fbpx

Gallagher’s surety market update June 2024

ceo

SPONSORED

The surety market has hardened and is currently experiencing a tightening of capacity whereby underwriters and their re-insurers are being more cautious, resulting in contractors struggling to get bonds or finding terms for their facilities changing significantly.

This was due to the number of administrations occurring in 2023 and general negativity around the construction sector, driven by:

  • Inflation, especially on fixed price contracts
  • Lack of liquidity in the supply chain 
  • Material and labour shortages
  • Project delays
  • Cladding and Professional Indemnity

A small number of sureties have withdrawn from the market, creating more pressures on the markets that remain.  Turnaround times to get quotations and new bonds issued have increased as a result. However, Gallagher are confident that we will soon see fresh capacity enter the market towards the end of 2024 with a number of insurers looking to enter via MGA’s that have been set up but currently waiting for agreements to be able to issue bonds.

Employers and funders are requesting more onerous bond wordings at a time when sureties are being less amenable to changes to the standard ABI bond form.  We are therefore working harder to find the middle ground and negotiations are sometimes taking longer than normal. We are also seeing contractors pushing for lower bond values to protect capacity, usually by offering higher retentions in return.

Whilst the market is difficult, when we compare the number of losses in this calendar year compared to last year, it is comparably lower. This is largely due to the completion of legacy fixed-price contracts, contractors being a lot more cautious in the work they take on and underwriters being more careful on what they will and wont bond.

When negotiating bond wordings contractors should look for the bond to release at Practical Completion certificate or to insert provisions into the wording which allows the bond amount to reduce wherever possible allowing reintroduction of capacity when needed. We are also working with clients to release outstanding bonds in a timely fashion, thereby freeing up capacity and helping to reduce the additional premium burden.

To learn more about Gallagher Specialty and how they can help your business, click here.