Update Committee Chairs

ICISA has a total of 4 technical committees and a regional committee. In June, the four technical committees met in Brussels, discussing some of the trends in the industry, as well as developments per region, highlights in their companies, and more. In the upcoming pages, the Chairs of each Committee made a short report of their meeting and topics that will be of interest for the industries in the upcoming months.

Surety Committee

Nils Hoppenworth

Nils Hoppenworth Chair of the Surety Committee

Uncertainty determines a lot in this current economic and business environment. It covers volatilities by all means –i.e. inflation and its impacts on material prices and the interventions of central banks for increasing interest rates to respond to it. In addition, the geopolitical tensions have been followed by impacts on various sectors. In particular, the energy sector finds itself in the midst of a huge transformation as a result of war, but also the longer-term realities of the need to transition to more renewable sources. All these dynamics influence the underwriting of the surety business and bear a lot of challenges as well as opportunities. Overcoming some of the uncertainties of new type of bonds and a distinct language is inevitably important. Therefore the discussions in the Surety Committee during our recent sessions in Brussels focused heavily on terminologies and definitions. The aim of this was to ensure we had a common understanding of basic terms that are widespread in our sector, but which can have different applications and meanings.

But uncertain situations usually come along with a swarm of associated buzzwords. Topics like ESG, Private Equity and impacts of inflation on pricing of the underlying contract, capacities and even on building reserves all generate such content. Finding the real and the impactful from the irrelevant can be a challenge. Once discussions began in the committee, various interpretations of approaches unfolded among participants about how to address the uncertainty and to develop a distinct terminology to promote better understanding within our sector.

Achieving our aims required splitting off into working groups to tackle some more specific topics. This built on some of the discussions initiated at earlier meetings in Helsinki and Amsterdam as well as in the various working groups set up to look at Surety FAQs, the Surety Glossary of Terms, and ultimately, Suretypedia. To get a common understanding, the

ICISA surety committee will also look to share its thoughts with other associations like PASA and SFAA. Greater collaboration and exchange is certainly on the radar.

Another topic of note in Brussels and the world of uncertainty we face was the importance of sound risk assessment of counterparties. Recent history has told us that even among sureties and banks counterparty risk has increased. As a result, a discussion emerged about how our sector could deal with the potential default of a surety or a bank. The key takeaway from this was that in such an event, we must stand together as an industry and ensure a constructive and solution-oriented discussion with regulators and other stakeholders to achieve the best outcome in a bad situation. To get some certainty, more data will likely be required from ICISA members to address some of these issues. This reflects a wider discussion in the Brussels meetings, that to achieve our goals as an association and trade sector, we need to be able to define and explain our viewpoints, and to do this we need solid data. However, as important as these topics are and the necessity of responding to them, solutions will take time and effort.

Together with the committee I will be looking forward to discussing and working with many members on complex topics and get some certainty in the uncertain world in the coming months. We live the transformation. We also must think as an industry how we respond together to the challenges and opportunities of ESG requirements and the principles of transition which sit behind them. Our sector will be challenged with good opportunities where expertise and talent is certainly required. And the Surety Committee and our colleagues in the other ICISA committees are good starting points to find that talent to progress such discussions further.

Single Risk Committee

Julian Spiegel

Julian Spiegel Chair of the Single Risk Committee

The Single Risk Committee certainly had much to discuss at our recent annual meeting, which took place in Brussels at the start of June. The last two and a half years have been truly exceptional, with two crises back-to-back; first the Pandemic and then the Russian invasion of Ukraine. Our markets have seen an unprecedented decoupling in the form of low claims activity during periods of adverse macroeconomic trends . At the onset of the Pandemic, governments across the globe came in very forcefully, preventing real economy insolvencies with generous state support schemes.

When markets were hit by the Russian invasion of Ukraine, the impact on our industry turned out (so far) to be manageable. This is true for for multiple reasons. Firstly, and in response to the Russian invasion of Crimea in 2014, our industry had reduced its direct exposure to the region significantly in the years leading up to the current war. Secondly, at the start of the war, corporate balance sheets were in good shape thanks to the preceding Pandemic-related support schemes. Thirdly, credit insurers had done an excellent job cleaning up their portfolios and moving out of lowertier credit risks. There was a consensus at our meeting in Brussels that non-cancellable exposures could still lead to political violence losses in Ukraine and to sanctions-related loss activity in Russia. However, participants felt comfortable that Ukraine-related reserves would remain sufficient.

Going forward, meeting participants expect to see continued stress on sovereign credits caused by high levels of inflation, rising interest rates in advanced economies, and emerging market currency devaluations driving funds from those places to safer havens. Multiple countries, including Ghana, Zambia, and Sri Lanka, are in the process of renegotiating their sovereign debts. Many more countries, especially on the African continent, are on the brink of default. Some of those countries will need to navigate very complex restructurings, reconciling the interests of domestic versus international debtors; of Western debtors versus China; and, of multilaterals versus export credit agencies versus private banks. However, despite this, meeting participants felt that capacity can still be provided, particularly in the context of sustainable projects of strategic importance and in collaboration with public agencies.

The last few years have seen a true divergence in the business strategies of the various participants in our markets. Risk appetites differ significantly in terms of products, geographical regions, and preferred kinds of insureds. Some underwriters prefer complex products, including portfolio solutions and credit risks related to derivates, that allow them to regionally shift to more secure jurisdictions. Others prefer more traditional and well-tested products, which can still be profitably underwritten even in higher risk jurisdictions.

With the emergence of complex solutions, including SRTs (significant risk transfers), our markets are currently experiencing an inflow of specialized Managing General Agents (MGAs). This trend is underpinned by brokers that are new to our markets targeting the grey areas between insurers and reinsurers in search of new business. Participants also noted that MGAs can provide benefits in the shape of inroads to new markets without the need for significant investment in initial set-up costs, as well as the necessary reputation and relationship building such markets require However, attendees also noted that for long-tenured products, such as CPRI, it was important to see alignment of interests between primary insurers and MGAs. This is because problems may arise for insurers if the MGA does not remain a going concern deeper into the lifespan of the policy, which may then expose insurers to complex risks and challenging run-offs. However, such concerns do not exclude the positive benefits of competition new players bring to the sector.

Overall, meeting participants remain optimistic that profitable pockets in our markets can continue to be serviced with tailor-made business appetites. The Single Risk Committee will continue to provide an informal forum for the exchange of ideas in support of reliable capacity for our insured banks, traders, and corporations and in close collaboration with multilaterals and export credit agencies.