The uncontrollable wildfires in California this year have been described as the worst on record.
We here at Cavalier Associates can speak about this first-hand as we were forced to close our main office for a few days due to our proximity to the fires. Luckily, thanks to the herculean efforts of all the brave firefighters, our office escaped unscathed. Unfortunately for the others, seven thousand homes have been lost, 300,000 people evacuated and to date, 42 people have died. It may seem astonishing that such a catastrophe could be occurring in the world’s most advanced economy, but such is the power of nature. Microchips are no match for primal fire.
The fires are exerting a powerful economic effect in the state and beyond. Not surprisingly, the insurance industry is strongly impacted. Natural disasters, particularly massive ones, are notoriously hard to factor into actuarial tables. When an earthquake, tropical storm, wildfire or other cataclysm strikes, the damage, and therefore payments by insurers, are unnaturally concentrated.
Despite major outlays, the share prices of major insurance companies exposed to the California fires have not seen significant losses. Shareholders are apparently confident that the insurers have sufficient reserves to ride out the emergency.
California-based utility companies have not faired so well. The stocks of Pacific Gas and Electric and Edison International have both lost as much as 25%. Investors seem concerned over the cost of repairing infrastructure and possible post-fire regulatory and liability issues.
We can expect a building boom once the fires have been quenched, but this may be a mixed blessing for the construction industry. Skilled labor is in short supply and already high material costs for things like copper pipes and wiring, as well as lumber, could well skyrocket. The state’s entire construction industry, not just homebuilders, could face tough times ahead.
For more information, please read:
A Look at the Economic Impact of the California Wildfires | Zacks