Surety bonds as a means for growth during economic challenges

From supply chain disruptions to inflation, and from changing labor markets to geopolitical conflicts, companies today are facing a myriad of economic challenges. In this climate, they must look for ways to absorb risk while creating security and opportunity.

This is where surety comes in. Below, Allianz Trade experts share their insights into the current global economic environment, and how surety can help companies look to the future. 

“APAC countries are some of the most successful in the current climate,” says Christopher Shortell, Regional Head of Surety and Guarantees Allianz Trade in Asia Pacific . “Mature markets in this region have been able to absorb and face supply chain disruptions and rising inflation well, particularly in the energy sector. We’re also seeing certain countries taking an increasingly inward approach, prioritizing their domestic markets.”

It’s not all plain sailing, however, several companies – even large distributors – across the region have permanently closed, while others are struggling to remain operational. This variation even within a stable region aligns with the increased turbulence seen globally.

In Brazil, regional challenges exacerbate existing problems caused by international disruption. Long term, 2022’s presidential elections will greatly impact the country’s financial outlook. Marta Borelli, Head of Surety for Allianz Trade in Brazil, is keenly aware of this: “These elections influence whether the focus is on physical or legal infrastructure. This, in turn, impacts what types of bonds and economic activities are possible over the next several years.”  

Despite these obstacles, there are multiple reasons to remain optimistic about business possibilities. “Many governments are prioritizing helping their economies become more innovative, sustainable, and competitive,” says Nicholas Verna, Head of Surety and Guarantee Allianz Trade in North America. “They’re doing this through projects like high-speed railways, digitization and renewable energy production.”

In the EU, thanks to recovery and corporate investment plans, there are strong opportunities for leading economic sectors to grow over the next few years. Stefano Martelli, Head of Risk Underwriting Surety and Guarantee for Allianz Trade in MMEA, looks to Italy as a representative example of the region.

“Italian companies are facing major challenges, including access to capital, growth, advancing technology, inflation, and political instability that creates trade and supply chain problems,” he says. “In response, Italy is investing over €200 billion in a recovery and resilience plan focused on building competitiveness, innovation, mobility, education, and green technologies.”

Regional governments’ commitment to countering macroeconomic problems may create business opportunities for companies – but taking advantage of them requires financial resources. The Italian government’s recovery plan policy, for example, has firm requirements for guaranteed coverage of certain amounts. Companies must provide collateral, such as a surety bond, in order to obtain an advance.

The support and protection offered by surety can also enable businesses to act with confidence as they look for ways to successfully operate in a less than clear economic environment.

“When the economy is smooth, companies tend to believe that their judgement in partners and clients is sufficient,” observes Don McMichael, Vice President of Surety Operations Allianz Trade in North America. “They don’t see potential failures. However, surety can allow business to safely take chances in strong markets without compromising credit lines. In turbulent economic times, it can provide much needed extra security.”

In Italy, the surety market reached a GWP of €640 million in 2021, while in the US it is worth an estimated $8 billion. Suretyship is a well-known financial instrument. And while banks – thanks to their strong networks and ability to provide cash facilities – have traditionally dominated the market, the benefits of working with an insurer are increasingly clear.

“Surety bonds issued by an insurer are an attractive alternative to bank guarantees or deposits,” says Carolina Siqueira, Senior Analyst at Allianz Trade in Brazil. “It means a company's bank credit facilities and corporate assets can remain untouched. By diversifying financing streams, companies can improve their liquidity and more easily manage their overall finances.”

Additionally, the long-term nature of surety bonds means that they are less tied to economic cycles than other types of financing. This makes them particularly suited to the current global economic environment – but requires a risk management approach underpinned by robust, effective underwriting. Insurers, such as Allianz Trade, draw on years of specialist experience to accurately assess contractors’ capital strength, capacity, and reputation as well as transaction conditions, confidence, collateral, and more.

Surety providers can also leverage this deep understanding of credit ratings to support clients’ business goals. “We can provide information and advice on complex details when companies need to build new relationships and partnerships in order to capitalize on potential opportunities,” Marta adds.

Allianz Trade is a leader in surety bond brokerage, with cutting-edge expertise in identifying and implementing the most advantageous strategies for our clients. With a wide range of surety bonds available globally, customers can be sure that they will receive a product tailored to their needs.

We have the capabilities to place bonds almost anywhere in the world, and our network of local offices and regional advisors ensures that our guidance is timely, effective, and able to combat not only international but regional challenges. Connect with Allianz Trade to discover how we can help your business grow today.