By Erle Benton, AVP, Surety Contract Underwriting, UFG Surety

Fiscal year-end is December 31 for many construction companies. This means they’ll begin closing financial books as the new year starts — a great time for insurance agents to remind contractor clients about the importance of providing timely financial statements to better ensure surety support. Sharing reliable, high-quality financial presentations with your surety carrier can help secure the bonding capacity to continue construction projects without interruption in the year ahead.

What is a surety financial presentation?

A financial presentation refers to the group of financial statements and supporting documents that a surety underwriter examines to determine the strength and stability of a contract surety bond client.

Related reading: Surety bonds vs contractor insurance: what is the difference

What documents should be included in a surety financial presentation update?

An internally prepared fiscal year-end financial presentation should be sent to the surety carrier around 60 days after the end date of the fiscal year. Along with basic financial statements, it should include:

• Work-in-process (WIP) schedules for open and completed contracts
• Aging of accounts receivable as of the financial statement date

You’ll want to be sure financial documents reconcile with the fiscal year-end statement. Look at that financial statement closely to spot any trends that the surety carrier may view as negative, such as:

• Gross profit decreases on WIP schedules
• Large distributions
• Increase in advances to the shareholder(s)
• Increase in interest-bearing debt
• Decreasing cash, etc.

This way, insurance agents can have proactive conversations with construction clients about any observations and provide clear explanations when sending the financial presentation to the surety underwriter.

A certified public accountant (CPA) review or audit is important, too. Most sureties would like to see this within 150 days of the fiscal year-end, otherwise the flow and size of surety credit extended to the contractor may be impacted. The review or audit should contain:

• Detailed footnotes
• WIP schedules for open and completed contracts
• Aging of accounts receivable (if the CPA doesn’t include aging details, the internally prepared information is usually acceptable if it reconciles with the CPA’s presentation.)

When it comes to smaller contractors, some surety carriers may accept a CPA-prepared fiscal year-end compilation statement, preferably prepared using the percentage of completion accounting method and including the same schedules as a review or audit.

Related reading: 3 agent strategies for navigating surety appetite

What does a surety underwriter look for when reviewing a financial presentation?

Some trends an underwriter may analyze when reviewing a contractor’s financials are:

• Equity. The surety underwriter may look at whether equity is increasing through retaining profits or decreasing because of poor operational results and/or withdrawals. For efficiency, it may be a good idea to ask your surety carrier to provide a copy of the financial statement analysis to better understand what assets are disallowed in the financial presentation. For example, the stated equity in the CPA financial statement may include soft assets that the surety doesn’t consider, such as:
  • Goodwill
  • Notes receivable due from outside parties
  • Notes due from shareholders, employees and others
  • Deferred tax assets
  • Restricted cash
  • Accounts receivable (more than 90 days past due)
• Working capital. Determining working capital starts by examining current assets or assets that will be converted to cash during the accounting cycle. For the surety financial presentation, these assets typically include:
  • Cash
  • Accounts receivable (fewer than 90 days past due)
  • Retainage
  • Cash value of life insurance
  • Normal underbilling (reported on WIP schedules)
  • Inventory
The total of current assets is then compared to current liabilities due within the next 12 months. That’s because working capital reflects the conversion of assets into cash compared to liability obligations for the year ahead. If analysis of working capital results in a negative number, it can signal to the surety underwriter that the applicant doesn’t have enough cash or cash-equivalent assets to cover their costs for the next 12 months. You may want to be prepared for deeper conversations if you notice negative working capital.


• Operating profit. Located on the income statement, operating profit is calculated by subtracting cost of goods sold and overhead expenses from revenue. Has the contractor been profitable this year and in the past? You’ll want to explain the cause to your surety underwriter if not.


• WIP schedule. This report in the financial statement reflects where the contractor has been, where they’re at and where they’re going. The surety underwriter will probably think it’s ideal if the gross profit margin or percentage for each individual job is maintained and improves when the work is near completion. It’s a trend that can be interpreted, as the financial statement is presented conservatively, but if gross profit margins decrease the underwriter will likely question why and how far it will fall before the project is finished.

Moral of the story: the clearer the better

By supporting the preparation of timely financial presentations, an insurance agent can team up with their construction clients as a trusted business associate to keep the pipeline of surety capital flowing. A surety underwriter may be left to conservatively guess what the ultimate outcomes may be without clear, timely and reliable financial facts. The assumptions may not be as favorable for the contractor as they would have been with accurate, well-rounded financial statements and detailed documents to review. And remember: A good surety partner’s door is always open to questions. Here at UFG Surety, we value every opportunity to support the mutual success of our agents and contractors. Let us know how we can help.