Economic Fallout of SoCal Firestorms

Since last Sunday, wildfires fueled by Santa Ana winds have burned more than 465,000 acres of land across Southern California, destroying more than 1,600 structures, and driving more than half-a-million people from their homes.

Losses from the wildfires could top $1.6 billion, according to Risk Management Solutions, a leading provider of services for catastrophe risk management.

Moody's Economy.com said that San Diego is bearing the brunt of the damage and will see the largest disruptions to its economy. Their analysts estimate San Diego County is losing $45 million daily from disruptions caused by the fires.

The report added, too: "In a worst-case scenario, if all 69,000 endangered homes were destroyed, the total damage to residential property would balloon to $42 billion."

Business Disruptions

Big businesses’ based in the San Diego area whose operations and productivity were disrupted include the hamburger chain Jack in the Box (JBX), which either franchises or operates 43% of its quick-service restaurants in California, and Petco Animal Supplies Stores.

Customer traffic was adversely affected, too, at coffee chain Starbucks (SBUX), which closed about 120 of its stores in San Diego and Ventura counties, and SeaWorld, the popular tourist destination owned by Anheuser-Busch (BUD), which closed for three days (re-opening on Friday, October 26).

Indirectly affected by the firestorms was Sempra Energy (SRE), which operates the San Diego Gas & Electric Co. (SDG&E) and Southern California Gas Company utilities. At its worst, about 33,000 homes and businesses were without power last Tuesday, according to a spokesman. SDG&E gets about half its electricity from outside its service area for the 1.3 million homes and businesses it serves.

Property & Casualty Insurers

Insurance experts say that wildland-urban fire losses tend to be concentrated in the personal lines sector of the market—homeowners and automobiles. The demographics of the burnt areas are quite varied, ranging from newer subdivisions to elite homes.

History as a guide, commercial lines will also be impacted, with claims expected in commercial property and business interruption that could be significant, according to a prior Fitch Ratings report (issued in 2003 for wildfires affecting Southern California in October of that year).

Construction Boom

Ironically, a post-fire construction boom could bring back thousands of the more than 28,600 construction jobs that the region lost in the last 12-months amid the housing slump.

Contractors and carpenters will gain the bulk of the work because most people will try to rebuild on their own lots, says Fitch analyst Robert Curran. New homebuilders may get some "marginal, incremental business," he added. Those with a major presence in California include Standard Pacific (SPF), DR Horton (DHI), and KB Homes (KBH).

Author David J. Phillips does not hold a financial interest in any of the companies mentioned in this column. The 10Q Detective has a Full Disclosure Policy.