While the U.S. surety market as a whole continues to record consistent, strong underwriting and operating results, that is not the case for small- to medium-size surety writers, which have been more affected by the slow recovery from the recession, A.M. Best Co. Inc. said Monday.

With the construction sector only recently beginning to improve, excess surety capacity and loss ratios in this segment have been affected by heightened competition among contractors, according to the report, “Small-to-Medium U.S. Surety Companies Still Contending with Market Pressures,” by the Oldwick, N.J.-based rating agency.

The segment, which includes 70 small- to medium-size surety and fidelity companies, excludes the two largest writers of surety and fidelity: Hartford, Conn.-based Travelers Casualty & Surety Co. of America, a unit of Travelers Cos. Inc., and Chicago-based Western Surety, a unit of CNA Financial Corp.

The report says expense ratios of the small- to medium-size companies in Best's adjusted composite typically average 10 to 15 points higher than the overall normalized composite, which reflects Travelers' and Western Surety's greater scale.

“Furthermore, the expense ratios of the adjusted composite have been worsening at a faster pace than the normalized composite, increasing 6 points in 2012 vs. 3 points for the normalized composite,” according to the report.

“With a significant insured base represented by contract surety, many contractors emerged weaker from the worst financial setback since the 1930s,” said the report, referring to the Great Recession and years since then. “As a result, sureties must be even more prudent in their underwriting selection, pricing and services in order to assure their own success as well as the success of their clients.

“This is particularly true for small-to medium-sized sureties who do not have the luxury of more profitable large accounts to offset weakening results in smaller accounts,” Best said.

The report warned, though, that as “the profitable backlog of large projects nears completion, new large projects may not be as profitable to contractors and to their large sureties as has been the case to date.”

Copies of the report, “Small-to-Medium U.S. Surety Companies Still Contending with Market Pressures,” are available here with registration.