Despite careful underwriting, economicpressure on contractors is leading to mounting losses. According tothe Surety and Fidelity Association of America (SFAA), Suretylosses have more than doubled this year compared to the previousyear, increasing from $300 million in the second quarter of 2011 to$618 million in the second quarter of 2012.

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“We would expect loss ratios to continue to trend upward and getto the money-losing threshold of 30- to 40-percent loss ratio bythe end of the year,” says Geoffrey Heekin, managing director ofAon Risk Solutions' Construction Services Group. 

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The fact that losses are growing doesn't surprise Gary Rispoli,Chubb's U.S. Surety field operations officer. “Today, firms arevery hungry for work. Starting a project as a contractor takes cashflow, but they don't have a backlog of work to create that cashflow,” he says. “In turn, that leads to greater risk ofdefault.” 

 

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