OLDWICK, N.J.–(BUSINESS WIRE)–U.S. surety bond underwriters saw direct premiums written grow by 16.7% in the first nine months of 2022 compared with the same prior-year period, as private construction projects propelled overall construction spending. Furthermore, according to a new AM Best report, an expected wave of publicly funded projects should help the market continue to expand.
The Best’s Market Segment Report, “Economy and Infrastructure Buildout Likely to Steer Surety Market,” states that the surety market’s underwriting and operating results improved moderately for full-year 2021 as evidenced by the lower operating ratio and the increase of more than $400 million in total net profit to $2.5 billion. These results marked a comeback from a decline in underwriting results in 2020 owing to pandemic-driven uncertainty, as contractors adjusted to mandatory government shutdowns, supply chain disruptions and the effects of global economic strife.
Total construction spending in 2022 increased by 9.7%, driven by an 11.7% rise in private construction spending, Expectations for private sector projects are down slightly, as higher mortgage rates have dampened the residential housing market. However, the contracting industry expects publicly funded projects to make up the difference in the near term, even as contractors cope with lingering supply chain issues and workforce shortages.
“Over the longer term, as projects are approved and scheduled, the significant amount of public funds dedicated to restoring or replacing aging infrastructure in the US, as well as investments in large projects, are expected to provide a meaningful tailwind for the surety market,” said David Blades, associate director, industry research and analytics, AM Best.
Historically, the surety industry has generated operating returns higher than that of the property/casualty industry. The line’s average net combined ratio of 72.5 over a 10-years period from 2012-2021 compares very favorably with the property/casualty industry’s 94.6.
“The favorable operating performance reflects a disciplined focus on underwriting fundamentals and effective risk selection to keep loss severity in check, since loss severity is inherently more problematic for the surety market,” said Robert Valenta, senior financial analyst, AM Best.
To access this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=329034 .
AM Best maintains a stable market outlook for the surety insurance segment. To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp .
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
Contacts
Christopher Graham
Senior Industry Analyst
+1 908 439 2200, ext. 5743
christopher.graham@ambest.com
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Robert Valenta
Senior Financial Analyst
+1 908 439 2200, ext. 5291
robert.valenta@ambest.com
Al Slavin
Senior Public Relations Specialist
+1 908 439 2200, ext. 5098
al.slavin@ambest.com
David Blades
Associate Director, Industry Research
and Analytics
+1 908 439 2200, ext. 5422
david.blades@ambest.com
