4
Underwriting
EMEA Q4 regional market trends
- Downward revisions in GDP together with the prospect of recessionary conditions linked to the energy crisis as a consequence of the war in Ukraine, rising interest rates and the inflationary environment suggest that after two benign years the European credit insurance market could be approaching an inflection point heading into 2023.
- Business insolvencies are forecasted to accelerate and see significant increases in 2023 following a gradual rebound in 2022 and normalization as the business cycle continues to adjust to new realities.
- Many countries are already now reporting a higher incidence of non-payment events and a deterioration in non-payment situations. As a result, carriers are reporting an increase in claims volumes although severity has yet to materialize.
- The rate environment remains competitive and broadly flat/reducing under the right circumstances particularly for those policies with higher throughput and low claims ratios.
- Credit limit capacity continues to grow supporting higher trade volumes brought about by increased client activity and inflationary effects.
- Given the outlook then Insurer attitudes remain prudent with flexibility offered for their more profitable policies.
- Coverage for Russia is dwindling as carriers seek to unwind their commitments in this market.
- The Middle East will benefit from higher oil prices and recovery in the service sector, in addition to the forthcoming World Cup effect.
EMEA: small to mid-sized national client placements
EMEA: large/complex/global client placements
APAC Q4 regional market trends
- Asia’s diverse geopolitics and differing levels of economic development make generalization of risks – and impact on the business landscape – challenging. However, with digital transformation moving faster in the region than anywhere else in the world, there are unprecedented business opportunities to tap into and maximize growth.
- Xi Jinping is reconfirmed as China’s leader for an unprecedented third term. Whilst the world waits to see how this reappointment will translate into economic policy, it is nonetheless expected that advanced manufacturing sectors such as ecommerce, biotechnology and electric vehicles will add more value to China's economy than traditional manufacturing, and investment flows are reflecting this. China’s continued strategy of zero-COVID continues with no end game in sight. The resulting supply chain disruptions, economic slowdown, and lockdown of millions of people have caused some to question the strategy.
- Inflation across the region will lead to tightening monetary policy. Leveraged, weaker companies may struggle with reduced access to finance and increased facility costs.
- 2022 insolvencies were forecasted to increase by 15 to 30 percent globally, as government support tapered but whilst overdue notifications are increasing it is from a low base and actual claims are not yet manifesting significantly.
- Geopolitical risk volatility continues impacting investment and supply chain strategies.
- Despite the uncertainty credit insurance capacity remains strong for good risks and is generally available for average risk. Pricing is broadly flat, and the correct structuring of commercial terms and policy wordings remains key to obtaining appropriate cover.
APAC: small to mid-sized national client placements
APAC: large/complex/global client placements
Americas Q4 regional market trends
North America
- Strong employment rates and consumer demand continue to outpace rising inflation. Government spending bills focused on infrastructure and green energy will further drive employment in these sectors for quarters to come. Efforts by the Federal Reserve to tame inflation with rising rates have yet to prove effective, signaling that notable rate hikes will continue in the near term. The main outlier is the housing market, which has begun to stall due to the significant increase in mortgage rates pricing out buyers.
- Local energy and agricultural production blunts overall impact from sanctions on Russian imports. The smaller overall trade balance with Russia also mutes the impact of the Ukraine conflict when compared to EMEA counterparts. These factors add to reasons why US consumers continue to act resilient in the face of inflation and macro-economic headwinds.
- Focusing on the local credit insurance market, loss ratios remain below historical norms resulting in continued aggressive underwriting activity. The capacity lost due to QBE and Zurich’s exits has been replaced and surpassed by new entrants and existing insurers. Strongest rate of growth continues to be focused on the non cancelable excess-of-loss product offering, buoyed by clients migrating from traditional programs after risk reduction exercises experienced during the pandemic and an overall preference for coverage certainty and discretionary capacity.
Latin America
- Volatility and uncertainty remain in the region caused by the outcomes of the elections across the region.
- Recent increases in domestic inflation will likely continue to negatively impact not only purchasing power and the cost of living but also production costs, including key agricultural inputs like fertilizer and diesel fuel, disproportionately affecting the most vulnerable across the region. If it continues into 2023, it could prompt more aggressive monetary tightening, taming demand further.
- Owing to continued supply-side bottlenecks, weaker exchange rates, high unemployment, then further bouts of social instability could directly disrupt economic activity and amplify policy uncertainty, with negative implications for investment. Changes in government in some countries as well the rise of inflation and interest rates will make it challenging for companies to access cost-efficient capital.
- Insurers capacity in the region remains reduced in the post-pandemic period and it is anticipated that appetite will weaken in the coming months further.