For the first time, Standard & amp; Poor’s (S & amp; P) simulated the potential impact of natural disasters on sovereign ratings. In the case of rare but claims of exceptional magnitude – the occurrence of which is estimated every 250 years – some notes could be lowered by two notches. “ The strongest impact should come from earthquakes, followed by tropical storms ” said Moritz Kraemer, one of the authors of the study.
“ From a geographical point of view, the sovereign ratings in Latin America and the Caribbean appear to be most at risk, followed by Asia, taking into account the hazards most important climatic and geological than in the rest of the world “adds the analyst. The countries bordering the tectonic plates (the Pacific Rim, the Caribbean, North Anatolian Fault) are on the front line.
Thus, in the event of an exceptional earthquake, the note “AA-” Chile could fall by at least two notches, as well as a rating of “BB-” of the Dominican Republic in a major tropical storm. In Japan, a major earthquake would have similar effects on the notation (“AA-”). Such an event would disrupt trade flows immediately block the supply sources and lead to the simultaneous sale of assets held abroad by Japanese residents, with partial repatriation of capital. The consequences on the global economy and financial markets would also be painful.
The report points out that logically the ratings of developing countries, which typically have low insurance cover, are particularly vulnerable to severe natural disasters, followed by emerging and advanced economies that are less threatened. To quantify this risk and build its simplified simulation tool, S & amp; P has used the estimation of direct damage data provided by Swiss Re The impact is evaluated for a panel of 48 countries and over a period of five years..
The simulation covers four types of natural hazards: earthquakes, tropical storms, winter storms and flooding
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