The Surety Company
While some surety companies write bonds exclusively and others are subsidiaries or divisions of insurance companies, all must be licensed by the state in which they issue performance guarantees and such licensure is responsible for the oversight activities.
On federal contracts, the surety must also be listed in the Treasury Department’s Circular 570: Federal Treasury Listing of Qualified Sureties, where, without registered reinsurance, a company is restricted from issuing credit on a single bond in an amount more than the limit set in the Federal Register. Other owners impose similar requirements including that the surety carrier also be A.M. Best rated “B plus” or better. With this criteria in place, very few sureties have ever failed.
In 2010, it was estimated that the total direct written premiums in the United States and Territories totaled roughly 5.2 billion. Fifty-five percent (55%), of these writings were written by the top 5 carriers, and seventy percent (70%), of these writings were written by the top 10%. By comparison, in 1990, the top five carriers controlled only about twenty-eight (28%) of the total surety writings.
This has greatly affected capacity in the surety market, particularly the undertakings of large penal sum bonds or in a contractor’s backlog capacity. The direct result is an increase in co-surety relationships, (two or more sureties on a single account), and/or increased pressures on owners to accept percentage bonds of 25-50% of the actual contract value.