)

Disclosure: At the time of writing Ryan C. Fuhrmann did not own shares in any company mentioned in this article.

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