As a surety agency that works with over twenty-five of the leading surety underwriting companies in the market, we maintain a clear view of the overall surety industry. We provide this perspective to our clients and contacts through this quarterly update.
Entering 2017, the surety market broadly continues to remain “soft". While we saw the slightest signs of underwriting tightening in the third and fourth quarters of 2016, bond underwriters generally remain hungry to add new clients that fit their target profile.
Let's dive into the factors driving the current state of the surety market:
What is Driving Today's Surety Market?
1.) Surety Underwriting Results Remain Strong
Strong profitability results are being reported by most underwriters throughout the surety underwriting industry. This is due to low surety loss activity combined with an improving construction economy which results in increased revenue for surety underwriters (i.e. writing more bonds = more revenue for underwriters).
2.) Reinsurance Remains Cheap
Reinsurance remains very cheap by historical standards. This dynamic allows surety companies to purchase increased levels of reinsurance or coverage at more favorable terms than in past years. Reinsurance protects a surety company's balance sheet and allows underwriters to take on more risk than they otherwise would.
3.) Surety Underwriting Competition Is Heightened
A few very well capitalized, reputable surety companies have a clear mandate to grow their client base. Underwriters from these surety companies are providing strong terms to deserving contractors in an effort to obtain new clients and thereby meet their internal growth mandates. This puts pressure on other surety companies to improve the terms of their existing clients for the fear that, if they do not, they will lose these highly desired clients to another surety company.
What Does This Mean For Contractors?
The overall surety market remaining soft puts most contractors in an advantageous position to obtain a higher level of bonding support from their current surety or more favorable bonding terms via a new surety should they seek to test the market. While one or two large contractor failures and the surety losses that would follow could shift the surety underwriting market toward a harder climate, it is not expected that any kind of dramatic shift in underwriting will occur in the first half of 2017.
You can learn more about the options you have in the event that you are seeking to test the surety market here.