Friday, May 16, 2008

The actuarial face of disaster

Losses from China quake may top $20 billion by Alistair Barr
Catastrophe-modeling firm AIR Worldwide put total losses from the [China earthquake] disaster at more than $20 billion. Risk Management Solutions, a rival, forecast property losses of $10 billion to $15 billion. Damage to infrastructure and interruptions to economic activity will increase those losses, the firm added.

AIR Worldwide estimated that insured losses from the earthquake will be between $300 million and $1 billion, a fraction of the total cost. That's because insurance take-up rates are "minimal" for residential properties in this region of China and only marginally higher for commercial properties, the firm said.

LONDON, May 15 (Reuters) By Pratima Desai and Anna Stablum -
Aluminium jumped to a three-week high on Thursday as investors piled into the metal in expectation of supply shortfalls from China, while tin hit a record high.

Copper, taking its lead from aluminium, also rose more than 2 percent to $8,305, but analysts said an absence of Chinese buyers would cap prices.

Analysts said this week's earthquake in China's Sichuan province and disruption to hydro power supplies and possibly aluminium output had triggered the latest spurt of buying.

"There's quite strong investor interest in aluminium on the basis China might be about to suffer severe power shortages which could drive aluminium smelters offline," said John Kemp, an analyst at RBS Sempra Metals.

China is the world's largest aluminium producer with an annualised capacity of around 12.5 million tonnes.

However, analysts say Sichuan output represents only about 4 percent or about 500,000 tonnes of overall capacity and that the market is using the quake as an excuse to drive prices higher.

Wall Street's crude ways by David Weidner
This isn't complicated finance. The way traders push up prices is surprisingly simple. They buy in European futures markets, which don't have the limits that U.S. markets do. That drives up U.S. prices where they may already have positions. It's a move to think about next time one of these exchange chiefs talks about all of the benefits of "market globalization."

None of it would matter except that these markets are supposed to be driven by supply and demand. China and other rapidly growing countries may be using more, or will use more resources, but the reality is that demand and supply haven't changed enough to warrant the price of oil doubling in less than three years.

During a three-year span ending in 2006, ... investment in commodity index funds surged more than 500% to $80 billion.

Congress, the Federal Trade Commission and the Commodity Futures Trading Commission are all looking to rein in the trading. A House panel is investigating speculation and will hold hearings in May and June. A Senate bill sponsored by Michigan Sen. Carl Levin seeks to put limits on U.S. trades in overseas markets.

Levin, who as a member of House subcommittee on investigations, is a veteran of the Enron Corp. fallout, recognizes that Enron-era laws don't take into account foreign markets and how they can be manipulated. He's proposing what amounts to trading limits.


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