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Survey Report

Construction Marketplace Realities 2019 – Surety

Insurance Consulting and Technology
N/A

March 29, 2019

We expect the contract surety market to continue to be rate competitive for its better clients with enough capacity to support the needs of the construction industry.

Key takeaway

We expect the contract surety market to continue to be rate competitive for its better clients with enough capacity to support the needs of the construction industry.

The surety market continues to be quite competitive from a rate and capacity perspective with the ability to support multi-billion dollar jobs.

Sustained industry profitability has increased surety appetites for carriers to provide larger lines of credit and attract new markets. We expect this to result in a favorable marketplace for surety for the next several years.

For the contract bond segment, growth should increase as more robust government infrastructure funding attracts support along with increased use of alternative funding models including P3.

Beyond the underlying superior underwriting results, the industry continues to exhibit discipline from an underwriting standpoint, including how it evaluates the financial strength of its clients. There is some debate that the strong construction economy could result in less financial rigor by contractors leading to losses once the construction market eventually cycles down. As such, we expect surety companies to continue to focusing on core financial measures. This key discussion around the financial measures should be a focus of all contractors as they balance the need to make investments to support growth while maintaining financial discipline but this will become an even bigger issue as the underlying construction markets begins to plateau. Now would be a good time to review business strategies and challenge spending in light of a likely market downturn in commercial construction in the next 2 to 5 years.

In addition to the traditional use of surety for infrastructure needs (including alternative project delivery approaches), the ability of the industry to support emerging technologies is strong. Initiatives to reduce carbon-emitting sources will increase investments in renewable sources for power generation including solar, wind, hydro, nuclear, etc. These types of investments will likely increase the demand for surety which will also drive growth in the industry.

The surety industry faces the same talent issues as the construction industry as a whole with a significant number of underwriters, managers and claims professionals retiring in the next 5 years. To effectively compete in the marketplace, finding the next generation of talent is significant. We expect that this will result in increased movement of people in addition to significant investments in training which is an area that has lagged over the last decade.


In summary, we expect the contract surety market will:

  • Have more than enough capacity to support the needs of the construction industry
  • Continue to be rate competitive for its better clients
  • Attract new players while at the same time consolidating via mergers and acquisitions
  • Need to focus on underwriting discipline as the commercial construction economy matures
  • Grow as the hope for sustainable infrastructure investment will result in the need for surety while at the same time challenging it to bring new surety solutions to the market to support alternative procurement methods

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