Hard Times For Surety Bonds

The surety bond market is currently a very conservative market. Contract and commercial bond departments throughout the nation have tightened up their underwriting practices due to enormous loses throughout the industry. Many sureties have had to close their doors, other have had their ratings drop to a level where they can not write the same business they could in years past. Obviously this leaves the bonding companies that are still operating with a very conservative outlook when it comes to their underwriting guidelines.

One thing that many do not understand is while the current surety bond market is tough, it is considered a more traditional underwriting approach. Contractors are being angered by decreases in their bond lines, or in worst cases are now being deemed “not bondable”. Business owners seeking commercial bonding such as license bonds to run their business are not only finding it harder to obtain an approval, but are also seeing rates much higher than years past.

Why such a drastic difference? A couple years back the industry saw the softest bond market ever, which caused a backlash to what is now today’s hard market. The surety bond market is cyclical, a member of the Surety Bond Forums commented on the cycle stating:

Vicious cycle:

We need more profit from you – write more business

We need to write more business, loosen up underwriting

We’ve loosened up underwriting – oops- losses

Losses? Sorry, you aren’t contributing to the bottom line – watch it

Tighten up underwriting – less premium – but losses still come in from previous underwriting

Losses increase – loss ratio increases due to smaller premium and more losses

Sorry – we are closing down surety operation and sticking to profitable lines

While at another company – lots of business out there due to company a getting out of business – go pick it up we need more business so we can get more profit and on and on and on

What is a 6 letter word for “doesn’t learn from the past”

S _ R _ T Y

The good news for anyone looking to obtain a bond is that the market will become more liberal in time. The bad news for agents is this will not be the last time that accounts scramble in mass looking for a new agent that can offer them what you previously were. Fortunately for agents, in general they will find very similar offers from agent to agent, as our industry is smaller than most realize.

Common Surety Bonds You Ought To Know

A surety bond can be defined as contract between three parties guaranteeing that a job will be completed in accordance to the contract terms. The three are the project owner who is the obligee, contractor who is the principal and the surety who ensures the task at hand is completed as per the agreement terms. Surety bonds are more financial related and even though they are very common in the construction industry, they come in different types touching on different areas of agreement. Below are some of the most common that can make a difference for businesses.

1. Contract – They are the ones contractor need especially when bidding on large projects. They go to show that the organization has the capacity and financial ability necessary to manage and complete the projects at hand. It is not always that the bonds are required for contractors but they may be required to present them when bidding on government projects, big projects or when requested by customers to do so. Bonded contractors have better chances of nailing large projects. They include bid bond, performance bind and payment bond which together cover the entire project as appropriate.

2. Business – They differ from place to place and ensure businesses are responsible in fulfilling duties promised or offered to clients and also to the government through payment of bills and taxes. Different business categories need the bonds to show that their operations are trustworthy and financially responsible.

3. Court – In the legal industry, surety bonds also come into place. The most common are those that individuals with court cases require to ensure defendants show up in court or to ensure payment as directed. In some other legal instances, legal clients may need bonds to perform different functions line becoming estate executors. The most common are appeal bonds, estate bonds, injunction binds and guardian bonds.

4. Permit and license – They basically go to show that business owners and workers will abide by local regulations set for the field they are involved in. For instance plumbers need to abide by plumbing codes and regulations within their localities and a license bond works as assurance that they will perform their duties as expected.

5. Commercial – These include different kinds of bonds that are not under construction and court surety bonds. The most common include business service bonds, lease deposit bonds and commercial contract bonds among others.

They do come with lots of benefits depending on the field they are designed for. Bonded companies often gain a good reputation and are more likely to be trusted with projects compared to companies that are not bonded. If you are a contractor you must of course choose a surety bond provider that you can trust so the terms you abide by are easy for you to keep up with. The above are the most common but there are so many other types of surety bonds coming up with every passing day.

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