The financial results through year end 2018 continue to be excellent. Gross written premium increased over 2017, and the loss ratio remains under 20%. International growth exceeds double digits. Reinsurance is plentiful and pricing stable.
Commercial Surety remains very competitive including rates, terms and conditions. Contract surety is competitive on terms and conditions; particularly for the well-financed firms and the industry has capacity to support large projects.
Locally and nationally there is work available. Backlogs are filled with profitable work, which should result in profitability for businesses in the foreseeable future. Economists seem to agree the economy will continue on this path for at least the next 9-12 months and are hesitant to estimate beyond that timeframe. The Architects’ Indicator which is a predictor of future construction (18-24 months out) shows some slowing.
We are seeing signs of labor shortages; i.e., projects falling behind and the inability to take on additional work due to staffing issues. As the US economy slows, it is management’s responsibility to make appropriate modifications in order to remain profitable.
During 2018 and continuing into 2019, sureties are seeing an increase in the severity of claims, not the frequency. One surety executive noted the cost to manage a claim is approximately three times the amount it was only three years ago. Reasons include labor shortages, inflation, and a trend toward obligees’ preferences for payment rather than takeover completion. If the cost continues to rise and the frequency increases, pressure on earnings may occur. With this in mind, we should expect many sureties to maintain underwriting discipline.
The above was written by Lynne W. Cook, Executive VP, Surety and Principal at EC&S. If you have any questions please feel free to call Lynne at 301-948-5800 x 168 or reach her by email, firstname.lastname@example.org.