Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

'Zombie' companies likely to keep commercial insurance rates rising - Swiss RE

Stock MarketsJun 08, 2021 06:15
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The logo of insurance company Swiss Re is seen in front of its headquarters in Zurich, Switzerland February 12, 2019. REUTERS/Arnd WIegmann

By Alwyn Scott

NEW YORK (Reuters) - The expectation that hundreds of so-called zombie companies will fail over the next few years and drag on the economy is among the major concerns prompting insurers to reduce risk and charge higher premiums, a trend likely to continue as failures increase, Swiss Re AG said on Tuesday.

Zombies - which lack the cash flow to cover the cost of their debt - are "a ticking time bomb" whose explosive effects will be felt as governments and central banks withdraw measures that have helped keep these companies alive during the pandemic, Jerome Haegeli, chief economist at the Swiss insurer, told Reuters.

The sober prediction comes as stock prices hit records and the U.S. economy appears headed for 6.5% growth this year. Yet these strengths are illusory, Haegeli said, because they are based on temporary fiscal and monetary support.

Haegeli said the proportion of companies that are zombies certainly increased during the pandemic, as central banks flooded markets with money and governments provided relief. At the same time, U.S. company bankruptcies fell 5% in 2020, Swiss Re said in a report on Tuesday.

Before the pandemic, about 20% of listed firms in the United States and UK were zombies, and 30% in Australia and Canada, the Bank for International Settlements said in September. By comparison, zombies constituted about 15% of listed companies in 14 advanced economies in 2017 and 4% before the 2008 financial crisis.

Insurers are being cautious as they forecast where the economy will be in a year or more, Haegeli said. They are reining in underwriting risk, being more prudent about investment portfolio asset allocations and even taking precaution on insuring operations and supply-chain risk.

"They are not getting fooled by the short-term picture," Haegeli said. "If you look at the market today, everything looks great. However, it's illusionary to think that this environment can last" as "life support" is withdrawn in coming months. And that will bring an increase in long-overdue bankruptcies.

"I'm concerned that you're going to see a sudden spike in defaults because the default rates are so low," he said.

Insurers also are likely to continue raising prices to be sure they are adequately pricing the risks ahead, he said.

Global commercial insurance prices started rising in 2017 and have climbed since, including an 18% rise in the first quarter of 2021, according to data from Marsh & McLennan Companies Inc (NYSE:MMC).

'Zombie' companies likely to keep commercial insurance rates rising - Swiss RE
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Lucifer Morningstar
Lucifer Morningstar Jun 08, 2021 13:15
Saved. See Saved Items.
This comment has already been saved in your Saved Items
zombie companies are like cancerslowing ****the economy
Lucifer Morningstar
Lucifer Morningstar Jun 08, 2021 13:15
Saved. See Saved Items.
This comment has already been saved in your Saved Items
slowly ********the economy
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email