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Marsh’s construction practice experts give their insight into surety and capacity changes on a global and regional basis during Q1 2024.

The surety market had a challenging year, with rates generally flat.

Strong macroeconomic conditions point towards increased surety usage in the US around the Infrastructure Investment and Jobs Act and its multiple industry specific investments, including transportation, energy, water infrastructure, and broadband.

High interest rates have also increased surety demand as the cost for bank guarantees rise. A widening array of global environmental rules and regulations will also support an increased use of reclamation and decommissioning surety bonds.

With increased demand, surety providers have remained profitable, with the top 10 carriers by volume experiencing loss ratios in the high teens in spite of some losses amongst the smaller/mid-size subcontractor base.

Increased surety capacity and support will be required from the surety carriers to allow contractors to capitalize on the surges in public spending and demand for bonding. Top carriers and new entrants alike appear well-positioned to respond.

Reinsurance renewals have put increased scrutiny on surety underwriting on coal and oil and gas companies. While the scrutiny is not unexpected, consideration of such risks should take account of any ESG-positive aspects, such as support for proper reclamation, plugging, and related efforts.

The UK experienced several high-profile contractor insolvencies, and there were losses among small and medium contractors in Asia and Europe. This has led to tighter underwriting criteria and reduced capacity in some instances.  

Underwriting criteria remained conservative in the Pacific, with some sureties reverting to terms and conditions, which put it at a disadvantage to bank guarantees. 

Surety is a new product in India, with strong demand. However, reinsurers have yet to initiate broad support. In the Middle East, surety has little penetration, but the increase in infrastructure and construction projects in the Middle East is leading banks to look at sureties to distribute their guarantee exposures. 

Surety is widely used in Africa, but the lack of global sureties creates a capacity challenge. Additionally, the unfavourable rating of local/regional insurers limits their participation in large international projects happening in the continent. 

Global construction market update

Global macro trends point to an encouraging outlook for the construction sector.