The U.S. surety market was valued at $16.07 billion in 2019 and is projected to reach $25.18 billion by 2027, according to The Insight Partners “Surety Market Report." Currently, the surety market for both agents and carriers is in a good place, as both profitability and capacity remain strong.

“There was some concern going into the coronavirus pandemic that there would be some major losses because of supply chain issues and the different COVID-19 mandates causing projects to shut down, but that really didn't materialize," says Jeff Cose, senior vice president, head of national bond center, Nationwide. “It's a good time to be in the surety business: Premium is growing across the industry and has been for the last few years."

For agents and carriers, there are a number of trends in the surety marketplace that are considered significant.

“There is an enormous amount of capital available within the surety sector that continues to bring new surety entrants to the marketplace," says Jack Anderson, president, Goldleaf Surety Services LLC.

“Surety companies that have been around for a long time tend to stand firm in their underwriting but have expanded capacity due to the increased capital available," Anderson explains. “In comparison, smaller surety companies are seeking to grow and are willing to accept additional risk to utilize some of the capital available."

With this significant capacity, independent agents now have an opportunity to seek out carrier partners that can help them meet their clients' needs and provide clients the bonding assistance they may have previously shied away from offering.

Surety bonds play an important role in protecting private and public entities, and while there are four main types of bonds—contract, commercial, fidelity and court—the most common surety bonds are commercial and contract surety bonds. 

So, what should agents look for in a surety carrier partner to help them not only understand the myriad of bonds that are available—and required, in some instances—but also find the best product for clients? 

“It's a good practice to partner with sureties that match or exceed financial requirements and to avoid the possibility of bonds being rejected due to the financial strength of the surety providing the bonds," says Beth Harbeck, regional vice president - commercial, Old Republic Surety Company.

As far as indicators of financial strength go, “there are really two things: the Circular 570 Treasury Listing developed by the U.S. Department of the Treasury, which shows the financial strength of the company, and the AM Best rating," Cose says.

In addition, “agents should check that the surety company is licensed in all states where they will need to issue bonds and make sure that the carrier has the financial size requirements specified in the contract that needs bonding," Anderson says.

“Each surety company has their own appetite for the various bonds available, and their ability to entertain certain types of bonds can also be greatly impacted by their reinsurance treaty in place," Anderson adds. “Due to these factors, it is difficult to find a surety that is the perfect fit for all of the surety bond needs of an agent."

A further guide for agents is the length of time a surety provider has been in the industry. “Agents want to make sure that value is placed on the companies that have been in the industry for decades and have experienced the ups and downs," Cose says.

Regarding the current recessionary symptoms being felt throughout the economy, Anderson notes that “we are not seeing any impact" and does not foresee any impact in the near future because “the federal government's infrastructure spending is still impacting future revenues for companies."

And when it comes to future trends, as with all industries, improving technology is continuing to have an impact on the surety market and agents should take note of these changes with the carriers they partner with.

“A lot of advancements are streamlining the process of getting a bond issued and especially in small commercial surety bonds that are more transactional in nature," Cose says. “A lot of carriers have systems that agents can use to go in to request and issue a policy within minutes."

Olivia Overman is IA content editor.