Top Service News
Construction Surety Bonds – An Market Update
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It’s no secret that the surety market has hardened and we are currently experiencing a contraction of capacity, restriction of acceptable wordings and underwriters, and their reinsurers, are being far more risk adverse than previously.
With this in mind, we spoke to our friends over at Attis Credit Solutions about the impact the changes in the market are having.
There have been significant market failures within the construction sector and some sizable bonds called over the last twelve months.
Increasing inflationary pressures, a general lack of liquidity, material and labour shortages, fallout from the covid pandemic and continued implications of BREXIT, all have a part to play in the spike in construction insolvencies we have recently seen.
As published in a number of articles recently, due to the adverse sector conditions QBE and First Underwriting have made the decision to stop providing capacity into the construction sector, adding to the temporary lack of overall capacity.
Despite the above challenges Surety bonds continue to be an attractive alternative to guarantees issued by a bank, especially relevant, considering banks often take a secured position and ringfence funds to the aggregate value of the guarantees issued. A surety is unsecured, freeing up working capital to use for growth and development.
Positively, QBE can still be accessed via the Evolution MGA, and we have seen two new market entrants in the past 24 months, actively writing construction. We are also expecting new market entrants writing construction in the short to midterm on strongly rated paper – it’s not all doom and gloom!
Considering the challenges currently facing the surety market it is of paramount importance to ensure you have a specialist surety broker who is proactive, forward thinking and maximises the potential of the surety market to gain you competitive advantage.
Emma Reilly, CEO at Top Service Ltd adds:
Whilst surety bonds remain an attractive option for large projects they nor other credit insurance options entirely replace the need for robust and effective credit management practices and tools. In the right circumstances, surety and trade credit insurance work extremely well when coupled with the right credit information and recovery options.
It remains of paramount importance that suppliers to the construction industry understand who they are dealing with, the risks associated with who they are dealing and how the potential failures of their customers, customers can impact the trading relationships.
Remaining vigilant and reacting quickly to critical financial changes, leadership changes and changes in payment patterns to other suppliers should remain top of the list to support businesses with minimising debt and maximising cash.
