Positive Outlook For Surety Bond Industry

The surety bond industry has weathered the storm of the hardest bond market seen to date. The Surety & Fidelity Association of America (SFAA) reported that the surety bond industry as a whole returned to profitability in 2005 after repeated years of record losses. The SFAA’s report included both contract and commercial surety bonds.

Mcgraw Hill Construction’s Engineering News-Record provided a special on suretyship in the June 2006 issue. The article listed the views of many industry top executives for the future and current status of the industry. Almost every executive editorial asserted the same opinions, surety capacity is large enough for current demands. However, they were all quick to note that the capacity available was only for qualified contractors.

Surety capacity is readily available for small to medium sized contracts, but there is a lack of willingness to guarantee larger contractors and so called mega-contracts. Several years ago, our agency was the test agency for Western Surety-CNA’s Fast Track program, which was the first to offer contract bonding based on personal credit for small contractors. At present, Western Surety-CNA has over 12 new competitors to the program they began several years back. The Fast Track program is an excellent example of how the surety market has grown for the small contractor.

Surety associations throughout the country have been pushing to expand bond awareness in the private sector. It appears their efforts are quite successful, as a good amount of growth for the industry is from bonds requested in the private sector. However, there is still a common misconception that bonds can be used to guarantee financing. Surety bonds are a product that guarantee performance, not financing.

2005 proved to be the best year the surety industry saw in many years. Carriers should continue to see profits and expanded growth for years to come, provided they show enough restraint to reserve capacity for those who qualify, not simply those in need. Inflation is a concern for the industry, but there is nothing that analysts can currently forecast that should be of great worry.