Flood damage can impact firms' long-term value - study

Disruptions can shake investors' confidence about decision-making

Flood damage can impact firms' long-term value - study

Insurance News

By Ryan Smith

Flood disruptions could cause a business’s stock to drop significantly over the succeeding 12 months, reflecting investors’ shaken confidence in the company’s managerial decision-making, according to a new study commissioned by FM Global.

The study, conducted by analytics advisory group Pentland Analytics, examined 71 of the world’s largest publicly traded companies. All companies in the study reported financial damage from a major flood event in recent years. Twelve months after those flood losses, the companies’ shareholder value had declined by an average of 5%, equivalent to a collective $82 billion.

The tumbling value reflected not the cost of the flood damage, but investors’ lowered expectations of future cash flow, FM Global said.

“The findings make a strong case for making resilient choices, including smart site selection, emergency planning, structural reinforcement, elevation of critical machines and equipment, and use of flood barriers,” said Bret Ahnell, executive vice president at FM Global.

“Investors increasingly consider flood-related property loss and business disruption as bad management rather than bad luck,” said Dr. Deborah Pretty, founder of Pentland Analytics. “Investors evaluate the disruption caused by flood and anticipate the long-term harm to corporate reputation, market share and growth ambitions. They reassessed the future of these disrupted companies and it was 5% worse. That would seem to dwarf the cost of investing in flood protection.”

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