Brent Headley, Surety Account Executive at Anderson & Catania Surety Services LLC, discusses what impacts surety rates, including the primary factor that determines your bond rates.
Has COVID-19 changed the way sureties evaluate working capital?
In 2020, COVID-19 is not changing the way sureties look at working capital, according to Brent.
“The federal government stimulus package seems to have kept the surety industry at bay when it comes to underwriting working capital,” Brent says.
However, he does add this caveat: “2021 could be a significantly different story.”
How much credibility is given to in-house financials when sureties evaluate financial strength?
From Brent’s perspective, sureties appear to put more emphasis on interim financials in the current environment than in prior years. Perhaps this reflects the soft contract surety underwriting environment over the past eight years.
Are there any tools that can be used by surety underwriters to gain a surety approval for a project when financial strength is lacking?
The ability of the contractor to complete the project will play a substantial role in gaining surety approval when financial strength is deficient. Current employee structure and previous experience with the same project owner and/or architect also can have a major impact on the level of confidence a surety company has in approving an account for a particular project.
Surety rates are based on a number of factors. Surety rates are based, first of all, on the type of work that you perform. Contractors such as underground contractors versus someone that does electrical, or mechanical, the rate structure could be different. The main factor is the financial position of the contractor.
So, for example, someone that has a strong financial condition in relation to the program that they need is going to pay a lesser rate than someone who does not have the financial capacity, working capital, equity, or whatever the case may be.
Financial condition is the critical piece as far as determining what type of rate the surety company is going to provide.