Lloyd’s: NZ has $7.52 billion GDP at risk

Lloyd’s: NZ has $7.52 billion GDP at risk | Insurance Business

Lloyd’s: NZ has $7.52 billion GDP at risk
Manmade menaces such as market crash and oil price shock are two of the biggest threats to an estimated US$7.52 billion (13.7%) of New Zealand’s GDP, according to new findings just released by Lloyd’s.

The country’s exposure to the global economy as a major exporter of agricultural commodities makes its risk profile one dominated by manmade threats, with market crash accounting for more US$4.16 billion or more than the half the GDP at risk.

The combination of a lack of fossil fuel energy resources – with crude oil the biggest import at around one tenth of the country’s total – and being located a long distance from its fuel suppliers, puts oil price shock as the second most significant manmade threat.

The Lloyd’s City Risk Index 2015-2025 presents the first ever analysis of economic output at risk in 301 major cities from 18 manmade and natural threats over a 10-year period.

Using original research by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School, the Index found that a total US$4.6 trillion of projected GDP is at risk from manmade and natural disasters in these cities around the world.

New Zealand’s figures were based on an analysis of Wellington and Auckland’s combined average annual GDP of US$57.4 billion.

Although manmade threats made up the majority of exposure, not surprisingly there was significant GDP exposure to natural threats given the location on the boundary of the Pacific and Australian tectonic plates.
Flood, volcano, earthquake and human pandemic accounted for 27% of the GDP at risk.

Scott Galloway, Lloyd’s general representative in New Zealand, said: “Lloyd’s City Risk Index highlights the economic risk exposure of our two major cities and the numbers reflect the strength of the economy, our reliance on external global forces, and our exposure to a number of natural threats.

“Whilst recent experiences have significantly improved the understanding of insurance as a key to economic resilience, and the industry has continued to innovate with specialist insurance and reinsurance solutions we must continue to work together in partnership between the industry, business community and government to create a more resilient response to a major event.”

The Index also identified three emerging trends in the global risk landscape:
  1. Emerging economies will shoulder two-thirds of risk related financial losses as a result of their accelerating economic growth, with their cities often highly exposed to single natural catastrophes.
  2. Manmade risks such as market crash, power outages and nuclear accidents are becoming increasingly significant, associated with almost half the total GDP at risk. A market crash is the greatest economic vulnerability, representing nearly a quarter of all cities’ potential losses.
  3. New or emerging risks, such as cyber-attack are also increasingly significant. Together, they account for more than a third of the total GDP at risk with just four – cyber-attack, human pandemic, plant epidemic and solar storm – representing more than a fifth of the total GDP at risk.
Lloyd’s said the findings show the need for governments and businesses to work together to build more resilient infrastructure and institutions.

How quickly a city recovers after a catastrophe is a key component of the total risk, and the impact of events is mitigated by rapid access to capital to help restore the economy.

For more detail visit the Lloyd’s City Risk Index 2015-2025.