Euler Hermes forecasts bankruptcy spike

Euler Hermes has forecast a 38 per cent spike in corporate bankruptcies this year after a rise in claims hammered its first-quarter profits.

The largest underwriter of credit in the UK channel saw first-quarter net profit shrink from €38.4m (£33.8m) to €16.5m on an annual comparison.

Euler and rival credit insurers such as Atradius have made heavy cutbacks in the channel in recent months, with Morse, Insight Enterprises and DSGi among the more high-profile casualties.

Although the France-based firm works across multiple industry sectors, its downbeat assessment of the economy will set alarm bells ringing in the channel.

Euler predicted that corporate bankruptcies would rise by 38 per cent in 2009, following a 26 per cent rise in 2008. It also forecast that the global economy would contract by 1.7 per cent this year.

Nitin Joshi, founder of ChannelMoney, said the channel should not expect any change in attitude from credit insurers or banks this year.

“As far as the channel is concerned, there is 18 months or more of bad news to come,” he said.

“Leading credit insurers are still looking to reduce exposure in the channel and the methods they are using do in some cases precipitate the collapse of channel firms.”

Euler’s turnover rose by 5.2 per cent. Earned premium growth was fuelled in part by the application of higher premium rates to contracts, but this was offset by a downturn in insured sales attributable to the termination of certain polices.

“Economic indicators deteriorated further in all countries in the first quarter of 2009,” Euler said in a statement. “The real economy is not expected to start recovering before the end of the year. Against this backdrop, Euler Hermes does not expect to see any significant improvement in claims levels for the next quarters.”