Risk solutions
RISK MGMT SOLUTIONS---SHAH, HEMANT---Chief Executive Officer
>> the government agency that monitors corporate pension plans said it will reject the controversial plans, the skip contributions to the plan as it emerges from bankruptcy. the pension benefit guarantee corporation says it will file an objection to the airline’s plan in bankruptcy court. the agency said u.a.l.’s plan not only increases the risk of thross workers and retirees, but also to other retirement plans as well for its party. the airline says it has to cut cost so it can get financing so it can emerge from bankruptcy. hurricane charley is forcing the evacuation of almost two million people. the storm may cost insurers up to $2 billion in claims. that’s the number arrived at on more to managing catastrophic risks, emmitt shaw in the san francisco bureau. the number keeps creeping higher here. when you make the estimates, what exactly is the key driver here? presumably property damages in proximity to population centers?
>> right. the key driver is the severity of the wind speed, which is a function of the intensity of the hurricane. and then very important, as well, of course, is the hurricane when it makes landfall in relation to property that’s exposed to loss. this storm has really been winding itself up after it’s been approaching lanled. as a moderate category four, 145 mile-per-hour winds, our modeling suggests we’re looking more to $10 billion with some of the simulations creeping up to $15 million and beyond. could have been worse, hard to believe given those kind of figures if it had hit tampa or raked up the coast . but this event is going to hurt.
>> being up here in the northeast, i know that there’s a lot of people who own summer homes or winter homes, i guess we can call it, down in florida, the snow birds that are empty this time of year s. that part of the problem of why some people may not actually be there to protect their properties, why claims could go higher?
>> that’s part of it clearly if you take mitigation measures, you can reduce the loss. but i think that’s on the margin. the reality is that part of florida from fort myers up to sarasota and further north is dramatically developed over the last several years. the last major hurricane to hit that part of the coast is hurricane donna in 1960. it was pretty sparse at that time. the kind of exposures we’re looking at was lot of the high-value homes along the coast the concentration of population we see up along there. it’s significant. it will surprise a lot of people who think of that part as being not as exposed as the southeast part along dade county or palm beach.
>> it’s interesting that you mentioned hurricane donna, it popped up on my list of the costliest u.s. hurricanes in the last century. what some doubted me is the category of the storms. this storm right now is a level four. but two of the top 10 most costly hurricanes were category four or five. so presumably, the strength of the storm doesn’t necessarily add up to cost―i will point out the category the number one, the most costly was hurricane andrew. that was a five. eight of the 10 were twos and threes.
>> absolutely. it depends on where the hurricane hits. it’s not a simple correlation between intensity and loss. clearly if you have a very large storm, for example, category five storm that clipped the florida keys in the 1930’s, doesn’t cause economic loss. on the other hand, you can have a good sized category three storm, slam in to long island and and the losses could blow out the top.
>> it’s interesting that you bring in long island. maybe it’s me personally, but there are some geographic call vices that these things only happen in the tropics. but that is not the case?
>> absolutely. the entire u.s. seaboard is exposed to hurricane risk. and tying these two events together and that is long island and what we’re seeing now. one of the things we have to keep an eye on with this storm is that the storm doesn’t end here with the landfall in southwest florida. going back to hurricane donna in 1960, it not only hit southwest florida, it exited on the other side of the florida, reintensified, went through north carolina and ultimately wound up in long aye lapd and new york causing damage all the way. what we’re seeing in florida is part of the overall picture when the wind settles on this event for the next several days.
>> we’re under a minute. if we go decade-by-decade, we average about six major hurricanes a year on the u.s. that’s the category three, four, or five. so these things are inevitable. it’s just where they’re going hit. that’s your job. how do you pinpoint where the next one is going to be? make insurance for it?
>> well, that’s the science of what we do. and we had longer to talk about it, we could get into technology. there’s a sparse historical record and our job is to fill in the blanks for the tabulation.
>> appreciate from the chief executive of risk management solutions. stay with us, we’re going to continue because at least one analyst is saying as wal-mart goes, so goes consumer spending. and sale there is are getting pimplinged by the surging gasoline prices. that story and more coming up next.
