Against the backdrop of a weakening economic outlook and the withdrawal of pandemic-related government support, insolvencies in many markets around the world are expected to continue to rise this year and next, returning to pre-Covid levels.
This trend marks the end of a period of low business failure rates during the pandemic – a cumulative 29% in 2020-21, according to Atradius – thanks to generous state backing, including to companies that may not have survived in normal times.
Spain, Switzerland and the UK are among the countries already overshooting their normal insolvency levels, with others set to follow suit as a result of additional defaults from ‘zombie’ companies, says Atradius in its October Insolvency Forecast.
On average, 40% of a company’s assets are in the form of trade debts or accounts receivable, according to Allianz Trade. Securing these assets is critical – especially during challenging economic times when counterparty defaults are expected to grow.
In early 2022, the International Credit Insurance and Surety Association (ICISA) embarked on an industry-first exercise to measure the estimated size and importance of the trade credit insurance market – not a straightforward task given the lack of a single source of data and dissimilar approaches to use of the product across regions.
According to ICISA’s research, 14.5% of global trade in 2020 was protected by credit insurance, representing a total value of €6.35tn in insured shipments.
“We know that trade credit insurance plays an important role in protecting one of the biggest asset classes for companies of all sizes,” says ICISA, noting however that there are likely to be large volumes of unsecured trade “placing strain on supply chains around the world”.
The increased need for risk mitigation is a common theme throughout this annual GTR+ Credit and Political Risk Insurance publication. Our risk report takes a look at the complexities of the evolving geopolitical and economic landscape, while our roundtable discussion finds that while there is much liquidity in the market, it is largely being funnelled towards a relatively small number of investment-grade assets. Client selection is becoming increasingly critical for both banks and underwriters, participants say.