Challenging economic times represent opportunity for Europe’s risk managers

The European risk and insurance management community will gather in Berlin for the Ferma Forum in November, as forecasts of a global recession continue to rise – largely driven by rising debt levels, escalating trade conflicts, and uncertainty.

Combined with the rather more direct challenge of a hardening commercial and corporate insurance market in many classes, and an increasingly challenging cyber insurance market as leading insurers insist on affirmative cover, don’t expect Europe’s risk and insurance managers to be in a lighthearted mood in Berlin.

The OECD recently flagged up the increasingly glum global economic outlook in its latest Interim Economic Outlook report, published in September.

It said the global economy has become increasingly “fragile and uncertain”, with growth slowing and downside risks mounting.

The report concluded that economic prospects are weakening for both advanced and emerging economies, and warned that global growth could “get stuck at persistently low levels” without firm policy action from governments.

The OECD said that escalating trade conflicts are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects worldwide. It predicted that the global economy will grow by 2.9% in 2019 and 3% in 2020 – the weakest annual growth rates since the financial crisis, with downside risks continuing to mount.

Trade conflicts are identified as the main factor undermining confidence, growth and job creation across the world economy. Solid consumer demand has supported service sector output to date, but persistent weakness in manufacturing sectors and continuing trade tensions could weaken employment growth, household income and spending, said the body.

The UK’s planned departure from the European Union is partly to blame, as is the trade war between the US and China. But while these politically driven issues may grab the headlines, there are also serious underlying drivers for the downturn.

“Substantial uncertainty persists about the timing and nature of the withdrawal of the United Kingdom from the European Union, particularly concerning a possible no-deal exit which could push the UK into recession in 2020 and lead to sectoral disruptions in Europe. Other risks – including the overall slowdown in the Chinese economy and significant financial market vulnerabilities from the tension between slowing growth, high debt and deteriorating credit quality – are also weighing on future growth,” concluded the OECD.

Its dim global outlook was underlined in early October, as credit insurer Atradius reported that global insolvencies are rising for the first time in a decade, with the greatest uptick seen in the UK. Atradius’s latest Insolvency Outlook report forecasts business failure rates in developed markets will increase by 2.8% this year – the first rise since the global financial crisis. The rise is largely driven by the loss of momentum in the global economy, with growth forecast to slow from 3.2% last year down to 2.6%.

Across western Europe, business failures are forecast by Atradius to increase by 2.7% this year and 0.7% in 2020. “Slowing economic growth, the escalation of the US-China trade war and looming uncertainty surrounding Brexit and Italian politics are the key drivers of the upswing,” states the credit insurer.

Atradius says the UK faces the highest insolvency increase across all advanced markets, forecast to rise as much as 10% in 2019. The continuing Brexit uncertainty brings delay to any recovery of sterling, keeps inflation elevated and prolongs the drag on business investment, it adds. Next year is forecast to be another difficult year, with a 5% insolvency increase – based on a scenario where Article 50 is extended in October with a smooth transition. However, the prospects of a no-deal Brexit or further delay to Brexit followed by a general election are likely to put further upward pressure on UK failure rates, says Atradius.

But it’s not just the UK that is coming under the economic cosh in Europe. A 4% increase in insolvencies is forecast for Switzerland, Italy and Belgium. Weaker external demand is expected to weigh upon economic activity in France, with a 3% insolvency increase this year. Cooling growth and higher uncertainty in Germany are expected to increase insolvencies by 1% this year, with a 1% rise also forecast for the Netherlands, adds Atradius in a particularly depressing note.

As noted above and in last month’s column, Europe’s risk and insurance managers have enough on their plates currently as they prepare for what is looking like the trickiest year-end renewals round for many years. But, as with the rising demand for expert risk analysis in increasingly important areas such as sustainability, surely this point in time represents a great opportunity for the community to prove its worth and add some real value for their colleagues and bosses. Solutions always lighten moods – let’s hope for some positive discussion at this year’s Ferma Forum and not just doom and gloom!