Risk Appetite: Altering Philosophies in Uncertain Times

The global economy finds itself in a state of uncertainty in the face of the novel coronavirus (COVID-19), with S&P Global now forecasting a global recession this year. [ref 1]

In the past three months, we have seen the evolution of an oil price war between Saudi Arabia and Russia[ref 2], the S&P 500 index of US companies evidence a maximum peak to trough variance of 33.9%[ref 3], and Chinese industrial production drop by 13.5%[ref 14] — all collectively highlighting the breadth of the outbreak's impact. Combining these macroeconomic factors with the fact that in the UK 45% of businesses reported lower than expected turnovers[ref 5] (likely through a distinct lack of consumer expenditure) means that many organisations are very likely entering a period of severely restricted free cash flows.

In such uncertain times, organisations may face an unenviable set of conflicting factors: risk appetite is reducing, but the need to control external costs is vital — all whilst a transitioning insurance market introduces unfamiliar volatility into any cost-benefit analysis. In this dynamic risk environment, how can organisations equip themselves to make the most capital-efficient use of insurance?

Read our latest adviser to find out how organisations can manage the impacts of the COVID-19 crisis and beyond through an analytically informed review of their risk financing strategy.

1. S&P Global.

2. Forbes.

3. 19 February 2020 (3,386.15) to 23 March 2020 (2,237.40).

4. National Bureau of Statistics for China.

5. Office for National Statistics.