In the 1990s, Surety companies were making a lot of money thanks to a booming economy that kept contractors busy and solvent. Insurers flooded the Surety marketplace to take advantage, prices dropped, and excess capacity built up. Predictably, when the recession of the early 2000s hit, contractor defaults led to record Surety losses—with loss ratios climbing from 20 percent in 1998 to 75 percent in 2004—and insurers exited the market in droves.
The Surety market has since recovered, and the line has been a very profitable business for insurers over the last several years. As a result, capacity is increasing in both Contract and Commercial Surety.
There is also a growing trend in the use of public-private partnerships (PPPs). “With public entities having all kinds of financial difficulties, there are a lot of alternative construction deliveries being explored,” says John Welch, president of CNA Surety.