The conservative underwriting guidelines of the current surety bond market are causing many people to be dropped, even after a principal is with the same surety for years. Many are baffled as to why a bonding company would not want to write their commercial bond(s) after so many claim free years.
Some bonding companies review accounts every year and will require file updates in order to keep the bond in effect. If the updates do not meet the bonding companies guidelines they will drop the client for the renewal. Updates are typically credit reports and business financial statements. If a credit score drops or a flaw such as a tax lien pops up, the principal risks cancellation. The surety will look to see that the company made a profit on their business financial statement; a year showing a loss is bad and a surety may decide to no longer back the bonds.
Often, principals will argue they have never had a claim and should not be dropped. The fact is, never producing a claim is nothing to brag about, it is expected. Bonds are underwritten assuming there won’t be a claim. A principal with a previous claim will probably never be able to find bonding again. Therefore, thinking you are “bondable” just because you haven’t had a claim is comparable to saying you are a good person because you never robbed a bank. Obviously, this is not true, you are expected to no steal and not doing so does not automatically make you a good person.
Some bonding companies do not review accounts from year to year. In other words, the surety will continue to carry the bond until the principal no longer needs it, a claim is produced, or if they decide to stop writing that particular bond all together.