In this edition:
WTW won best Trade Credit Insurance Broker at the Global Trade Review (GTR) awards. GTR is a worldwide independent publication covering news, events, and services for companies involved in global trade.
Kemble Water, parent company of Thames Water, missed interest payments to its lenders and bondholders, which could lead to a major company restructuring or a collapse. The company’s shareholders refused to invest £500 million, which had been promised, and the company said that the industry regulator OFWAT is being too tough, making the company ‘uninvestable’. This led to a collapse in the bond price.
Kemble has appointed consultants Alvarez and Marsal to assess its options over its debt structure and to engage with lenders and bondholders. Thames Water is the largest UK water company, with 16 million customers and £15 billion in debt. They have £2.4 billion of funds, which they say is sufficient to last until next summer. One option is for the government to take Thames Water into public ownership.
Fiona O’Brien of Tokio Marine HCC has published a report into the UK retail sector, which shows insolvencies reached a 30 year high in 2023. As the cost-of-living crisis caused households to struggle, non-food sales were down by 3.9%. While some stores, such as Next and B&M, increased sales, online stores such as Asos, N Brown, and Very Group all reported falls in sales.
Although there was a positive start to 2024, with retail sales up 3.9% in January, there is still a lack of consumer confidence due to the high inflation rate and high interest rates. Insolvencies in the sector continue to rise and are already above pre-Covid levels.
The Body Shop announced plans to close 75 of its UK stores and suffer nearly 800 job losses after going into administration.
The Body Shop was founded by Anita Roddick in 1976, who campaigned against the testing of cosmetics on animals. She sold the company to L’Oreal in 2006.
The current owner, Aurelius, is the main creditor and could take the company back after the closures and job losses. Alternatively, the remaining stores could be sold to a third party, and Next has been reported to have shown an interest.
Global Trade Review published an article in which Michael Creighton of WTW examines how credit and political risk insurance can help mitigate the risks of transitioning from carbon fuels to green energy.
Coal, oil, and gas projects require an extremely high level of investment, which can only be achieved by a small number of very large entities. In contrast, green energy needs a much lower level of investment, resulting in numerous entrants to the market, some of whom may not have the required financial strength.
A number of recent examples highlight the very real credit and political risks associated with these green projects. Many of these risks can be managed through the purchase of trade credit and political risk insurance.
In a recent article, Andrew Share of Coface expects the UK economy to improve due to increased consumer spending and reduced inflation. The Office for Budget Responsibility predicts growth of 0.8% in 2024, compared to Coface’s own forecast of 0.5%. However, Coface urges caution, as insolvencies are still rising and typically take longer to respond to improvements in the economy. The rise in insolvencies has been highlighted by the recent failures of Ted Baker and The Body Shop.
The increase in insolvencies has also been reflected in the latest statistics from the Association of British Insurers. The total claims paid by credit insurers in Q4 2023 was £69 million, up £19 million from Q3.
The 2024 credit and political risk survey shows an increase in the demand for credit insurance as well as an increase in capacity in the market. Similar trends have been found in a survey conducted by the International Association of Credit Portfolio Managers and International Trade and Forfaiting Association.
We are delighted to welcome Rachel Stevens to the Trade Credit team in the UK. Rachel will be based in our Birmingham office and rejoins as a senior associate, bringing over 35 years of broking experience with Marsh, WTW, and more recently with independent specialist brokers.
The number of insolvencies in March 2024 declined by 17% compared to the same month last year. However, this decrease has had a marginal impact on the overall number of insolvencies for the first quarter of 2024. There were 5,759 insolvencies compared to 5,747 in Q3 2023.
If you’d like to discuss these topics further, please do not hesitate to contact me.
