Upload
nathaniel-broughton
View
1.202
Download
0
Tags:
Embed Size (px)
Citation preview
State of the State of the Surety IndustrySurety Industry
AGC Building Contractors ConferenceThe HomesteadHot Springs, VAJune 11, 2009
Todd LoehnertNASBP PresidentWells Fargo Insurance Services of Kentucky
Reflections from 2008Reflections from 2008
AccomplishmentsAccomplishments Financial ResultsFinancial Results New TalentNew Talent Technology Technology
AdvancementAdvancement OutreachOutreach Underwriting Underwriting
DisciplineDiscipline Talent DevelopmentTalent Development
ChallengesChallenges PeoplePeople Risk EnvironmentRisk Environment
ContractsContracts Bond FormsBond Forms Judicial SystemJudicial System
Strengthening Strengthening RelationshipsRelationships
Expense ControlExpense Control Reinsurance RenewalReinsurance Renewal
TOP 10 WRITERS TOP 10 WRITERS OF SURETY BONDS—2008*OF SURETY BONDS—2008*
CompaniesCompanies Direct Premium Written (Millions Direct Premium Written (Millions $)$)Travelers BondTravelers Bond $991.6$991.6Liberty Mutual Ins. GroupLiberty Mutual Ins. Group $832.8$832.8Zurich Insurance Group Zurich Insurance Group $482.3$482.3CNA Insurance GroupCNA Insurance Group $434.3$434.3Chubb & Son Inc. GroupChubb & Son Inc. Group $297.3$297.3Hartford Fire & Casualty GroupHartford Fire & Casualty Group $210.6$210.6HCC Surety GroupHCC Surety Group $148.8$148.8International Fidelity Ins. Co.International Fidelity Ins. Co. $118.8$118.8ACE Ltd. GroupACE Ltd. Group $109.1$109.1Arch Capital GroupArch Capital Group $105.9$105.9
*Includes contract and commercial surety*Includes contract and commercial surety
Source: The Surety & Fidelity Association of America (SFAA), “Top 100 Writers of Source: The Surety & Fidelity Association of America (SFAA), “Top 100 Writers of Surety Bonds—United States & Territories & Canada,” 2008 (Preliminary); Surety Bonds—United States & Territories & Canada,” 2008 (Preliminary); www.surety.orgwww.surety.org
Market Conditions and OutlookMarket Conditions and Outlook
Outlook 2009Outlook 2009
Outlook 2010Outlook 2010
Market Conditions and OutlookMarket Conditions and Outlook2009 – Take One2009 – Take One
Looks Like a Profitable Year – MostLooks Like a Profitable Year – Most
Revenue Projections – DownRevenue Projections – Down
Tightening or Softening – Split DecisionTightening or Softening – Split Decision
Leveraged Contractors – Great ConcernLeveraged Contractors – Great Concern
Backlogs – DisappearingBacklogs – Disappearing
Bidder Lists – GrowingBidder Lists – Growing
Market Conditions and OutlookMarket Conditions and Outlook2009 – Take Two2009 – Take Two
Marketshare Mentality – ConcernMarketshare Mentality – Concern
Maintain Underwriting Discipline – ConcernMaintain Underwriting Discipline – Concern
Losses and Defaults – IncreaseLosses and Defaults – Increase
Inflation & Interest Rates – Likely IncreasesInflation & Interest Rates – Likely Increases
Private Sector Work – Little/Dried UpPrivate Sector Work – Little/Dried Up
Bank Stability – Large/Regional/CommunityBank Stability – Large/Regional/Community
Market Conditions and OutlookMarket Conditions and Outlook2010 and Beyond2010 and Beyond
Outlook 2010Outlook 2010
Not GoodNot Good BadBad UglyUgly ArmageddonArmageddon
Outlook 3 to 5 YearsOutlook 3 to 5 Years
““Too Foggy to Tell”Too Foggy to Tell”
Market Conditions and OutlookMarket Conditions and Outlook20102010
Surety Premiums – DownSurety Premiums – Down
Tightening – Yes-Yes-Yes-Yes…………Tightening – Yes-Yes-Yes-Yes…………
Claim Frequency and Severity – YesClaim Frequency and Severity – Yes
Expense Management – A MustExpense Management – A Must
Obligee Default – ConcernObligee Default – Concern
Bank Lines – Will They Be There?Bank Lines – Will They Be There?
Business Issues and ChallengesBusiness Issues and Challenges
Surety CompaniesSurety Companies ContractorsContractors
Business Issues and ChallengesBusiness Issues and ChallengesSurety CompaniesSurety Companies
Subcontractor Default InsuranceSubcontractor Default Insurance
Impact on Underwriting PhilosophyImpact on Underwriting Philosophy
Bid Qualification LettersBid Qualification Letters
Claim ActivityClaim Activity
Risk Management ToolRisk Management Tool
Surety CompaniesSurety CompaniesSmall and Emerging ContractorsSmall and Emerging Contractors
Percentage of Construction ClientsPercentage of Construction Clients Participate in the SBA programParticipate in the SBA program Company Program for Small and Emerging Company Program for Small and Emerging
ContractorsContractors Perceived Lack of AvailabilityPerceived Lack of Availability Contract BundlingContract Bundling Inadequate Government Procurement WorkforceInadequate Government Procurement Workforce
Surety CompaniesSurety CompaniesJumbo ProjectsJumbo Projects
$1 billion+ building and infrastructure projects$1 billion+ building and infrastructure projects Outstripping of single project bond capacityOutstripping of single project bond capacity Co-suretyCo-surety Less than 100% performance and payment bondsLess than 100% performance and payment bonds Legislative solutionsLegislative solutions
Business Issues and ChallengesBusiness Issues and ChallengesContractorsContractors
Plan and Act StrategicallyPlan and Act Strategically Secure “Profitable Work”Secure “Profitable Work” Retain Key PersonnelRetain Key Personnel Manage Overhead and ExpenseManage Overhead and Expense Manage Unknown RisksManage Unknown Risks Beware of Unregulated/Unlicensed SuretiesBeware of Unregulated/Unlicensed Sureties Maintain Solid Banking RelationshipMaintain Solid Banking Relationship Communicate-Communicate-CommunicateCommunicate-Communicate-Communicate
Producers’ PerspectivesProducers’ PerspectivesMarket ConditionsMarket Conditions
Ease of Obtaining Surety BondsEase of Obtaining Surety Bonds
Surety Capacity – Next Thee YearsSurety Capacity – Next Thee Years
Bond Availability by Contractor Size – Contract Bond Availability by Contractor Size – Contract BundlingBundling
Construction Market – Public & PrivateConstruction Market – Public & Private
Surety Market OutlookSurety Market Outlook
20092009 20102010
Ease of Obtaining Surety BondsEase of Obtaining Surety Bonds
ExtremelyExtremely
EasyEasy EasyEasyBusinessBusiness
As UsualAs Usual DifficultDifficultVeryVery
DifficultDifficult
A Year AgoA Year Ago 10%10% 40%40% 36%36% 13%13% 2%2%
TodayToday 3%3% 17%17% 55%55% 22%22% 3%3%
A YearA Year
From NowFrom Now2%2% 9%9% 26%26% 46%46% 18%18%
Outlook for Surety CapacityOutlook for Surety Capacity(Next Three Years)(Next Three Years)
20092009 20072007 20052005
IncreaseIncrease 12%12% 65%65% 32%32%
Remain the Remain the SameSame 35%35% 19%19% 30%30%
DecreaseDecrease 45%45% 12%12% 34%34%
Don’t Know/NoDon’t Know/No
OpinionOpinion 8%8% 4%4% 4%4%
Public Construction MarketPublic Construction MarketAssessmentAssessment
ExtremelyExtremely
EasyEasy EasyEasyBusinessBusiness
As UsualAs Usual DifficultDifficultVeryVery
DifficultDifficult
A Year AgoA Year Ago 6%6% 37%37% 44%44% 10%10% 3%3%
TodayToday 1%1% 6%6% 29%29% 46%46% 18%18%
A YearA Year
From NowFrom Now1%1% 6%6% 16%16% 55%55% 22%22%
Private Construction MarketPrivate Construction MarketAssessmentAssessment
ExtremelyExtremely
EasyEasy EasyEasyBusinessBusiness
As UsualAs Usual DifficultDifficultVeryVery
DifficultDifficult
A Year AgoA Year Ago 4%4% 32%32% 42%42% 18%18% 4%4%
TodayToday 2%2% 7%7% 12%12% 26%26% 53%53%
A YearA Year
From NowFrom Now1%1% 6%6% 6%6% 41%41% 46%46%
Market ConditionsMarket Conditions
SofteningSofteningRemainingRemaining
The SameThe Same TighteningTightening
Don’tDon’t
Know/Know/
No OpinionNo Opinion
20092009 2%2% 30%30% 68%68% N/AN/A
20102010 3%3% 18%18% 74%74% 5%5%
Advice to Help Clients MeetAdvice to Help Clients MeetBonding NeedsBonding Needs
Weighted Weighted AverageAverage
Prepare Proper Financial StatementsPrepare Proper Financial Statements 4.704.70
Communicate Potential Problems EarlyCommunicate Potential Problems Early 4.574.57
Use CPA with Construction AccountingUse CPA with Construction Accounting 4.564.56
Produce Interim Financial StatementsProduce Interim Financial Statements 4.384.38
Reduce Overhead ExpensesReduce Overhead Expenses 3.993.99
Important Criteria for ObtainingImportant Criteria for ObtainingSurety BondsSurety Bonds
Weighted Weighted AverageAverage
Strength of Balance SheetStrength of Balance Sheet 4.624.62
EquityEquity 4.474.47
Financial Statement PresentationFinancial Statement Presentation 4.464.46
Track Record of ProfitabilityTrack Record of Profitability 4.334.33
Experience in Type of ProjectExperience in Type of Project 4.284.28
Important Financial Measures in Important Financial Measures in Evaluating a Contractor’s CapacityEvaluating a Contractor’s Capacity
Weighted Weighted AverageAverage
Amount of Working CapitalAmount of Working Capital 4.554.55
Backlog LevelsBacklog Levels 4.124.12
History of Consistent EarningHistory of Consistent Earning 4.114.11
Debt to Equity RatioDebt to Equity Ratio 3.963.96
Working Capital RatioWorking Capital Ratio 3.943.94
Maintaining and/or Obtaining Bank Maintaining and/or Obtaining Bank Lines of Credit Compared to Last YearLines of Credit Compared to Last Year
2%
62%
35%
1%
Don't Know
More Difficult
About theSame
Easier
Questions?Questions?