Article / Risk Management
Improving Economy Increases Surety Competition
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As the economy continues to improve post-recession, it is no surprise that the construction market has also rebounded.  As the condition of the construction and surety markets are closely linked, annual surety premiums also recovered to over $5.5 billion in 2015—the highest annual total since 2008.

The good fortunes of our improving economy also brings with it competition within the surety market.  While the growing construction market has driven an increased demand for bonding, strong competition led to downward pricing pressure, keeping the growth of the surety sector relatively modest.

“Sureties are not getting the double-digit growth that most want to see, so companies are willing to ‘color outside the lines’ to write business. They are doing things they don't want to do, which is scary because those debts will come due two to three years from now,” says Patrick Pribyl, Senior Vice President and Surety Team Leader at Lockton, in a recent article in Property Casualty 360.

On top of relaxing underwriting standards, the growing demand for surety, and strong returns companies have enjoyed, is attracting even more entrants to the market.  These factors create uncertainty regarding when the downward pricing pressure may subside—especially in the commercial surety market, where pricing has hovered at concerning levels for years.

With the Presidential election now behind us, we’ll look for the promised increase in infrastructure spending to continue driving the construction and surety markets, and alleviate the pricing pressures resulting from excess market capacity. 

Can the construction industry support continued growth with the pending shortages in skilled labor?  That’s the next key question.

To learn more, read the article online.  

    
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