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.