What will Sureties Do in 2012?

Contract Surety

The loss ratio results for surety companies through the first nine months of 2011 as provided by the Surety and Fidelity Association of America, were very interesting.  The large surety companies are experiencing phenomenally good results which appear to be driven by prior year losses being reversed.  The smaller surety companies’ loss ratios are starting to creep up into the 20-50% range.  Since the construction outlook for 2012 is mixed at best, many companies have taken jobs with lower margins and there is more red ink than I like to think about, carriers are expecting surety losses to escalate.

 Expect underwriting to tighten for accounts that have posted losses, have debt, did not right size overhead or do not have sufficient backlog.

 What can you do to help yourself?

 In this environment it is even more important for your surety relationship to be managed proactively. The following suggestions are useful at any time, but I have identified a few more cautious steps that can improve your situation during this unsettling period.

  •  Utilize the services of a CPA that specializes in construction accounting.
  • Get financial statements completed in a timely manner. Return to the old standard of 90 days past year end.
  • Prepare monthly financials with a work in progress report so you can monitor job costs closely and discuss jobs with your internal team.
  • Share your statements on a quarterly basis with your surety and monthly if it will help you.
  • Make sure you are doing business with a professional surety agent that has earned a reputation of integrity and professionalism within the industry.
  • Meet with your agent and surety to discuss your plans.
  • Be sure your bank line remains intact.
  • If there is a problem, make sure to let your surety know before they find out on their own!!           

written by Lynne W. Cook

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