Natural disasters also threaten the note states – Les Echos

Natural disasters have a cost. The thing is sure. Do note however a State may be degraded because of a hurricane or an earthquake? Answers yes Standard & amp rating agency; Poor’s conducted a first simulation published Friday.

Among natural disasters, earthquakes and tropical storms are events likely to have the greatest impact on sovereign ratings, the agency said. In fact the most vulnerable countries are small island states with a “ almost no geographical diversification and limited economic base .”

Up to two notches degradation

These events, rare in frequency, can lead to a lowering of higher notes … to two notches. This is particularly the case for the Dominican Republic and Bangladesh. These two countries are the most exposed to note down induced by a tropical storm a major scale (one every 250 years). The potential degradation is 2.5 and 2.2 notches.

In the top rankings of the most exposed countries, there is also Japan, mainly due to the risk of earthquake. A major event could cause just over 2 notches degradation. The first European country to appear is Italy, which can see its rating fall by about 0.75 notch, also because earthquakes

.

In terms of financial losses, it was Japan that holds the top rank, followed by the United States and China. The cost of a natural disaster frieze 1.000 billion for the archipelago.

Impacts on fundamental

In general, the agency explains that the effects of a natural disaster on the note of a country are more indirect than direct as initially affect the economic fundamentals of a country criterion determining for attaching notes. Thus, a natural disaster can cause a slowdown in production, put the public finances in the red, obliging states to take on more debt and dig their public deficits. Inflationary pressures could skyrocket and commercial banks face a deterioration of their assets.

Until now, cases of damage immediately after a disaster are rare or nonexistent. An exception, however, says the agency, in 2004 on Grenada, an island nation located in the Caribbean. Hurricane Ivan was then swept the two pillars of the economy: tourism and the production of nutmeg.

How can I limit the damage?

Why is it rare that a State sees its downgraded after a natural event of great magnitude? According to Standard & amp; Poor’s, is firstly related to the fact that a natural disaster is only one factor among many. As in the case of Japan in April 2011. The agency had revised the outlook for the rating to negative, including because of costs related to March 11, the Fukushima nuclear accident caused by an earthquake and tsunami. On the other hand, many countries affected by a disaster are unrated, such as Nepal hit in 2015 by a terrible earthquake, as well as Haiti in 2010.

A ways to protect themselves from excessive degradation lies in the catastrophe insurance. According to Standard & amp calculations; Poor’s, the 5 strongest earthquakes would cause a deterioration of only one notch if 50% of the damage are insured against two notches if no damage is taken into account by an insurance policy. However, the most exposed countries generally have low coverage.

Etienne Goetz