Swiss Re: Recovery from “Zombies”

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worldwide epidemic

 

disturbances to the supply chain.

 

progressively more expensive cyberattacks.

 

dangers associated with climate change and extreme weather.

 

Lastly, zombies.

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This week, the chief economist of Swiss Re stated that one of the worries driving insurers to decrease risk and raise premiums is the failure of hundreds of “zombie companies” over the next years. This trend is anticipated to continue as corporate failure rates rise.

 

According to Jerome Haegeli of Reuters, zombie companies—those without the cash flow to pay off their debt—are “a ticking time bomb” whose repercussions will be felt as governments and central banks remove policies that have kept these businesses alive during the pandemic.

 

The somber forecast comes as stock prices set new highs and it seems that the US economy will expand by 6.5 percent this year.

These advantages, according to Haegeli, are illusory since they are founded on transient financial and economic support.

 

Insurance companies are taking extra steps, including limiting underwriting risk, choosing investments more carefully, and even taking extra care to cover operations and supply-chain risk.

 

They are not being duped by the immediate situation, according to Haegeli.

“Everything seems fantastic if you look at the market right now.

To believe that this environment can endure, nevertheless, is illusory as “life support” will be turned off in the coming months.

And it will result in a rise in long overdue bankruptcies, he claimed.

 

It’s tempting to assume that recovery will pick up speed when the pandemic-related components of the economic crisis are brought under control.

After all, things were going well economically before the pandemic, don’t you think?

 

However, the Bank for International Settlements (BIS) noted in September that there had been a “pre-pandemic surge in the number of persistently unsuccessful firms, or ‘zombies,’ which are particularly susceptible to economic downturns.”

 

According to the BIS, before the epidemic, there were around 20% zombie-listed companies in the US and UK and 30% zombie-listed companies in Australia and Canada.

Comparatively, in 14 advanced economies’ listed corporations in 2017 (approximately 15%), compared to 4% prior to the 2008 financial crisis, were zombies.

 

The prospect of future company failures seems realistic in the absence of any evidence that these companies’ circumstances much improved throughout the pandemic or that the epidemic didn’t produce more zombies.

 

The likelihood of rising premiums and decreasing coverage limits looks high given the rising losses from hurricanes, severe convective storms, and wildfires, the threat posed by sea level rise, and the growing likelihood that cybercrime would impair business and government operations.

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