OLDWICK, N.J.–(BUSINESS WIRE)–The steady economic recovery of the last few years and the abundance of capital competing for construction business has led to a distinct buyer’s market in the U.S. surety sector. However, according to a new A.M. Best report, it remains to be seen whether the quality of the business written by some of the newer market entrants holds up over time.
The Best’s Market Segment Report, titled, “Expected U.S. Infrastructure Boom Poses Benefits, Risks to Surety Sector,” states that the increased revenue for U.S. surety underwriters driven by the improving construction economy, coupled with low surety loss activity, has allowed underwriting results to remain favorable. These positive trends have occurred despite a high supply of available options for surety coverage, which currently outpaces demand. Despite year-to-year variances, U.S. insurers of surety business have generated underwriting income in excess of $1.0 billion in every year since 2009.
Taking advantage of the growth in construction activity, surety underwriters have experienced direct premiums written (DPW) growth each year beginning with 2013, and through mid-year 2017, surety DPW is on pace to surpass the $6.0 billion mark for the first time this decade.
Due to the profitability surety underwriters have enjoyed, there has been an increase in the number of insurers that have entered into the surety marketplace. As a result, capacity has been more than ample. The competition for the business of small- and medium-size contractors, in particular, has heightened, and account retention has been foremost in the strategy of long-term surety writers looking to protect the quality of their portfolios. According to the report, the heightened competition likely will expose those companies that employed less stringent underwriting standards to grow their top line premium, especially those insurers that had experience with commercial, non-contract bonds, but recently expanded into the contract bond market.
The future of the U.S. surety market should remain bright if plans to rebuild the country’s infrastructure come to fruition over the next year. The wealth of opportunities for contractors associated with this undertaking should bring improved margins, and potential profits to construction firms across the nation and the surety insurers that provide bonds for them. A.M. Best believes disciplined underwriting by surety companies that have been proven experts in providing the types of construction bonds that will be more prevalent in an infrastructure rebuild will go a long way toward sustaining the surety industry’s success.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269584
