More Corporate Insolvencies Likely to Fuel Credit Insurance Growth

Economic growth, rising export activities in Asia and the need for risk management against rising corporate insolvencies are the main factors behind rising demand for credit risk insurance, according to Euler Hermes.

The global credit insurer, whose parent is German insurer Allianz, reports that as a key market for western countries, Asia remains resilient against global economic slowdown, but counterparty risks as measured by corporate insolvency rates are nonetheless expected to rise in the region by 2.5% next year, following declines of 3.1% and 11% in 2012 and 2011 respectively.

China’s corporate insolvency rate is forecast to rise 2.1% in 2013, compared with declines of 5.2% and 18.3% in 2012 and 2011, respectively. Taiwan has the highest forecasted corporate insolvency rate in Asia, up 7.7% for 2013, compared with a 1.6% rise in 2012. Euler Hermes said that an increasing corporate insolvencies rate will enhance “the need for and relevance of more prudent risk and credit management practices, including the use of trade credit insurance.”

A decline in demand from western markets has begun to influence Asian countries, with a first-round effect for China and second-round effect for Association of Southeast Asian Nations (ASEAN), countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos and Vietnam.

Globally, 2013 will be “double or quits” on a macroeconomic level, said Ludovic Subran, chief economist with Euler Hermes in the report, who predicts that “the eurozone will remain at bay” while the outlook for the US is contingent on its ability to resolve the impending ‘fiscal cliff’. Lower demand from western markets would negatively impact economic growth in Asia, particularly exports from China and Japan.

Subran added that “significant opportunities in Asia remain”. The food industry is seeing “a sharp rise in the consumption of processed food products and changing consumption patterns” combined with increasing demand for agricultural foods. The automotive sector continues to grow in Asia, together with strong air transport expansion, while the improving quality of drug reimbursement programmes is boosting the pharmaceuticals sector.

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