The importance of surety relationships in an economic downturn 

Global inflation is hitting record highs and could stay elevated for much longer than expected. In the UK, the inflation rate hit 10.1% in July, a 40-year high. With economists at Allianz Trade predicting inflation to average at 9.5% over the year, companies need to brace for increasing pressure.

As this economic volatility worsens, surety will continue to support and protect businesses – and good relationships are the key to success.

The reasons for this uptick are myriad. A rise in demand for consumer goods post-pandemic, coupled with disrupted trade flows, has pushed prices up. Already fragile global supply chains have been further impacted by Chinese industrial center shutdowns resulting from the country’s zero-COVID policy. 

Instability has also been caused by Russia’s invasion of Ukraine, contributing to rapidly increasing prices for commodities such as gas and other fuels. As wholesale energy prices continue to rise, businesses’ energy bills will undoubtedly lead firms to increase retail prices, causing greater concern. 

In periods such as today’s developing economic crisis, requests for surety bonds can increase as investors seek stability and security. And with contracts that can run for two-to-three years, surety bonds can be invaluable in ensuring that a project will be completed.

Surety providers have the flexibility to support companies by adjusting the terms and conditions of their facility to match the risks presented. To ensure the partnership continues to bear fruit during and after an economic downturn, it is essential to forge strong, trust-based relationships over the long term.

However, in this business where longevity is key, the client is the risk. Surety providers survive precisely because the client survives. So, what goes into the decision to underwrite surety bonds during times of economic volatility? Providers need to ask themselves, and their clients, some key questions:

• Have they factored in price fluctuations, from materials to labor?
• Are the contract’s clauses equitable and fair?
• Does the contractor have the expertise, track record and resources to complete the contract?
• What is their business model and plan, and does it seem viable?

Building trust in this context is based on both financial analysis and strong relationships. As a surety provider, our partnership with companies is direct and unequivocal. It’s up to us: can we stick with them through the cycle, or make a break? And it’s often a very difficult decision to make.

Allianz Trade is one of the world’s largest and – as a result – most stable surety providers. It is also respected by major players in all industries across the globe with a reputation for being a steady partner you can rely on when weathering an economic storm.