Erle Benton, AVP, Surety Contract Underwriting, UFG Surety

The surety industry faced a tough year in 2023. According to Surety & Fidelity Association of America (SFAA), loss ratios (incurred loss divided by premium earned) for all surety writers grew from 14.5% in 2022 to 22.8% in 2023, leaving only a slim profit after expenses were factored in.

Additional industry trends such as large fluctuations in construction material costs, high pricing for replacement contractors hired by the surety in a claims situation, difficult contract terms, challenging bond forms, re-underwriting by the reinsurers, and more are causing some sureties to adjust their appetites in response.

Of course, the evolution of appetite trickles down to agents and their customers. But there are strategies surety agents can put in place to help them successfully ride the tides of what sureties will and won’t write in these somewhat turbulent times.

Here are three strategies to help navigate changing surety appetites.

1. Stay updated on news from your carriers.

As surety appetites evolve, many sureties are evaluating their book of business, imposing underwriting matrices, requiring their contractors to increase their financial condition, enhance indemnity packages, and require more meetings with contractors, just to name a few. The type of account they have been writing may look quite different tomorrow. The length of the relationships between agent, carrier and contractor has been a factor in the past, and sureties will continue to provide surety credit to some contractors, but the weight of that may be changing. So, it’s important to stay up to date on what the current surety will require to avoid surprises.

• Reach out to your carrier contacts. A good surety partner will welcome your call or email and will appreciate sharing their time to help set you — and your clients — up for success.
• Review your carriers’ hit lists regularly. Ask your sureties what type of contractor they are interested in supporting. At UFG, our surety, specialty and P&C hit lists are available for our agent partners to grab 24/7 on our UFG Marketing Solutions website.
• Read emails and newsletters from your go-to carriers, industry associations, economic assessments, etc. Hopefully, this will reduce some of the surprises you could encounter.

2. Help your clients plan.

With a solid understanding of what’s in (and out) of a surety’s appetite, agents can have proactive conversations with their customers to prepare them for what might be ahead.

For example, if a contractor has major challenges (such as a large unprofitable project) you will likely need to gather information and present it to the surety. Do not shy away from difficult topics. The sooner they’re addressed the better the outcome will likely be for everyone.

The primary tool a surety underwriter uses to determine the amount of surety credit they’ll extend revolves around the financial strength of the contractor. It may be a good approach to encourage clients to detail where their company is headed and how they’ll reach their goals in a business plan that can be shared with the underwriter.

On that same planning note, some sureties are paying close attention to how the retiring Baby Boomer generation is impacting businesses. As contractors are working on business succession plans, it may be wise to factor in what the surety will require to keep the business on track. Urge your clients to be open about future goals so you can offer guidance about the surety industry when needed.

Read more about business continuity and succession planning.

3. Seize opportunities to grow your business.

Remember that an evolving surety appetite can offer growth opportunities for agents. As you spot new opportunities to explore, embrace those chances to prospect for new business. Look for new clients who are willing to be transparent about their goals and concerns, so you can talk with them about being a dependable partner for their business and surety needs.

Related reading: 3 steps to help an insurance agency start writing surety bonds

Strong partnerships can go a long way in any business. Be sure to lean on those networks when you need them. And remember UFG Surety is a responsive, trusted and knowledgeable partner ready to help you achieve your business goals. Email us anytime at surety@unitedfiregroup.com.