These companies lack the cash flow to cover interest payments և are more likely to collapse when governments end epidemic fiscal measures.
The expectation that hundreds of so-called zombie companies will fail in the next few years, driven the economy, is one of the main concerns for insurers to reduce the risk of charging higher premiums, a trend that is likely to continue as failures increase. AG says. he said.
Zombies without cash flow to cover their debt are a “time bomb” that will have an explosive effect when governments and central banks withdraw funds that helped keep them afloat during the epidemic, chief economist Jer Jerome Hegel told Reuters. told a Swiss insurer.
The sober forecast comes after stock prices hit a record, The US economy grew by 6.5% this year. But those strengths are illusory, Hegel said, because they are based on temporary fiscal support.
Hegel says that during the epidemic, the share of zombie companies certainly increased as central banks flooded markets with money and governments provided aid. At the same time, the bankruptcy of American companies in 2020 decreased by 5%, according to a report by Swiss Re on Tuesday.
Restart at risk
Before the epidemic, about 20 percent of companies listed in the United States and the United Kingdom were zombies, and in Australia and Canada – 30 percent, the Bank for International Settlements said in September. For comparison, zombies accounted for about 15 percent of listed companies in 14 advanced economies in 2017, up from 4 percent before the 2008 financial crisis.
Insurers are cautious as they predict where the economy will be for a year or more. They take advantage of risk allocation by being more prudent in allocating investment portfolio assets, even by taking precautions against insurance operations and supply chain risk.
“They are not fooled by the short-term picture,” Hegel said. “If you look at the market today, everything looks great. However, it is illusory to think that this environment can work, “as” life support “is taken back in the coming months. And that will lead to an increase in long-overdue bankruptcies.
“I’m worried that you will see an unexpected increase in defaults, as the default interest rates are very low,” he said.
Insurers are also likely to continue to raise prices to make sure they adequately assess future risks.
Global trade insurance prices began to rise in 2017, after which they rose, including an 18% increase in the first quarter of 2021, according to Marsh & McLennan Companies Inc.