Surety is one of the most established and proven products in the insurance industry – some form of surety has existed since Antiquity. Surety as we know it today grew in the Industrial Revolution, and today there are surety bonds and agreements to suit many different business transactions, from construction to international trade.

Surety bonds are a legal requirement in many jurisdictions and for certain projects (such as public works and construction), and this often leads to the impression that surety is largely unchanging. This couldn’t be further from the truth – while the fundamentals remain the same there are major trends changing how companies use surety, and how surety providers support them. 

Demand for surety bonds is not always aligned with broader economic trends, including downturns and recessions. For instance, in a downturn (when companies tend to be cautious about taking risks), public sector investment to boost the economy offers opportunities in construction – meaning construction companies are requesting surety bonds to secure contracts for new projects.

Since the last major downward cycle for surety (the dot com bubble bursting in the 1990s), I’ve noticed that many companies, including our customers, have reinforced their risk management and become a lot more sophisticated in this respect. This pertains to both risk management generally, and credit risk in particular.

This recognition of the importance of risk management has made our customers a lot more resilient through economic cycles. Better risk management usually means less severe losses, even in a downturn – enabling our customers, and their partners such as Allianz Trade, to be in a stronger position and support them on new projects. 

In recent years we have seen more and more of our customers using surety bonds to secure contracts and funding for sustainable projects. The product itself hasn’t changed – it’s still the same surety bond – but its use for these projects means that it’s becoming an important enabler for sustainability. These projects are often in the energy sector, where providers want to invest in renewable and zero-carbon energy sources and converge towards the Paris Agreement targets. Regulatory changes such as energy efficiency requirements mean that surety bonds support sustainability in construction as well.

Sustainability in the surety market is driven by customer expectations and needs and regulatory environments in different countries which can incentivize certain kinds of investments and discourage others. For example, in Germany where new construction has to meet specific criteria on energy efficiency. We support our customers’ projects that advance sustainability quite simply because they have identified these as levers of growth and resilience. 

The surety market is very different to traditional trade credit insurance – there are a lot of regional specificities (in part because of different regulatory contexts), and a lot more players. As well as global providers such as Allianz Trade, surety specialists and banks also provide surety bonds (in some markets banks are the main providers).  Furthermore, the global surety market is twice as large as the trade credit market and is growing twice as fast.

More players and regional specificities mean more opportunities for new entrants, especially in Europe, the United States, and Latin America where there are both banks and insurers of all sizes in the surety space. All of this leads to greater competition between new and established players, and more innovation. This pushes us to refine our offer and tailor to the needs of customers in different regions, in different sectors, and of all sizes.

At Allianz Trade, our global surety presence and capabilities set us apart – we have surety specialists in more than 25 markets and the local underwriting expertise to match it. Working with an insurance provider rather than a bank allows companies to preserve their liquidity and avoid stretching their existing credit lines with banks. Coupled with our AA S&P rating and the backing of a global insurance provider, we are the surety partner of choice for more than 16,500 customers worldwide. 

Sean McGroarty

Global Head of Surety
Allianz Trade