The importance of surety in difficult times for the UK economy: a Q&A with Christina Spelman
As Xenia continues to increase its presence in the surety market, the company has added the vast experience of Christina Spelman to its team.
Christina has joined Xenia as its new principal technical officer (surety) having previously worked at sister company Nexus.
Here, Christina details her experience in surety and provides expert insight into the current market.
First of all, how long have you worked in surety?
I have over 27 years’ experience in the industry, having joined the insurance derivatives division at Bankers Trust, now Deutsche Bank, back in the 1990s.
Most recently, I was senior surety underwriter at Nexus. In my new role, I’m part of Xenia’s London team.
What are your responsibilities at Xenia?
As principal technical officer (surety), my role is to build and develop Xenia Surety Practice as the leading independent surety broker.
Analysis, presentation and placing of surety risks requires expert skill from a technical, legal and financial viewpoint. These expectations are required by our clients and valued by specialised surety bond insurers.
From a surety perspective, what are your thoughts on the current state of the UK economy?
With elevated inflation, rising interest rates and ongoing domestic and international uncertainty, there is a difficult period ahead and the UK economy is expected to be in recession until the middle of 2024. Most commentators forecast an increase in business failures and companies will need to think carefully about their resilience and plan for different scenarios.
There are numerous factors. Brexit has been huge, while there is also the energy crisis - exacerbated further by the war in Ukraine - and a hangover from the pandemic. During the pandemic, insolvency rates were artificially low as businesses were shielded from the economic impact with fiscal support measures. Now these measures have been withdrawn, coupled with the negative factors mentioned above, the expectation is that businesses will struggle and there will be an increase in insolvencies.
Cash flows are tight, profit margins are decreasing and order books are under pressure due to rising material costs and supply issues - all things that can lead to a deterioration of the company’s financial standing. This needs to be considered when negotiating a bond.
What does this mean for surety in practice?
In this vulnerable environment it is likely demand for surety bonds will grow as employers seek to protect themselves from the probability of insolvencies or contractors getting into difficulties during works.
We have already seen an increase in bond requests for subcontractors or companies that have never been asked to provide a bond before. This is a new product for many and they require more assistance so they are aware of the process and requirements for a successful bond application.
But it doesn’t mean we’re going to be able to place every bond. With surety you have to provide security, by way of counter guarantees from your company or group of companies, so a good financial standing is required. If the financials are not sufficient to support the bond, then we may be able to suggest some other forms of security.
We need to ensure our client is getting the best advice on how to present their financials and business model and, if not strong enough, we’ve got to think of ways to make it secure for a successful application.
What do you - and Xenia - need to do to meet these challenges?
A lot! Xenia has an excellent client base in trade credit and now we are growing the surety book.
We have a strategy in place to build relationships and identify clients’ needs to put together the best package. We complement our broking partners who do not have their own resource in this specialist area as well as direct clients. We want to enhance capability through access to new markets reaffirming the Xenia desire to be the leading financial lines broker.
Essentially, we want to become the expert go-to broker for surety - because there’s a clear need in the market.
Xenia’s team has extensive product and sector knowledge, enabling us to help clients tackle their business challenges. To find out more about our services, click here.