Surety Capacity Remains Ample and Inexpensive, Despite Construction Downturn

Fiscally fit bond principals with solid management plans—and without losses—are discovering sufficient and inexpensive capacity for surety insurance, say brokers and underwriters.

Despite the extended economic morass that has slowed or swallowed the construction projects of many a contractor in the past several years, the surety market has ample capital due to improved underwriting discipline—and is ready to deploy it judiciously.

Mike Bond, the head of surety operations for Zurich North America, says the surety market does “see losses” now among contractors with $50 million or less of revenue. Yet overall, he adds, there is no “significant movement in pricing.”

Huge contractors might have to find additional co-sureties to build ample capacity. Most midsize contractors, however, should not have trouble arranging a performance and payment bond with a single surety, sources say.

For the first three quarters of 2011, the loss ratio was 12 (it was 16.7 for the same period in 2010).

When the industry’s full-year 2011 figures are totaled, surety-market executives expect the loss ratio still will be less than 20. Zurich’s Bond expects that 2011’s losses will mirror 2010’s or “tick up a point or two.”

TOO GOOD TO LAST?

Still, there are some indications of potentially growing losses. For example, subcontractors’ payment claims against general contractors and the latter group’s claims against project owners are “plentiful and abundant,” notes Willis’ Carpenter.

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