Seeking Stability in the Surety Bond Market

The past two years have resulted in a time of turmoil for the surety business—a fact that is not lost on the independent agent searching for stability in the market. Due to tremendous losses, consolidations, sales and closures, a number of the major bond writers have exited the market. The result? Agents are left wondering who will be there to meet their surety needs.

For many agents, the ability to provide bonding is an important aspect of servicing their clientele. Unfortunately, as viable sureties become more scarce or less predictable, agents are finding it more and more difficult to place bonds and meet their client’s needs; not good for the customer and not good for the agent. Simply stated, agents must be able to find dependable sources of surety in order to be successful.

Getting the job done!
In what can arguably be described as the hardest surety market in 50 years, there are still ways for the agent to succeed. Preparation, effective communication and persistence all help to get the job done.

Among other things, the tremendous losses experienced by the primary underwriters and reinsurers in the past two years have resulted in restricted capacity and increased demands on the bond principals to prove their qualifications.

As such, the prepared agent anticipates these conditions and will have done the requisite work to make certain the bond principal is submitting the most current and complete information for presentation to sureties. Incomplete information or out of date financial statements do not help get the bond written; instead, they lead to additional questions, delayed answers and unnecessary frustration by all parties.

The importance of effective communication cannot be overstated. In order to be successful, an agent must be skillful at managing their client’s expectations. Not doing so can lead to disappointment or unfulfilled hopes. Through deliberate communication, the agent serves as an informed advisor to the bond principal and provides a service that helps them meet their objective, i.e., obtaining a bond. Effective communication also is vital to telling the client’s story.

In times like these, letting numbers speak for themselves is not enough. Thanks to the unprecedented wave of corporate accounting scandals, there is an abundance of skepticism about numbers and the agent needs to be proactive in explaining any misunderstandings or false assumptions by a surety.

Persistence increases an agent’s chance for success. Understanding that no “sure things” exist in today’s surety market should motivate the agent to have alternatives. The agent that delivers for their bond principals today expects a declination at inconvenient times or from unsuspecting places. They overcome this rejection through persistence and hard work. Armed with options and ideas, the persistent agent is able to deliver solutions that produce results for their client.

Knowing the market
Having a well-rounded understanding of current industry market conditions is a basic requirement that all informed bond principals will demand of their agents. The bond principal’s primary concern is running a business and meeting its obligations so that it can qualify for bonds when needed. It’s the agent’s duty to be the representative of the bond principal and to counsel them in such a way that ensures continuity in obtaining and maintaining bonding capacity.

Knowing the market includes many different things. At a minimum, it means the agent will be familiar with the different surety companies, including knowing what information the different companies require, the type of principals they seek, Treasury listing/capacity limitations, A.M. Best ratings, ancillary services, etc.

In addition to knowing the markets and what they require, the agent increases the bond principal’s chances for getting bonded if creative options are developed for enhancing the obligation being considered. There are tools and arrangements available that, if implemented, may make a difficult-to-place bond, bondable. It is important that the agent understands and is conversant on these various options so that they can be shared with the principal and suggested to the surety. The agent’s ultimate purpose is to facilitate a transaction between principal and surety—and contributing to the process is expected.

Perhaps most useful for the agent to bear in mind are the reasons why the market is in the state that it is. An appreciation of these reasons should help the agent keep a proper perspective on the process, which will help place a bond efficiently.

These are challenging and opportunistic times for all participants in the surety industry—a time when the best agents will emerge and distance themselves from others. Which one will you be?

Robert F. Thomas is president & CEO of Los Angeles-based American Contractors Indemnity Company (ACIC), a nationwide provider of surety bonds. Established in 1994, ACIC is Treasury listed and rated “A-” by A.M. Best.