The people of the midwest are going through a lot right now:
The storms have pounded the Midwest since the start of the month, knocking out electricity, submerging roads, destroying homes and lifting corn prices to a record. The damage may reach hundreds of millions of dollars, the National Weather Service said. Some cities, including Madison, Wisconsin, have already had nearly twice their typical annual rainfall totals.
Tornadoes have killed six people, including four teenagers at a Boy Scout camp in Iowa, since June 11.
Areas of Des Moines, Iowa, are under a voluntary evacuation order after the Army Corp. of Engineers advised that the Des Moines River will be close to the top of the city’s levees today, officials said. Some 1,200 volunteers in the city of 199,000 have helped shore up defenses against the rising water with sandbags.
And this from the NYT:
By now, one prospect — a notion no one wants to ponder but is impossible to avoid — has begun to emerge in Iowa, as well as in Indiana, Minnesota and Illinois: the possibility that this summer might prove to be something like 1993, when the torment of flooding resulted in widespread personal misery and loss, as well as economic cost of $20 billion.
Needless to say, things are really sucking at the moment for them.
What I’m most interested in are the effects of these storms. The most obvious effect is upon crops. The price of corn is up 25% this month. This will also increase the production costs for ethanol plants, possibly causing some to shut down.
Then there’s the insurance businesses that sell policies to the farmers to insure their crops; they are obviously going to take a big hit. Bloomberg has reported that crop insurance sales have surged over the years:
Premiums paid to crop insurers jumped 43 percent last year to $6.6 billion, while the number of policies declined, according to the U.S. Department of Agriculture. That means Wells Fargo & Co., Ace Ltd. and American Financial Group Inc., the largest providers, bolstered revenue without having to do more work.
They’ve also been lucky, avoiding catastrophes like the 1993 flood along the Mississippi and Missouri Rivers, and the 1988 drought that ruined production in Kansas. In the worst years, claims may cost insurers five times annual premium revenue.
“The thing that’s making the numbers looks so much better on crop insurance is higher grain prices,” said Art Barnaby, 60, a professor of agricultural economics at Kansas State University in Manhattan, Kansas.
Crops that are more valuable need more liability coverage, said Barnaby, who helped develop crop insurance policies in the 1990s. “If you’re a grain farmer or crop insurance company, either one, you’re better off,” he said.
The growth in crop insurance, which has been profitable every year but one since the 1993 flood, comes as most of the U.S. property and casualty industry stagnates. Overall sales fell to $508 billion last year from $512 billion in 2006, according to the National Association of Insurance Commissioners in Kansas City, Missouri. The decline occurred as rates dropped for workers’ compensation, factories and airplanes.
With disasters like this month of flooding and storms comes opportunity. The market often overreacts to bad news, grossly misvalues stocks, and creates opportunities of which the intelligent investor can take advantage.
Investigating these insurance companies that are bound to take a hit is something I should do. These are the companies mentioned in the news I have read:
- Wells Fargo (WFC)
- Ace Ltd. (ACE)
- American Financial Group, Inc. (AFG)
- EMC Insurance Group (EMCI)
0 Response to “Disaster Can Create Opportunity”