Politics and an unstable economy – two key factors in driving companies into insurers arms in 2017
Brexit, Trump as president, the South African recession, terror attacks in major cities – to name but a few – are just some of the latest global and local political incidents that are shaping the economic environment in our world today.
With all this uncertainty, any company could suddenly find itself having to make critical decisions that could affect its future. For example, the dilemma that comes with the decision of expanding, taking on more business, yet facing more risk is one you yourself could face. This article looks back at some of the key politically influenced aspects of this past year and their influence on trade credit insurance.
The SA economic climate further strains businesses finances
In April of this year, South Africa’s economy plunged into junk status when we were downgraded by two international credit ratings agencies.
According to Charles Nortje, the CEO of Credit Guarantee, – leaders in trade credit insurance, even before our recent tumble to junk status, South Africa had already experienced several years of slow economic growth. As a result, many businesses are carrying a lot of debt.
Shortly thereafter, the country slipped into a technical recession after suffering two consecutive quarters of negative performance in South Africa (for the first time since 2009). As more businesses faced crippling financial challenges, creditors’ concerns grew about the unfortunate possibility that they could be on the receiving end of non-payment from their debtors. At Credit Guarantee, we cautioned businesses to take out trade credit insurance to safeguard from this.
When you offer payment terms to your clients, you should not underestimate the calamitous implications for your business, if major debtors default. Salaries, office rentals and supplier payments, are just some of the financial expenses you need to ensure you can honour, should any unforeseen circumstances arise that negatively impact your cash flow. Secure your debtors’ books with trade credit insurance from Credit Guarantee, and have peace of mind, in spite of the local economic climate.
Political risk topped the list of worries for insurers across globe: GS Survey
Internationally, politics has become one of the major talking points regarding international trade. Previously, economic slowdown was top on the list of concerns when it came to business, particularly in countries such as the United States and China. However, recently, the top macro-economic risk for 2017 – according to the survey by Goldman Sachs Asset Management (GSAM) of more than 300 insurers, is now political risk.
Etienne Comon – GSAM’s EMEA (Europe, Middle East and Africa) head of insurance asset management continues, “Britain’s vote to leave the European Union and the election of Donald Trump as U.S. President were both unexpected political events and have increased worries about protectionism and the reliability of trade deals.” 1
In light of these events, there was one inevitable conclusion.
Demand rose for political risk cover as buyers expected the unthinkable
According to a report from the Insurance Journal published earlier this year, there was an increase in the number of companies buying insurance to protect themselves and their operations in emerging markets.
Insurers reported that uncertainty over the consequences of a string of events in the developed world drove demand. Zurich Insurance for example, reported that new business at its political risk and trade credit unit, was up by 14%, driven by demand for cover against the risk of a government or state-owned entity defaulting on its obligations. Growth even continued with an 11% increase in the first quarter of 2017.2
In addition, in its annual report, commodities trader and miner – Glencore, saw a marked increase in its exposure to geopolitical uncertainties and those related to laws, enforcement, permits and licenses from 2016. It took out credit insurance, to mitigate the impact
In conclusion, whether you’re trading with well-known companies within SA’s borders, or considering potentially lucrative deals with unknown companies across the Indian Ocean, one way to protect your business is with trade credit insurance. As a licenced South African Financial Services, we at Credit Guarantee have extensive experience in the field of domestic and international credit insurance and protecting our clients’ bottom line. Don’t take unnecessary risks, when you can eliminate bad debt! To join the list of companies globally who have insured their debtor’s payment risk, simply contact us, and you will be secure in the knowledge that you’ll always be paid.
Credit Guarantee is a licenced financial services provider.