In this edition:
In a recent report, Allianz forecast global insolvencies will increase by 21% in 2023 and 4% in 2024. The main reason behind the forecast is lower growth in the Eurozone and the US. The sectors most affected are expected to be retail, some services including restaurants, transport, construction and durable goods.
In the UK, insolvencies are predicted to rise 16% in 2023 to 28,500. On top of Brexit-related issues, UK business has had to deal with a sharp fall in growth, earlier monetary tightening and rapid inflation. Insolvencies are expected to continue to exceed pre-pandemic levels although falling short of the 2009 peak.
Terry Macauley Deputy Head of Credit Risk at Tokio Marine HCC has published a report reviewing the UK Food Service Sector and the problems resulting from the current economic environment. The cost of living crisis has meant that consumers have less to spend and food price inflation reached almost 17% in January. The sector has also been hit by supply chain issues and labour shortages. Supermarkets who had signed contracts with foreign producers suffered shortages due to poor harvests. Food delivery businesses have seen a fall in demand post Covid.
Looking forwards there are some positives with prices of staples such as wheat (40%), corn (14%) and soyabeans (12%) are down. Lower consumer spending and high inflation and high interest rates are expected to increase risk in the sector.
A recent report from Moody’s states that trade credit insurers are well placed to cope with an anticipated increase in claims. Following the introduction of Solvency ll in 2016 the average Solvency II ratio is 200%. A strong performance in 2022 allowed them to absorb large claims including the bankruptcy of Brazilian retailer Americanas.
Americanas SA is a 93 year-old retailer present in most Brazilian shopping malls filed for protection from their creditors following nearly $4bm worth of accounting inconsistencies and $8.2bm worth of debt. Cash in the company fell linked to the prepayment of suppliers.
Read Reinsurance News article on the Moody’s report
BExA has published a revised and updated Guide to Export Credit Insurance co-edited by WTW’s own Jenni Donaghy. The guide is free to download.
Export credit insurance covers the risk of not being paid for goods and services that have been delivered, specifically invoices raised on overseas customers, political risks, insolvency and default. It gives exporters the confidence to extend credit to customers, protecting receivables without additional co-operation with your customer.
Alternatively, please contact Jenni Donaghy for further information.
There have been fears that following the failure of Silicon Valley Bank (SVB) in the US and the problems at Credit Suisse there could be a new banking crisis. In a recent report Atradius say that swift action by the Federal Reserve and the US Treasury prevented SVB’s problems spreading across the sector. They agreed to make good all losses above the $250,000 Guarantee Scheme and support and further lending was given to smaller banks. Subsequently, First Republic failed and was taken over by JP Morgan.
In Switzerland UBS bought struggling Credit Swiss with the backing of the Swiss National Bank. The problems at Credit Swiss were caused mainly by losses from large clients such as Archegos and Greensill Capital rather than wider problems in the sector.
There were 5,747 (seasonally adjusted) company insolvencies in England and Wales during the first quarter of 2022. This was a 4% increase on the previous quarter (after seasonal adjustment) and an increase of 18% compared to the same period last year.
If you’d like to discuss these topics further, please do not hesitate to contact me.
