Zombie companies may go bankrupt, insurance companies raise premiums | Bankruptcy News
These companies lack the cash flow to pay interest, and once the government ends the pandemic fiscal measures, these companies are likely to go bankrupt.
Swiss Re AG stated that it is expected that hundreds of so-called zombie companies will fail in the next few years and drag the economy down. This is one of the main concerns that prompt insurance companies to reduce risks and charge higher premiums. As failures increase, this The trend may continue. Say.
Chief economist Jerome Haegeli said that zombies—lack of cash flow to cover the cost of debt—are “time bombs” at the Swiss insurance company, told Reuters.
With the stock price hitting a record high, it seems that the US economy will achieve 6.5% growth this year, so a sober forecast has been made. However, these advantages are illusory, Haegeli said, because they are based on temporary fiscal and monetary support.
Haegeli said that during the pandemic, the proportion of zombie companies will definitely increase because the central bank injects large amounts of capital into the market and the government provides relief. At the same time, Swiss Re said in a report on Tuesday that the number of US company bankruptcies in 2020 has fallen by 5%.
controlling the risk
The Bank for International Settlements stated in September that before the pandemic, about 20% of listed companies in the United States and the United Kingdom were zombie companies, compared with 30% in Australia and Canada. In contrast, zombie companies accounted for approximately 15% of listed companies in 14 advanced economies in 2017, and 4% before the 2008 financial crisis.
Haegeli said that insurance companies are cautious in predicting economic conditions in a year or more. They are controlling underwriting risks, being more cautious in the allocation of portfolio assets, and even taking preventive measures in providing insurance for operational and supply chain risks.
“They will not be fooled by short-term circumstances,” Haegeli said. “If you look at the market today, everything looks great. However, it is an illusion to think that this environment can be sustained, because the “life support” will be withdrawn in the next few months. This will result in long overdue Increase in bankruptcy cases.
“I am worried that you will see a sudden spike in the default rate because the default rate is too low,” he said.
He said that insurance companies may also continue to raise prices to ensure that they adequately price future risks.
According to data from Marsh & McLennan Companies Inc., global commercial insurance prices began to rise in 2017 and have been rising since then, including an 18% increase in the first quarter of 2021.