Press Release Insolvencies - Euler Hermes Kreditversicherungs-AG

Press Release
Insolvencies:
Hamburg, 28.11.2006
Situation improved in the wake of the economic recovery
The surprisingly robust economic upsurge in 2006 has led to a substantial
decline in corporate insolvencies in Germany.
Hamburg 28.11.2006: In 2006 as a whole, roughly 32,000 companies declaires
insolvency, down 13.1 percent over the previous year. In its insolvency
forecast for 2007, Euler Hermes Kreditversicherungs-AG continues to project
unchanged insolvency numbers compared with this year due to more muted
economic growth. The sum total of all receivables registered with the courts
will shrink by 16.7 percent to around EUR 19 billion in 2006.
This marks a considerable improvement over the 2003 high of more than 39,000
company failures. Even so, according to Euler Hermes experts, it does not usher in
any turnaround in the long-term trend. In 2007, the absolute number of corporate failures
will still be twice as high as at the end of the unification-induced boom in 1993.
The insolvency ratio (failures per 10,000 companies) stands at 1.1 percent in 2006,
compared with 0.2 percent at the beginning of the seventies.
There are several reasons why there is unlikely to be any sustained turnaround: First
of all, Germany has been afflicted by structural and growth weakness for many years
despite the current temporary recovery in the economy. Capital spending today is
barely any higher than it was ten years ago and remains at a very low level by international
standards. What is more, there is no sign of any breakthrough in efforts to
solve central structural problems. “Generally speaking, economic policy does not provide
evidence of a sufficient willingness to implement reforms,” writes Euler Hermes
Kreditversicherungs-AG in its forecast.

Press Release
At the same time, smaller businesses in particular with their insufficient liquidity and
limited equity resources do not have any scope for warding off the risks arising from
mounting globalization. In 2006, companies are continuing to make greater use of
trade credit than short-term bank loans as a source of liquidity. Although this heightens
the risk of a domino-like series of insolvencies, the results of a representative
survey of companies conducted by Euler Hermes Kreditversicherungs-AG indicate
that the majority of companies in Germany do not have sufficient debt collection
management facilities.
Sectors: Recovery in the construction industry continuing
The relatively broad-based recovery in the economy is spurring all sectors. Even so,
with a 20.8 percent decline in insolvencies in 2006, the construction industry is
experiencing an above-average improvement for the fourth consecutive year. Insolvencies
are down 14.5 percent in the manufacturing sector, 12.3 percent down in
trading and 9.9 percent down in the services industry.
With roughly 15,600 failures, the service sector accounted for the largest share of
corporate insolvencies in 2006, followed by trading companies (6,600), construction
(6,200) and manufacturing companies (3,000). At 60 percent, the lion’s share of
receivables registered with the courts was also attributable to services, followed by
trading, manufacturing and construction.
In the case of small businesses, sole proprietorships and professionals, which
sustained a 2.9 percent increase in insolvencies in 2005, Euler Hermes expects an
8.2 percent drop to 15,400 in 2006. At 48 percent, small businesses continue to
account for a large share of corporate insolvencies. This is one of the consequences
of the “Ich-AG” system established in 2003. These entities are frequently underfinanced
and their proprietors do not have the necessary skills. Euler Hermes estimates
that there are 305,000 such entities in existence.

Press Release
Regions: Bavaria bucking trend
The decline in insolvencies in 2006 is evenly distributed between Western and Eastern
Germany, with 24,500 cases registered in the West and 7,500 in the East. In
North Rhine-Westphalia, which accounts for one quarter of insolvencies, the number
dropped by 24.2 percent. Double-digit declines have also been recorded in
Mecklenburg-West Pomerania (-20.9 percent), Berlin (-18.7 percent), Thuringia (-17.4
percent) and Baden-Württemberg (-11.9 percent). Only Bavaria may report a slight
increase in insolvency numbers according to the Euler Hermes forecasts.
With respect to the relative frequency of insolvency, there remains a pronounced
difference between the North and the South on the one hand and the East and the
West on the other, a situation which has barely been altered by the 2006 figures. For
example, Saxony-Anhalt in the East has the highest insolvency ratio of 184 per
10,000 companies, while Rhineland-Palatinate has a ratio of only 103. At 62, Baden-
Württemberg has one of the lowest figures but Schleswig-Holstein has a figure of 131.
International situation: Europe and the United States with disparate trends
Internationally, there is also evidence of a substantial improvement in the insolvency
situation. According to the global Euler Hermes Insolvency Index, the risk of insolvency
in the industrialized nations dropped by ten percent in 2006, following on from
the four percent rise in the previous year. Yet this positive trend conceals considerable
discrepancy between figures in the United States on the one hand and European
figures on the other.
The extraordinary increase of 14 percent in 2005 in the United States is less the
result of economic factors than the reflection of the effects of a new insolvency law,
which came into effect in mid October 2005. This heightened the incentive on the part
of many companies to file for insolvency under the old law. The massive growth was
followed by a 20 percent decline in 2006.

Press Release
In Western Europe, the total number of corporate insolvencies stands at 160,300 in
2006, a drop of just under five percent. If it had not been for Germany, which exerts a
material influence on trends, the decline would have been only half as great. Figures
vary considerably from country to country. Thus there was an increase in the United
Kingdom (+8.3 percent), Ireland (+7.0 percent), Greece (+5.1 percent) and Spain
(+4.7 percent), while sharp declines were recorded in Norway (-20.9 percent),
Denmark (-15.8 percent), Sweden (-14.9 percent) and Germany (-13.1 percent)
Looking ahead to 2007, Euler Hermes assumes that the differences amongst the individual
European countries are likely to fade. Altogether, the positive trend of 2006 will
not continue in Western Europe, with the index set to rise by 0.5 percent. In fact, the
experts project an increase of ten percent in the United States.
Charts and figures on this topic can be found on the Internet at www.eulerhermes.de under the heading Press.
Euler Hermes is the world-wide leader in credit insurance and one of the leaders in bonding and guarantees.
With 5,400 employees in 46 countries, Euler Hermes offers a complete range of services for the management of
customer receivables. The group posted a 2 billion Euro turnover in 2005.
Euler Hermes, subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. The group and its
principal credit insurance subsidiaries are rated AA- by Standard & Poor’s.
Contact:
Euler Hermes Kreditversicherungs-AG :
Uwe Kniehs
Friedensallee 254
22763 Hamburg
Phone + 49 (0) 40 88 34 1033
Fax: + 49 (0) 40 88 34 1015
Uwe.Kniehs@eulerhermes.com
www.eulerhermes.de
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