The lag time between property tax values and the true reality prices causes shortfalls in local governments. Cities, counties and school districts had been sheltered from the full impact of the slump because of the lag between when realty prices fluctuate and values are reset by local tax assessors. That’s changing as property rolls are adjusted to the current market and residents push to have their taxes cut.
Local officials are now facing the consequences. Property- tax revenue dropped in the last three months of 2010 at the fastest pace since home prices slipped from their peak more than four years ago. The decline may continue as values fall further, adding strains to cash- strapped localities that already fired workers, halted projects and cut spending because of the recession that began in 2007.
The decline for local governments contrasts with a recovery for U.S. states led by income and sales taxes. Collections in the fourth quarter climbed by $13 billion to $177.8 billion. This is the biggest jump since 2006.
In Maricopa County, Arizona, it was reported last month that values of all property dropped by 12 percent for the next tax year, the second straight double-digit decline. In Los Angeles, the second most-populous U.S. city, property taxes for the year ending June 30 are projected to fall 1.7 percent to $1.42 billion.
The strain may mean credit-rating cuts this year for local- government debt, which trades in the $2.93 trillion municipal bond market.
Local and state property-tax revenue slid $5.3 billion, or 2.9 percent, in the fourth quarter from a year earlier to $177.1 billion. All but $3.7 billion went to municipalities.
The slump in the most-active period for real estate revenue outpaced a
2.5 percent drop in the first quarter of 2010, the only other significant decline since prices peaked in 2006.
Residential real estate prices in 20 U.S. cities dropped by the most in more than a year in January. Property values fell 3.1 percent from January 2010, the biggest year-on-year decrease since December 2009. That’s prompting homeowners to seek reductions in the assessed value of their properties.
A symptom of a depressed real estate market has been a proliferation of successful tax appeals. This causes problems because a municipality has already assessed a property, collected taxes and made payments to local school boards and county governments.
Montclair, New Jersey, officials had to remake their budget when tax appeals reduced revenue to $51 million from an expected $53 million in the current budget year. They were forced to make large changes in library services, abolish community pre-kindergarten and lay off 12 municipal workers.
Only 15 percent of counties raised property taxes to make up for the lost revenue. Such a strategy can draw voters’ ire, as Carlos Alvarez, the former mayor of Miami-Dade County, Florida, found out. He was thrown out in a recall election on March 15 after he boosted property-tax rates last year to make up for a drop in home values.
Many local governments have been anticipating the revenue slide and cutting budgets to compensate. They’ve eliminated 377,000 jobs, or 2.7 percent of payrolls, since employment peaked in September 2008. The usual cost cutting has already happened and now deeper cuts are being made to compensate for the loss of revenue.
Thursday, March 31, 2011
Tuesday, March 29, 2011
CONSUMER SPENDING ON THE RISE
The economy appears to be recovering as consumers start to spend again despite higher gasoline prices. U.S. consumer spending rose 0.7% in February, the largest increase since October and the eighth straight month of gains. This has eased some worries about the economic recovery.
Markets will likely point higher after consumer spending figures rose more than expected.
After adjusting for inflation—factoring out such things as the jump in gas prices—consumption rose 0.3%, the Commerce Department said Monday.
Consumers could have endured higher gasoline prices by cutting back on discretionary purchases, but they did not.
The pickup in spending came as personal income rose by 0.3% last month, though higher prices sapped the gains. The saving rate, meanwhile, slid to 5.8%.
Congress and the Obama administration in December agreed to extend income tax cuts for Americans. The tax relief has fattened paychecks, providing consumers a cushion against rising gasoline prices.
Despite rising commodity prices, inflation at the consumer level is tame. A gauge closely watched by the Federal Reserve rose in February but only slightly, the Commerce Department reported. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, increased 0.9% on a year-over-year basis, after climbing 0.8% in January. The overall index rose 1.6% from a year earlier largely due to gasoline prices.
Separately, the National Association of Realtors on Monday said its index for pending sales of existing homes increased 2.1% to 90.8 in February from January. Year over year, sales were down 8.2% from their level in February 2010.
The trade group's index tracks agreements to purchase previously owned homes. A sale is considered pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.
The housing market is trying to recover from its collapse after a long boom. Durham homes sales soared during the boom, lifting prices, but began sliding in 2006, leading to the bursting of the bubble. Demand has been weak since.
Sales rebounded slightly early in 2010 thanks to the home-buyer tax credits but collapsed again when those incentives expired, and there has been little talk in Congress of reviving the incentive.
There are many signs that the market remains weak. High rates of joblessness and elevated foreclosures continue to depress home values. Although the Cary homes housing market has a long way to go the signs of an improving market have started.
Markets will likely point higher after consumer spending figures rose more than expected.
After adjusting for inflation—factoring out such things as the jump in gas prices—consumption rose 0.3%, the Commerce Department said Monday.
Consumers could have endured higher gasoline prices by cutting back on discretionary purchases, but they did not.
The pickup in spending came as personal income rose by 0.3% last month, though higher prices sapped the gains. The saving rate, meanwhile, slid to 5.8%.
Congress and the Obama administration in December agreed to extend income tax cuts for Americans. The tax relief has fattened paychecks, providing consumers a cushion against rising gasoline prices.
Despite rising commodity prices, inflation at the consumer level is tame. A gauge closely watched by the Federal Reserve rose in February but only slightly, the Commerce Department reported. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, increased 0.9% on a year-over-year basis, after climbing 0.8% in January. The overall index rose 1.6% from a year earlier largely due to gasoline prices.
Separately, the National Association of Realtors on Monday said its index for pending sales of existing homes increased 2.1% to 90.8 in February from January. Year over year, sales were down 8.2% from their level in February 2010.
The trade group's index tracks agreements to purchase previously owned homes. A sale is considered pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.
The housing market is trying to recover from its collapse after a long boom. Durham homes sales soared during the boom, lifting prices, but began sliding in 2006, leading to the bursting of the bubble. Demand has been weak since.
Sales rebounded slightly early in 2010 thanks to the home-buyer tax credits but collapsed again when those incentives expired, and there has been little talk in Congress of reviving the incentive.
There are many signs that the market remains weak. High rates of joblessness and elevated foreclosures continue to depress home values. Although the Cary homes housing market has a long way to go the signs of an improving market have started.
CAPITAL EXPENDITURES MAY IMPROVE THE ECONOMY BUT ARE THEY CREATING JOBS
People need to spend to get out of recession but companies are not increasing jobs just productivity.
The government works on a plan to benefit companies looking to make capital expenditures, but not on plans to help with the labor market. Capital expenditures, also called CAPEX, are expenditures creating future benefits. Companies are accelerating equipment purchases to boost productivity, reinforcing an unprecedented gap between capital spending and employment in the U.S. that’s restraining a labor-market rebound.
Corporate investment will rise 11 percent this year as sales pick up, following a 15 percent gain in 2010. Employment will grow just 1.7 percent, after a 0.7 percent increase last year.
Inventory rebuilding, low borrowing costs and government policies that include a new tax break on equipment purchases are powerful spurs for capital spending.
But with a huge pickup in capital spending, there isn’t a meaningful increase in employment.
The Institute for Supply Management’s manufacturing index has risen for seven consecutive months, surging in February to the highest level since May 2004. While the labor market is improving gradually, unemployment remains high. The jobless rate may hold at 8.9 percent in March for a second month, the lowest since April 2009.
Investors are focusing on a factory-driven recovery, with the Standard & Poor’s 500 Super composite Machinery Index rising 44 percent since March 2010, compared with a 13 percent increase in the broader S&P 500 Index.
The capital-spending booms is expected to continue this year and into next year, helped by emerging markets, however, after a recession, business are leery to make large investments in more labor.
Another example of capital expenditures lowering available jobs is an initiative that Kohl’s, a Wisconsin-based company, is pursuing. They plan to reduce labor input as part of an increase in capital spending this year to $1 billion from $761 million in 2010. The department-store retailer is installing electronic signs in 500 locations, up from 100 in 2010, in a program that will cover the entire chain by the holiday season of 2012. This means payroll savings, because they don’t have to change several thousand signs in each of their stores anytime they run a new promotional event.
Some companies are hesitating to hire permanent staff which means temporary staffing firms, especially those in information- technology and engineering may outperform this year. Unsteady markets and insurance costs are driving these decisions.
This helps explain why productivity last year climbed 3.9 percent, the most since 2002, while labor costs fell 1.5 percent after a 1.6 percent drop in 2009, the first back-to-back declines since 1962-63, government data showed.
As demand strengthens, corporate spending is going to be the heart of the recovery and will unleash favorable second-round effects in the labor market.
Corporations hit by the financial crisis recoiled to a greater extent than ever before and would benefit to take advantage of record amounts of cash generated by healthy profits and faster growth overseas.
The economy already has added jobs for five consecutive months, and economists predict another gain for March. Small businesses also are joining the transition.
In addition, the unintended consequences of policy changes indicate the government may undercut its own principal aim of job creation. While the tax bill President Barack Obama signed Dec. 17 allows businesses to write off 100 percent of some purchases in 2011, there’s no similar incentive to speed up hiring. The Fed’s commitment to keep its benchmark interest rate near zero for an extended period also facilitates lower-cost financing for machines.
The administration’s goal to double overseas sales of American-made goods is another plus for investment over hiring since the U.S. export sector is capital intensive rather than labor intensive.
The policy environment appears to be giving incentives to firms to limit job creation. Capital expenditures do not seem to need incentives, unlike the labor market.
Rising sales are causing companies to rebuild inventories after slashing them by a record amount during the recession, which ended June 2009. There’s plenty of room to expand: Machinery and software assets are growing at the slowest pace since World War II, and capital expenses as a share of GDP still are below pre-slump levels.
In other words, government will give incentives to businesses that make capital expenditures, businesses will increase productivity but not labor. The expectation is that as consumer spending continues to rise that the market will stabilize. Once employers can start to feel comfortable in anticipating the market they will begin to increase labor, or so we hope.
The government works on a plan to benefit companies looking to make capital expenditures, but not on plans to help with the labor market. Capital expenditures, also called CAPEX, are expenditures creating future benefits. Companies are accelerating equipment purchases to boost productivity, reinforcing an unprecedented gap between capital spending and employment in the U.S. that’s restraining a labor-market rebound.
Corporate investment will rise 11 percent this year as sales pick up, following a 15 percent gain in 2010. Employment will grow just 1.7 percent, after a 0.7 percent increase last year.
Inventory rebuilding, low borrowing costs and government policies that include a new tax break on equipment purchases are powerful spurs for capital spending.
But with a huge pickup in capital spending, there isn’t a meaningful increase in employment.
The Institute for Supply Management’s manufacturing index has risen for seven consecutive months, surging in February to the highest level since May 2004. While the labor market is improving gradually, unemployment remains high. The jobless rate may hold at 8.9 percent in March for a second month, the lowest since April 2009.
Investors are focusing on a factory-driven recovery, with the Standard & Poor’s 500 Super composite Machinery Index rising 44 percent since March 2010, compared with a 13 percent increase in the broader S&P 500 Index.
The capital-spending booms is expected to continue this year and into next year, helped by emerging markets, however, after a recession, business are leery to make large investments in more labor.
Another example of capital expenditures lowering available jobs is an initiative that Kohl’s, a Wisconsin-based company, is pursuing. They plan to reduce labor input as part of an increase in capital spending this year to $1 billion from $761 million in 2010. The department-store retailer is installing electronic signs in 500 locations, up from 100 in 2010, in a program that will cover the entire chain by the holiday season of 2012. This means payroll savings, because they don’t have to change several thousand signs in each of their stores anytime they run a new promotional event.
Some companies are hesitating to hire permanent staff which means temporary staffing firms, especially those in information- technology and engineering may outperform this year. Unsteady markets and insurance costs are driving these decisions.
This helps explain why productivity last year climbed 3.9 percent, the most since 2002, while labor costs fell 1.5 percent after a 1.6 percent drop in 2009, the first back-to-back declines since 1962-63, government data showed.
As demand strengthens, corporate spending is going to be the heart of the recovery and will unleash favorable second-round effects in the labor market.
Corporations hit by the financial crisis recoiled to a greater extent than ever before and would benefit to take advantage of record amounts of cash generated by healthy profits and faster growth overseas.
The economy already has added jobs for five consecutive months, and economists predict another gain for March. Small businesses also are joining the transition.
In addition, the unintended consequences of policy changes indicate the government may undercut its own principal aim of job creation. While the tax bill President Barack Obama signed Dec. 17 allows businesses to write off 100 percent of some purchases in 2011, there’s no similar incentive to speed up hiring. The Fed’s commitment to keep its benchmark interest rate near zero for an extended period also facilitates lower-cost financing for machines.
The administration’s goal to double overseas sales of American-made goods is another plus for investment over hiring since the U.S. export sector is capital intensive rather than labor intensive.
The policy environment appears to be giving incentives to firms to limit job creation. Capital expenditures do not seem to need incentives, unlike the labor market.
Rising sales are causing companies to rebuild inventories after slashing them by a record amount during the recession, which ended June 2009. There’s plenty of room to expand: Machinery and software assets are growing at the slowest pace since World War II, and capital expenses as a share of GDP still are below pre-slump levels.
In other words, government will give incentives to businesses that make capital expenditures, businesses will increase productivity but not labor. The expectation is that as consumer spending continues to rise that the market will stabilize. Once employers can start to feel comfortable in anticipating the market they will begin to increase labor, or so we hope.
Friday, March 25, 2011
UNIQUE FOOD COST SAVINGS FOR OHIO PRISONERS AND STUDENTS
Ohio State University, one of the nation’s largest universities, and the Ohio state’s corrections department are investigating if whether buying food jointly and in bulk will save money. With budget cutbacks, the State is reviewing many avenues to cut costs. This unique concept to decrease spending has not been attempted in any other states leaving Ohio to blaze the way for others if the plan succeeds.
Ohio State and the prison system are in the early stages of drafting a proposal, so it's unknown which foods they could buy together. But both parties contend that a purchasing partnership wouldn't make the meals less tasty or snacks less savory.
Although the menus are quite different, the food used to prepare them may not be. Tacos, pasta and pizza are dished out in the cafeterias of prisons and the university alike, with some overlapping ingredients even though the recipes probably differ.
Students have expressed concerns that the quality of food may decrease as more canned and preserved items might make their way to the school’s cafeteria. Many students commented on how great the current food is and are leery of a change. The University explains that many items such as milk, bread, and eggs are all the same, they just cost different. This is the concept they are working with as they draft a partnership with the state’s corrections department.
The Ohio Department of Rehabilitation and Correction could save $2 million a year by jointly buying its food with Ohio State University and changing its menus. It is unclear the savings the university would experience.
This idea along with another to use inexpensive cafeteria and breakroom tables, were two of more than 1,000 suggestions made when the prison system asked its staff for ways to save money. This agreement helps cut costs because it would allow all the institutions to buy food as a unit instead of separate entities. That way, they could negotiate a better deal because they're buying bigger quantities for more people. Currently, the correction department pays another state agency to buy most of its food. But the department and some prisons buy some food directly.
Although the inmate population of 48,700 is thousands smaller than the student body, the food budget is higher because the audience is, well, captive. The more than 56,000 students at Ohio State's main Columbus campus can ditch university dining for fast food any time.
As a result of the partnership, the prisons will look at changing their menu to replace unpopular items with cheaper, more-favored entrees. The University does not plan to change any of its menus based on the new partnership.
Ohio State and the prison system are in the early stages of drafting a proposal, so it's unknown which foods they could buy together. But both parties contend that a purchasing partnership wouldn't make the meals less tasty or snacks less savory.
Although the menus are quite different, the food used to prepare them may not be. Tacos, pasta and pizza are dished out in the cafeterias of prisons and the university alike, with some overlapping ingredients even though the recipes probably differ.
Students have expressed concerns that the quality of food may decrease as more canned and preserved items might make their way to the school’s cafeteria. Many students commented on how great the current food is and are leery of a change. The University explains that many items such as milk, bread, and eggs are all the same, they just cost different. This is the concept they are working with as they draft a partnership with the state’s corrections department.
The Ohio Department of Rehabilitation and Correction could save $2 million a year by jointly buying its food with Ohio State University and changing its menus. It is unclear the savings the university would experience.
This idea along with another to use inexpensive cafeteria and breakroom tables, were two of more than 1,000 suggestions made when the prison system asked its staff for ways to save money. This agreement helps cut costs because it would allow all the institutions to buy food as a unit instead of separate entities. That way, they could negotiate a better deal because they're buying bigger quantities for more people. Currently, the correction department pays another state agency to buy most of its food. But the department and some prisons buy some food directly.
Although the inmate population of 48,700 is thousands smaller than the student body, the food budget is higher because the audience is, well, captive. The more than 56,000 students at Ohio State's main Columbus campus can ditch university dining for fast food any time.
As a result of the partnership, the prisons will look at changing their menu to replace unpopular items with cheaper, more-favored entrees. The University does not plan to change any of its menus based on the new partnership.
Tuesday, March 22, 2011
THE DOW IS BACK ON THE RISE AFTER THE CRISIS IN JAPAN
As the crisis in japan starts to stabilize and announcements of two large US companies buying their competitors, the Dow sees big gains in stocks this week. The Dow Jones industrial average closed above 12,000 for the first time since the Fukushima Daiichi nuclear power plant failed following a massive earthquake and tsunami.
In the United States, AT&T said it would buy rival T-Mobile USA for $39 billion, creating the largest U.S. cell phone company. Charles Schwab said it would buy online brokerage services provider OptionsXpress for $1 billion. The deals raised hopes that more corporate buyouts could be on the way as businesses become more confident in the economic recovery.
The Dow Jones industrial average rose 178.01 points, or 1.5 percent, to 12,036.53. The index has gained 3.6 percent over the past three trading days, its largest jump over the same amount of time since September.
The S&P 500 index gained 19.18, or 1.5 percent, to 1,298.38. The Nasdaq composite rose 48.42, or 1.8 percent, to 2,692.09.
Energy stocks led the market higher after oil prices climbed back above $103 a barrel. Schlumberger, which helps companies drill for oil and gas, rose 4.4 percent to $89.73. ConocoPhillips rose 2.9 percent to $77.55.
Worries about Japan's stricken nuclear reactors eased after the Nuclear Regulatory Commission said the situation at the Fukushima Daiichi plant appeared to be stabilizing. Containment at three of the plant's six reactors was intact, the commission said.
Tiffany rose 5.1 percent to $60.22 after reporting higher-than-expected earnings. The jeweler said Japan's earthquake could hurt its earnings because of store closings and limited hours. The company does 18 percent of its business there.
The violence in Libya and Japan's earthquake have led to many large swings in the Dow since late February. The Dow rose or fell by 100 points or more during three days last week. Eight of the 15 trading days since the start of March have had swings that large.
In the latest signs of trouble in the U.S. housing market, the National Association of Realtors reported that sales of previously occupied homes fell 10 percent last month. The supply of unsold homes remains relatively high at 3.5 million.
Five stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.5 billion shares.
In the United States, AT&T said it would buy rival T-Mobile USA for $39 billion, creating the largest U.S. cell phone company. Charles Schwab said it would buy online brokerage services provider OptionsXpress for $1 billion. The deals raised hopes that more corporate buyouts could be on the way as businesses become more confident in the economic recovery.
The Dow Jones industrial average rose 178.01 points, or 1.5 percent, to 12,036.53. The index has gained 3.6 percent over the past three trading days, its largest jump over the same amount of time since September.
The S&P 500 index gained 19.18, or 1.5 percent, to 1,298.38. The Nasdaq composite rose 48.42, or 1.8 percent, to 2,692.09.
Energy stocks led the market higher after oil prices climbed back above $103 a barrel. Schlumberger, which helps companies drill for oil and gas, rose 4.4 percent to $89.73. ConocoPhillips rose 2.9 percent to $77.55.
Worries about Japan's stricken nuclear reactors eased after the Nuclear Regulatory Commission said the situation at the Fukushima Daiichi plant appeared to be stabilizing. Containment at three of the plant's six reactors was intact, the commission said.
Tiffany rose 5.1 percent to $60.22 after reporting higher-than-expected earnings. The jeweler said Japan's earthquake could hurt its earnings because of store closings and limited hours. The company does 18 percent of its business there.
The violence in Libya and Japan's earthquake have led to many large swings in the Dow since late February. The Dow rose or fell by 100 points or more during three days last week. Eight of the 15 trading days since the start of March have had swings that large.
In the latest signs of trouble in the U.S. housing market, the National Association of Realtors reported that sales of previously occupied homes fell 10 percent last month. The supply of unsold homes remains relatively high at 3.5 million.
Five stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 4.5 billion shares.
Tuesday, March 15, 2011
Disasters in Japan to impact the global bottom line
According to early estimates, Japan's recent devastation could result in the most expensive hit for the global insurance industry since Hurricane Katrina.
The impact from the earthquake and tsunami could cost the worldwide insurance sector as much as $60 billion.
Global insurance stocks plunged this week as investors reacted to news stories and broadcasts of water-filled towns and destroyed businesses. However industry analysts noted some mitigating factors, including the fact that residential property damage is covered by a state-supported insurance system and that damage due to nuclear is excluded from policies.
Insurance analysts claim such factors will keep the costs of insurance from reaching levels of Hurricane Katrina's aftermath in 2005.
Damage control costs will accumulate from ongoing aftershocks from last week's earthquake off the coast of Japan and continuous shutdowns are happening at fabric factories and auto transport companies.
"Given the enormity of the earthquake that struck Japan... it is still in the very early aftermath of the event," said senior vice president of research and modeling at AIR Worldwide, Jayanta Guin. AIR has calculated insurance costs estimates to range from $15-35 billion.
"Search and rescue efforts are still underway and damage assessment has only just begun, while considerable uncertainty still remains in the seismic parameters that define the event," Guin added.
An insurance analyst at Panmure Gordon & Co. in London cautioned that the cost to the global insurance industry could exceed $60 billion dollars with the tsunami bill added in.
The analyst added "The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector - a similar impact happened post 9/11."
The high end of those ranges would make deem the disaster the second most expensive hit to the global insurance industry since 1970, just behind Hurricane Katrina.
"We are most interested in the commercial repercussions of the disaster. It is clear that the market is already realizing and responding [to the disaster]", said a St. Louis corporate lawyer.
Moody's said the possible factor that influences the overall bottom line was the potential for "business-interruption losses," which are affected by destruction done to the country's power and transportation infrastructure.
"We believe that estimating claims will be a protracted process, as the size and scope of the event will place significant strain on insurers' claims adjustment resources," said Moody's in a report. "Moreover, aftershocks could last for weeks, causing additional insured losses."
Ambiguity over damage costs greatly influenced some of the world's largest reinsurers early this week.
On Monday, Munich Re shares were trading at 107.65 euro, 7.7% down from Thursday's close - the day before the disaster, while Hannover Re close at 37.68 euros, down 7.6 percent from the close on Thursday.
Christian Muschick, an analyst at Silvia Quandt & Cie. in Frankfurt said the "market has probably overreacted this morning." And while it's still early to forecast legitimate estimates, the issue could result in first quarter losses, Muschick said. "If the losses exceed what is set aside for natural disasters, then they will likely be unable to achieve their guidance for the year," he added.
Yet the affect on big reinsurance agencies will be less severe compared with the pitfalls from the global financial crisis. Analyst foresee that most insurers will be able to hike up their rates to counter the financial concerns of the disaster.
Aflac said that although it expects insurance claims to be high and large, it was well-prepared to cover them. The New York-based insurer provides health and life insurance to one out of every four individuals in Japan.
Aflac also mentioned its sales in Japan will take a small blow, with less than 5 percent of the company's new Japanese sales and in-force premiums spawning from the hard-hit Iwate, Miyagi and Fukushima regions.
In addition, Japanese households and businesses outside cities such as Tokyo or Osakathere are less likely to buy insurance compared to Western societies. "With respect to matters of insurance law, U.S. companies operate through a different approach to risk unlike some Eastern cultures. Insurance coverage as always been an investment that only some of the more metropolitan corporations take up." added a Nashville business lawyer who did not disclose his name.
The Japanese government will absorb the cost of earthquake-related damage to a nuclear power facility 240 kilometers north of Tokyo.
An analyst at London insurer Chaucer, one of the largest insurance providers of nuclear risk in the world, said the Japanese Nuclear Act of 1961 absolves nuclear power operators of liability from damage caused by major natural disasters. Together, those factors will limit the expense to insurers.
The impact from the earthquake and tsunami could cost the worldwide insurance sector as much as $60 billion.
Global insurance stocks plunged this week as investors reacted to news stories and broadcasts of water-filled towns and destroyed businesses. However industry analysts noted some mitigating factors, including the fact that residential property damage is covered by a state-supported insurance system and that damage due to nuclear is excluded from policies.
Insurance analysts claim such factors will keep the costs of insurance from reaching levels of Hurricane Katrina's aftermath in 2005.
Damage control costs will accumulate from ongoing aftershocks from last week's earthquake off the coast of Japan and continuous shutdowns are happening at fabric factories and auto transport companies.
"Given the enormity of the earthquake that struck Japan... it is still in the very early aftermath of the event," said senior vice president of research and modeling at AIR Worldwide, Jayanta Guin. AIR has calculated insurance costs estimates to range from $15-35 billion.
"Search and rescue efforts are still underway and damage assessment has only just begun, while considerable uncertainty still remains in the seismic parameters that define the event," Guin added.
An insurance analyst at Panmure Gordon & Co. in London cautioned that the cost to the global insurance industry could exceed $60 billion dollars with the tsunami bill added in.
The analyst added "The loss will be so large that it will probably provide the trigger to ensure a re-rating of the non-life sector - a similar impact happened post 9/11."
The high end of those ranges would make deem the disaster the second most expensive hit to the global insurance industry since 1970, just behind Hurricane Katrina.
"We are most interested in the commercial repercussions of the disaster. It is clear that the market is already realizing and responding [to the disaster]", said a St. Louis corporate lawyer.
Moody's said the possible factor that influences the overall bottom line was the potential for "business-interruption losses," which are affected by destruction done to the country's power and transportation infrastructure.
"We believe that estimating claims will be a protracted process, as the size and scope of the event will place significant strain on insurers' claims adjustment resources," said Moody's in a report. "Moreover, aftershocks could last for weeks, causing additional insured losses."
Ambiguity over damage costs greatly influenced some of the world's largest reinsurers early this week.
On Monday, Munich Re shares were trading at 107.65 euro, 7.7% down from Thursday's close - the day before the disaster, while Hannover Re close at 37.68 euros, down 7.6 percent from the close on Thursday.
Christian Muschick, an analyst at Silvia Quandt & Cie. in Frankfurt said the "market has probably overreacted this morning." And while it's still early to forecast legitimate estimates, the issue could result in first quarter losses, Muschick said. "If the losses exceed what is set aside for natural disasters, then they will likely be unable to achieve their guidance for the year," he added.
Yet the affect on big reinsurance agencies will be less severe compared with the pitfalls from the global financial crisis. Analyst foresee that most insurers will be able to hike up their rates to counter the financial concerns of the disaster.
Aflac said that although it expects insurance claims to be high and large, it was well-prepared to cover them. The New York-based insurer provides health and life insurance to one out of every four individuals in Japan.
Aflac also mentioned its sales in Japan will take a small blow, with less than 5 percent of the company's new Japanese sales and in-force premiums spawning from the hard-hit Iwate, Miyagi and Fukushima regions.
In addition, Japanese households and businesses outside cities such as Tokyo or Osakathere are less likely to buy insurance compared to Western societies. "With respect to matters of insurance law, U.S. companies operate through a different approach to risk unlike some Eastern cultures. Insurance coverage as always been an investment that only some of the more metropolitan corporations take up." added a Nashville business lawyer who did not disclose his name.
The Japanese government will absorb the cost of earthquake-related damage to a nuclear power facility 240 kilometers north of Tokyo.
An analyst at London insurer Chaucer, one of the largest insurance providers of nuclear risk in the world, said the Japanese Nuclear Act of 1961 absolves nuclear power operators of liability from damage caused by major natural disasters. Together, those factors will limit the expense to insurers.
Bottle Reveled That is 100% Biodegradable
PepsiCo Inc. on Tuesday unveiled a bottle made entirely of plant material, which it says bests the technology of competitor Coca-Cola and reduces its potential carbon footprint.
The bottle is made from switch grass, pine bark, corn husks and other materials. Ultimately, Pepsi plans to also use orange peels, oat hulls, potato scraps and other leftovers from its food business.
The new bottle looks, feels and protects the drink inside exactly the same as its current bottles.
PepsiCo says it is the world's first bottle of a common type of plastic called PET made entirely of plant-based materials. Coca-Cola Co. currently produces a bottle using 30 percent plant-based materials and recently estimated it would be several years before it has a 100 percent plant bottle that's commercially viable.
The discovery potentially changes the industry standard for plastic packaging. Traditional plastic, called PET, is used in beverage bottles, food pouches, coatings and other common products.
The plastic is the go-to because it's lightweight and shatter-resistant, its safety is well-researched and it doesn't affect flavors. It is not biodegradable or compostable. But it is fully recyclable, a characteristic both companies maintain in their new creations.
Traditional PET plastic is made using fossil fuels, like petroleum, a limited resource that's rising in price. By using plant material instead, companies reduce their environmental impact. Pepsi says the new plastic will cost about the same as traditional plastic.
The company, based in Purchase, N.Y., said it has had dozens of people working on the process for years. While PepsiCo wouldn't specify the cost to research and design the new bottle, it is said to be in the millions of dollars. It is unclear if the new process will require Injection Molding Training, however, helping molders succeed is more than a tagline for RJG Inc; it is the company's sole focus. Educating molders is an integral part of their mission, and it's something they do with great pride and dedication.
The new bottle is one of several steps PepsiCo has taken recently to reduce its environmental impact. The company created a fully compostable bag for its SunChips line. It cut the amount of plastic in its Aqua-Fina bottle in 2009. And its Naked Juice line is in the midst of switching to a bottle made entirely of recycled plastic bottles.
PepsiCo says of its 19 biggest brands, those that generate more than $1 billion in revenue, 11 are beverage brands that use PET. The company says the packaging will cost roughly the same as it does today.
PepsiCo plans to test the product in 2012 in a few hundred thousand bottles. Once the company is sure it can successfully produce the bottle at that scale, it will begin converting all its products over.
Friday, March 4, 2011
Lending in China falls short of projections for 2nd consecutive month
As reported by the country's official media, the banks of China provided less than 600 billion yuan in new February loans, an alarmingly low number that would help quell concerns of inflation.
The Asian economic powerhouse has steadily ramped up the required reserves for banks, requiring them to tighten lending in an effort to slow the growth of currency in country. Excessive money growth has contributed to the fastest inflation rates for China in over two years.
The China Securities Journal cited industry sources claiming that lending last month was below 600 billion yuan. The median projection was estimated to be 650 billion yuan, according to polled analysts at Reuters.
This marks the second consecutive month that financial lending has fell short of market expectations. Such data suggests that the government's campaign focused on credit growth is realizing some degree of success.
Diminished lending would display that higher requirements for bank reserves have resulted in a "better-than-expected effect", said the Chinese newspaper.
The country has increased the required reserves for lending twice this year. In addition, China has imposed on certain banks, those of which that have been particular liberal with lending, "punitive" increases on their reserve requirements.
Liu Mingkang, the head of the China Banking Regulatory Commission, said banks have been lending excessively fast over the past two years, posing a banking financial risk to the economy, according to a source from Reuters.
The top four financial institutions in China would put a limit on their combined new loans for the full year at 2.85 trillion yuan, said Chinese media this week. Because these Chinese banks typically make up almost 40 percent of overall lending, China could potentially see up to 7 trillion yuan in new loans this year.
To help manage the issue, many banks are implementing advanced financial analysis software tools. These platforms are designed to help lenders make better use of financial data in many aspects of a loan portfolio.
According to China Business News, quotas for the entire year were 880 billion yuan for Industrial and Commercial Bank of China, 750 billion yuan for China Construction Bank, 620 billion yuan for Agricultural Bank of China, and 600 billion yuan for Bank of China.
Banks and lending institutions in China have issued a combined 17.5 trillion yuan of new local currency loans in 2009 and 2010. That makes up almost 25% of the economy's total output during that time.
The Asian economic powerhouse has steadily ramped up the required reserves for banks, requiring them to tighten lending in an effort to slow the growth of currency in country. Excessive money growth has contributed to the fastest inflation rates for China in over two years.
The China Securities Journal cited industry sources claiming that lending last month was below 600 billion yuan. The median projection was estimated to be 650 billion yuan, according to polled analysts at Reuters.
This marks the second consecutive month that financial lending has fell short of market expectations. Such data suggests that the government's campaign focused on credit growth is realizing some degree of success.
Diminished lending would display that higher requirements for bank reserves have resulted in a "better-than-expected effect", said the Chinese newspaper.
The country has increased the required reserves for lending twice this year. In addition, China has imposed on certain banks, those of which that have been particular liberal with lending, "punitive" increases on their reserve requirements.
Liu Mingkang, the head of the China Banking Regulatory Commission, said banks have been lending excessively fast over the past two years, posing a banking financial risk to the economy, according to a source from Reuters.
The top four financial institutions in China would put a limit on their combined new loans for the full year at 2.85 trillion yuan, said Chinese media this week. Because these Chinese banks typically make up almost 40 percent of overall lending, China could potentially see up to 7 trillion yuan in new loans this year.
To help manage the issue, many banks are implementing advanced financial analysis software tools. These platforms are designed to help lenders make better use of financial data in many aspects of a loan portfolio.
According to China Business News, quotas for the entire year were 880 billion yuan for Industrial and Commercial Bank of China, 750 billion yuan for China Construction Bank, 620 billion yuan for Agricultural Bank of China, and 600 billion yuan for Bank of China.
Banks and lending institutions in China have issued a combined 17.5 trillion yuan of new local currency loans in 2009 and 2010. That makes up almost 25% of the economy's total output during that time.
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