Advertise
Resources
Member, Beacon International Group, Ltd.
NEW YORK—While the surety sector performed well during the financial crisis, higher claims activity can be expected through 2013, says Moody's Investors Service Inc. in a special report issued Thursday.
“The sector performed strongly through the financial crisis, in part sustained by federal stimulus-related construction projects,” says the sector profile. “Claims activity, however, typically lags economic deterioration by 1 to 3 years, suggesting the likelihood of future claims losses in 2012-2013, particularly from smaller and midsized contractors.”
In addition, the economic stimulus program's expiration and a slow recovery in privately financed projects has led to intensified bid competition among contractors and to underwriting pressures on surety insurers, according to the report.
The report says that, although the strong profit margins have attracted new entrants in recent years, it expects these ranks to thin because of competitive challenges and anticipated losses.
In addition, state and municipal budgetary strains have led to the cancellation, postponement or financial restructuring of major public works projects, according to the report. The emergence of alternatively financed construction projects could expose surety writers to potentially large future claim losses if not properly underwritten, says the report, also.
The report says the surety sector is highly concentrated, with the top five companies accounting for more than half of direct premiums written and 10 companies representing about two-thirds of direct premiums.
A report issued this week by Dallas-based MarketScout said that in May, prices for surety coverage rose by 1% compared with the same month last year.