With zombie companies likely to fail, insurance companies will raise premiums News of bankruptcy

These companies do not have the cash flow to cover interest payments and are likely to fall when the government completes pandemic fiscal measures.

One of the main concerns that hundreds of so-called zombie companies will fail in the coming years and a major concern that will drag the economy away is what drives insurance to reduce risk and charge higher premiums. It is likely that failures will continue to rise. he said.

The zombies, which have no cash flow to cover the cost of debt, are “time bombs” and will feel explosive effects as governments and central banks withdraw measures that helped keep them alive during the pandemic, chief economist Jerome Haegeli told Swiss insurer Reuters.

The mere forecast is that stock prices will be a record and the U.S. economy looks set to grow by 6.5% this year. However, Haegeli said these strengths are exciting because they are based on temporary fiscal and monetary support.

Haegeli said the proportion of companies that are zombies increased during the pandemic as central banks flooded the market with money and government support. At the same time, the failures of U.S. companies fell by 5% in 2020, Swiss Re said in a report on Tuesday.

Face the risk

Prior to the pandemic, about 20% of U.S. and UK listed companies were zombies, and 30% in Australia and Canada, the International Settlement Bank said in September. By comparison, zombies accounted for about 15% of listed companies in 14 advanced economies and 4% before the 2008 financial crisis.

Insurers are cautiously predicting where the economy will be in a year or more, Haegeli said. They remain at risk of contracting, are more cautious in allocating investment portfolio assets, and also take measures to insure operations and supply chain risks.

“They’re not fooled by the short-term image,” Haegeli said. “Looking at the market today, it looks great. However, it is exciting to think that this environment can last ”as“ life support ”has been withdrawn in the coming months. And that would lead to an increase in long-standing failures.

“I am concerned that you will see a sudden rise in defaults because the default rates are very low,” he said.

Insurers are also likely to continue to raise prices to ensure they properly value future risks, he said.

Global commercial insurance prices began to rise in 2017 and have risen since then, including an 18% increase in the first quarter of 2021, according to data from Marsh & McLennan Companies Inc.