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Surety Association of Wisconsin2010
Surety Losses & Profitability
Contract Surety Industry Loss RatiosCY 1958 - 2007
Source: The Surety & Fidelity Association of America
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
110.0%
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Calendar Year
LossRatio
Average Contract Surety Loss Ratio for 1958 - 2007 = 41.8%
Top Writers of All U.S. Surety
Surety & Fidelity Association of AmericaTop 15 Surety Writers
1994 vs 2007
1994 2008
Surety
($millions)
Premium Surety
1 Reliance Travelers 147.1 1 Travelers 991.62 USF&G St. Paul Travelers 144.1 2 Liberty Mutual 832.83 F&D Zurich 142.5 3 Zurich 482.34 St Paul Group Travelers 140.9 4 CNA Insurance 434.35 AIG 111.5 5 Chubb & Son 297.36 Aetna Travelers 106.6 6 Hartford 210.67 Continental CNA 100.7 7 HCC Surety Group 148.88 Fireman's Fund Gone 97.3 8 International Fidelity 118.89 CNA Insurance Companies 92.8 9 ACE Ltd. 109.1
10 Safeco Liberty Mutual 88.9 10 Arch Capital 105.911 Chubb 77.7 11 NAS Surety 101.712 Hartford 74.0 12 Great American Ins Companies 98.513 Amwest Gone 70.2 13 The Hanover Ins Group 96.714 Capsure CNA 55.3 14 Chartis Group 76.515 CIGNA Group ACE 49.7 15 RLI Insurance 73.0
($millions)
Premium
Companies that are gone in REDCompanies that merged or were sold are in BLUECompanies that merger or were sold a second time are in GREEN
2008 2009 2010
Thorough underwritingMore competition, fewer
projectsContinued Pressure on Margin
Well capitalized suretiesStratification of capacity
Increase in contractor failures
Outlook for 2010
Surety Executives Analysis Healthy Construction
MarketplaceInitial Downturn
Surety Market Capacity
Unfavorable Surety ResultsFewer Sureties – Large and Small Contractors
Middle Contractors – Less Impact ??
Favorable Surety Results ?
Higher Rates ??Improved Underwriting Terms
No new sureties – Status QuoMiddle contractors – Still Most Competitive
Increase to no Rate ChangeIncreased Underwriting Terms
Surety Market Capacity
Flat ConstructionMarketplace
Improving ConstructionMarketplace
The Current Contract Surety CycleThe Current Contract Surety Cycle
Economy
Credit Crisis Decline in Housing Market Territory Expansion/Additional
Discipline Subcontractor Risk
Subcontractor Risk
Change in construction partners financial strength
• Tighter cash flows• Weaker financial statements• Lower margin• Older/worn down equipment• Overextension of capacity to finance or
manage work programs• Ownership changes
Underwriting issues for 2010
Balance sheet management Joint ventures Warranty issues Onerous contract language Open communication with
business partners
Balance Sheet Management
CASH IS KING Control debt Adjust overhead Manage equipment utilization Manage receivables/know your owner Underbillings Maintain capital in operating entity Know your cash flow
Surety Executive Tips for Success
- Maintain profit margin, bid job not competition
- Preserve capital and stay liquid- Reduce overhead and fixed
charges- Lock in prices early- Hold on to talent
Advice for Today's Market
Know your Contractual Rights
Utilize Construction Professionals
Bank Capacity Conserve capital Prequalify
subcontractors
Contractors
Advice for Today's Market
Stay within capabilities Manage growth &
overhead Communicate Position for the market
recovery
Contractors
Position for Market Recovery
Continuity Debt Retention or addition of key people Equipment/Fleet management Know and communicate business plan
• Seek input of business partners• Know business partners needs to execute
your plan Balance sheet strength
For More Information
Thank You
Surety Association of Wisconsin