The world is in a state of flux. Change is happening all around us. Uncertainty dominates and we are faced with the imperative to act in response to existential threats coming from several corners.

While I happen to be talking about the world today, the same can be said at any point in the past. Change is an inevitable factor in human society, particularly when you extrapolate to the global level.

International relations – the interaction of states and other global actors – is described in academic literature as anarchy. There is no overall authority, and each country must stand for itself within that. For some, that means going it alone. For others it means allying with like-minded states to pool capabilities, riches and sovereignty. I will leave it to you to decide which you think is best (hint: there is no right answer).

Accepting that change is a constant force in the world around us is a useful starting point, but it doesn’t address the challenges that come about within that changing world. And while change may be constant, the pace and scale of change varies drastically. The consensus among most commentators is that not only are we living in a period of significant change, but one marked by more intense security threats since the War on Terror, and perhaps even since the end of the Cold War.

As a quick recap of some of these, this includes increased conflicts, including the use of proxies to stir tensions in different regions by larger powers ; the growing impact of the climate emergency; heightened trade and geopolitical tensions; and, changing demographics. All of these then contribute within countries to rising nationalism and tensions relating to modern migration patterns. This is on top of the impact of the pandemic on society, the later economic fallout of higher inflation and interest rates, housing and labour shortages in many western economies. Policymakers around the world are also trying to find ways to respond to these issues while asserting themselves politically in a more polarised society. Individually as well as together each of these issues (plus others not mentioned) have direct and indirect impacts on the risks that ICISA members provide protection for.

The question of how major geopolitical events and other megatrends affect our sector is one we are being asked about within ICISA more and more. This is why we will be covering this topic in depth at Surety Week on 20 February where we have a panel of experts from within and outside the surety sector to discuss it. What are the kinds of events which most significantly affect contractual obligations and put pressure on principles? How can sureties mitigate these risks both as part of their underwriting and once on-risk? And thinking about this question across different geographies, what are the impacts of competition between the major powers in regions like sub-Saharan Africa where those tension play out in real time?

Looking at the trade credit insurance sector too, there are significant risks developing related to these same trends. Instability in the global and regional economies means that trade is impacted. Prices of commodities fluctuate significantly, all the while, political risks associated with government actions in different parts of the world increase. Such situations call for careful operational oversight and continued following of sound principles.

At such times of increased risk, demand for protection from corporates necessarily grows. Our sector has a responsibility to act prudently, but also a duty to deliver on our function of protection providers. It is in times like this that strong corporate relationships are built and where loyalty can pay off when things return to normal. Predicting when that might be is the real challenge and not one anyone can answer for sure.  I will be discussing this very topic myself at the ExCred International Conference in London at the end of February and look forward to hearing from others in related fields like trade finance and from ECAs how they see the scenarios playing out. There will necessarily be different views and resulting risk appetites both from sector to sector and from company to company.

Governments and regulators too are watching how industries such as ours respond in such circumstances. This monitoring comes from the perspective of ensuring that insurers remain solvent and manage risks carefully. However, there are also those arms of government that see the need to intervene when private sector appetite declines. As we saw during the pandemic, this requires a delicate balance to avoid distorting markets, and it is not a balance that is easily or often maintained once intervention begins.

Predictions for how things develop and where change leads us to next are probably best left to the horoscope writers. I tend to follow the line of the international relations theorist, Alexander Wendt, who wrote in a seminal article on the subject that, “Anarchy is what states make of it”. And this lesson applies outside of international relations too. There are constraints on the actions of countries, companies and individuals, but within those constraints there are choices to be made.  Some of these lead to greater opportunities and success, and some of these…don’t. Fortunately, I think the credit and surety sectors are used to these circumstances and understanding how to balance priorities carefully.