Bond Firm Profits Are Rising Fast as Sureties Climb Out of the Hole
You have to admire the tenacity of surety bond underwriters. Through four years of industry losses—pinned on them by overstretched or incompetent contractors—sureties have observed an iron discipline in order to return to profitability. They have refused to bond contractors that failed to meet rigid financial standards, increased the scope of their analysis and cut their concentrations of risk with individual companies and projects. The sureties also shaved their own costs.
In 2005, the surety industry was rewarded for its faith and saw a modest, industry-wide profit. In 2006, the profit was substantial, with the loss ratio for the year flirting with 20%, well below the 35% to 40% loss ratio needed by many firms to profit, and a world of improvement over the disaster year of 2004, when the loss ratio topped 70%.