Potential Issues Impacting Surety Bond Programs in 2022

As we near the end of 2021, many surety bond producers will be eyeing interim financial statements and updated work in progress (WIP) reports to get an early peek at their contractors’ financial and job performance and prepare for year-end numbers. The year-end financial statement and WIP are two huge key components in establishing the contractor’s surety program for the coming year.

The current and projected short-term economic performance are of importance as well. When we look back at the past 22 months, additional factors need to be considered and delved into when consulting with your contractor clients.

• Status of forgiveness of PPP Loans – By now, most loans that will be forgiven will have already occurred or are pending forgiveness in the system. Elimination of this debt will strengthen the balance sheet, but attention will be given to operational performance without the crutch of the cash infusion. 
• Mask & Vaccine Mandates - Are there any mask or vaccine mandates in the contractors’ operational territory? If so, does that create any issues with employee retention or job schedules?
• Current Supply Chain Challenges – These are significant. How long will they continue? How will specific material shortages or delays in delivery impact the contractor? Are any of your contractors locked into contracts that do not account for some sort of relief, creating strain on maintaining profitability?
• Worker Shortages - Are any of your contractors experiencing worker shortages? Lack of adequate personnel can put contractors behind schedule and open themselves up for potential delay damages.

There remain factors in the insurance and surety industry that may play a part when looking ahead at 2022 as well.

• Overall profitability in the surety sector continues to bring new entrants into the marketplace as insurance executives continue to try to capture a piece of our well-performing segment. Both AmeriSure and Trisura are making and have made (respectively) the move into surety.
• Will the surety market remain soft? While there are recent high-profile large surety losses hitting numerous sureties’ books, the overall loss ratio remains low. Until this hits surety reinsurers hard; the soft market will likely continue. How will this affect program renewal limits and rates?
• Conversely, will the exit of QBE out of the American surety market portend the beginning of additional departures for those sureties whose books experience higher-than-expected losses?
• At the federal and state legislative level, are there threats of surety bond requirement elimination? Are there considerations to raise the Miller Act or Little Miller Act thresholds? One should consider employing an advocacy strategy; both the SFAA and the NASBP are fighting for bond requirements to remain.  Involvement in these efforts is imperative.
• The continued strong mergers & acquisitions trend in both sureties and agencies may continue to alter the way we compete for business. Old rivals are now co-workers, and as small independent agencies are swallowed up, the level of services a larger agency can deliver to our clients may open doors previously closed.

As the year ends, looking back at the events of this past year can bring forward some important industry news and topics that may continue to affect trends and events into 2022. The market can change quickly and having the right partner in your corner that knows exactly what the surety industry is facing is the of the utmost importance. That’s why the AssuredPartners Surety team is committed to finding you the best solutions that only the surety industry faces. Contact us today and see how we can help you prepare.