![Page 1: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/1.jpg)
CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET
2013
![Page 2: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/2.jpg)
Surety in the Early 1990s
Strong economy Excess capacity in surety market Low premiums Relaxed underwriting Commercial surety expansion
![Page 3: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/3.jpg)
Surety in the Early 2000s
Sagging economy Significant commercial losses Heavy contract surety losses Increased failure rates
![Page 4: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/4.jpg)
Surety Losses & Profitability
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
LossRatio
Calendar Year
Contract Surety Industry Direct Loss RatiosCY 1958 - 2012
Source: The Surety & Fidelity Association of America
A
![Page 5: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/5.jpg)
Surety Losses & Profitability
50.0%
70.0%
90.0%
110.0%
130.0%
150.0%
170.0%
Calendar Year
Contract Surety Industry Combined RatiosCY 1962 - 2012
A
AverageCombined Ratio=105%
![Page 6: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/6.jpg)
Surety in the 2000s
Source: BizMiner
Building, heavy/highway, and specialty trade contractors
In Business Survivors Failure Rate
853,372 (2002) 610,357 (2004) 28.5%
850,029 (2004) 649,602 (2006) 23.6%
1,155,245 (2006) 919,848(2008)
20.4%
897,602 (2009) 702,618 (2011) 21.7%
918,483 (2010) 696,441 (2012) 24.2%
![Page 7: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/7.jpg)
Contract Surety Premiums & Losses
0
0.5
1
1.5
2
2.5
3
3.5
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Billio
ns
of Dolla
rs
Direct Premiums Written
Direct Losses Incurred
Source: The Surety & Fidelity Association of America “Twelve-Year Experience Summaries (200`-2012) Surety Countrywide (Preliminary)”
![Page 8: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/8.jpg)
Top 15 Writers of All U.S. Surety
Surety & Fidelity Association of AmericaTop 15 Surety Writers
1994 vs 2012
1994 2012
Surety
($millions)
Premium Surety
1 Reliance Travelers 147.1 1 TRAVELERS BOND 754.22 USF&G St. Paul Travelers 144.1 2 LIBERTY MUTUAL GRP 725.73 F&D Zurich 142.5 3 ZURICH INSURANCE GRP 462.54 St Paul Group Travelers 140.9 4 CNA INSURANCE GRP 411.25 AIG AIU Holdings Chartis AIG 111.5 5 CHUBB & SON INC GRP 198.66 Aetna Travelers 106.6 6 INTERNATIONAL FIDELITY INS CO 161.47 Continental CNA 100.7 7 HCC SURETY GRP 160.68 Fireman's Fund Out of surety 97.3 8 HARTFORD FIRE & CASUALTY GRP 159.79 CNA Insurance Companies 92.8 9 ACE LTD GROUP 129.1
10 Safeco Liberty Mutual 88.9 10 RLI INSURANCE GRP 110.611 Chubb 77.7 11 GREAT AMERICAN 104.212 Hartford 74.0 12 LEXON/BONDSAFEGUARD 100.913 Amwest Gone 70.2 13 THE HANOVER INSURANCE GRP 85.714 Capsure CNA 55.3 14 NAS SURETY GRP 78.215 CIGNA Group ACE 49.7 15 MERCHANTS BONDING GROUP 72.8
($millions)
Premium
Companies that are gone in REDCompanies that merged or were sold are in BLUECompanies that merger or were sold a second time are in GREEN
![Page 9: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/9.jpg)
Construction Activity
All Construction Public Private
Total Construction +4.3% -5.1% +9.0%
Nonresidential -2.1% -5.2% +0.6%
Lodging +16.6% - +20.7%
Manufacturing +2.1% - +2.2%
Public Safety -6.1% -6.5% -
Power -1.6% 10.8% -2.8%
Educational -10.7% -12.7% -2.7%
Transportation +11.4% +16.1% +0.8%
Amusement/Rec -10.5% -12.2% -8.2%
Office +1.6% -30.7% +16.5%
Highway/Street -3.5% -3.4% -
Health care -3.3% +0.3% -4.5%
Commercial +1.9% -12.9% +3.0%
www.census.gov/const/www/c30index.html
U.S. Census Gains April 2012 – April 2013
![Page 10: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/10.jpg)
Outlook for 2013 & Beyond
Increased risk for owners, contractors & sureties caused by current economy
Continued disciplined underwriting, exposure management & project analysis
Stabilized capacity & restored profitability
Construction investments—public or private—are unpredictable.
![Page 11: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/11.jpg)
Outlook for 2013 & Beyond
Optimism about surety capacity & demand
Small, mega markets may remain tight Surety available for best contractors Marginal contractors have difficulty
obtaining bonding More competition, fewer projects Tightened operations for contractors Increase in contractor failures
![Page 12: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/12.jpg)
Underwriting
The 3 “C”s: Capital Capacity Character
4 and 5: Continuity Contracts
![Page 13: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/13.jpg)
Underwriting
Capital Financial statements Indemnity Working capital Work-in-progress
![Page 14: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/14.jpg)
Underwriting
Capacity Resumes Contingency plan Business plan Equipment
![Page 15: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/15.jpg)
Underwriting
Character Reputation Relationships References
![Page 16: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/16.jpg)
Bond Premiums
Type of Construction
Geographic Area
Contractor Size
Still a Bargain
Pennies on the dollar
Premium
![Page 17: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/17.jpg)
Capacity
Small( < $10 M*)
Some sureties
SBAProgram
Large($100 M - $250 M)
CompetitiveSurety Market
Mega( > $250 M)
Top 5-6 sureties
Joint ventures
Partial bonds
Medium($10 M - $100 M)
CompetitiveSurety Market
*These figures represent the amount of contractors’ annual revenue
![Page 18: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/18.jpg)
CapacityCapacity
Small( < $10 M)
Some sureties
SBAProgram
Large($100 M - $250 M)
CompetitiveSurety Market
Mega( > $250 M)
Top 5-6 sureties
Joint ventures
Partial bonds
Medium($10 M - $100 M)
CompetitiveSurety Market
*These figures represent the amount of contractors’ annual revenue
![Page 19: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/19.jpg)
Claims
Severity&
Frequencyof Claims
![Page 20: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/20.jpg)
Advice for Today’s Contractors Know rights & responsibilities Stay within capabilities Manage growth & overhead Learn why contractors fail
![Page 21: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/21.jpg)
Advice for Today’s Contractors Communicate Prepare for economic recovery
![Page 22: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/22.jpg)
Advice for Today’s Contractors Contract terms Bond forms Construction CPA Adjust overhead Bank line of credit Conserve capital Bond subcontractors Qualify the surety
![Page 23: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/23.jpg)
Advice for Today’s Contractors
Underwriter
Producer
Contractor
![Page 24: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/24.jpg)
Advice for Today’s Contractors
Underwriter
Producer
Contractor
![Page 25: CONTRACT SURETY BONDS: UNDERSTANDING TODAY’S MARKET 2013](https://reader031.vdocuments.net/reader031/viewer/2022020718/56649c735503460f949251d0/html5/thumbnails/25.jpg)
For More Information
Surety Information Office (SIO)www.sio.org | [email protected]
SIO is a joint initiative of The Surety & Fidelity Association of America (SFAA) and National Association of Surety Bond
Producers (NASBP).