Climate Week in NYC Sept. 23–29 brings many of those interested in climate and resiliency together. It overlaps with the UN General Assembly and attracts high level government and business speakers. It is a hybrid conference, and many of the sessions have been or will be live streamed at https://www.climateweeknyc.org/, with links provided to replays of past sessions. The list of sponsors and partners encompasses many businesses from internet and pharmaceutical companies to energy, manufacturing, and insurance firms, to consulting and higher education institutions. This year adds fashion and AI and how those industries can contribute to reducing carbon and becoming more sustainable. FEMA and the EPA are also joining this year.
FEMA and the EPA Climate Week sessions on Sept. 24 explored resilient infrastructure challenges and innovative solutions through discussions on the recently published National Resilience Guidance, nature-based solutions, energy efficiency, net-zero energy, and sustainable disaster debris management. Here is a link to that document: National Resilience Guidance. FEMA continues to assist in disasters and provide funds for rebuilding, though with more frequent events including wildfire and hail combined with soaring home prices and inflation’s making rebuilding efforts more expensive, it is not surprising that the focus of the agency is on resilient and sustainable solutions.
This week, Tropical Storm Helene, the ninth-named storm of the year, is projected to make landfall north of Tampa as a hurricane. Although its track will miss Sarasota, where Cumberland Advisors is located, the area will not be immune. Current projections are for a Category 3 storm with winds up to 75 miles per hour and the potential for devastating storm surge and extreme flooding. In anticipation, Governor DeSantis has called for a state of emergency for 61 of 67 Florida counties. The emergency declaration brings more federal disaster resources to the state as well as funding for damage caused by the storm.
Insurance is an important component of resiliency; and with more catastrophes occurring, some property and casualty insurers are limiting risk through lower coverage or are exiting a region or market. States like California, Florida and Louisiana, which have more exposure to catastrophes, have developed insurers of last resort to support economic development and keep citizens covered. However well intended, these efforts are not finding equilibrium in the risk market and keep folks living in risk-prone areas. States are making efforts to improve their insurance markets and may include restricting building, improving building codes, implementing actuarily sound pricing, providing reinsurance and enacting tort reform. We discussed some of these in a December 2022 commentary and expect to provide an update in the future. See “Hurricane Ian and the Florida P&C Insurance Market,” https://www.cumber.com/market-commentary/hurricane-ian-and-florida-pc-insurance-market.
At Cumberland Advisors sustainability and resilience have been important to us in our business and our analysis of investments. Municipalities cannot just roll up and move away, so it is important for them not only to maintain infrastructure but to improve and harden it. We look for resilience in the financial plan as well as the capital plan – including regular maintenance. Keeping up with infrastructure needs is sometimes a difficult task with regulatory red tape and competing projects, but more attention is being given to the problem. Nationwide our infrastructure falls short, with the American Society of Civil Engineers’ latest report card in 2021 rating US infrastructure at a C-, up from D+ in 2017, with expectations that improvement was continuing. We will update you when the 2024 report card is released. Most municipalities in the higher-rated categories that Cumberland invests in have diverse economies or are bedroom communities to diverse opportunities and have good financial management and strong reserves such that if a disaster or economic dislocation occurs, the municipality has resources to address problems. The reserves provide a cushion while a good budget management process helps by cutting expenses or raising taxes and fees when needed. Many municipalities have reserves over 20%, and upgrades continue to outpace downgrades. A soft landing for the economy is not guaranteed, but many municipalities are in better financial shape than they once were, having learned lessons from the financial crisis, the pandemic, and a required increase in detailed reporting to regulators and constituents.
Patricia Healy, CFA
Senior Vice President of Research & Portfolio Manager
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