Transcript Direct Premiums Written
2010 Surety Association of Wisconsin
Surety Losses & Profitability
110.0% 100.0% 90.0% 80.0% 70.0% Loss 60.0% Ratio 50.0% 40.0% 30.0% 20.0% 10.0% Contract Surety Industry Loss Ratios CY 1958 - 2007 Source: The Surety & Fidelity Association of America Average Contract Surety Loss Ratio for 1958 - 2007 = 41.8% 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
Top Writers of All U.S. Surety
Surety & Fidelity Association of America Top 15 Surety Writers 1994 vs 2007 1994 2008 Surety
1 Reliance Travelers 2 USF&G St. Paul Travelers 3 4 F&D Zurich St Paul Group Travelers 5 AIG 6 7 Aetna Travelers Continental CNA 8 Fireman's Fund Gone 9 CNA Insurance Companies 10 Safeco Liberty Mutual 11 Chubb 12 Hartford 13 14 Amwest Gone Capsure CNA 15 CIGNA Group ACE
($millions) Premium
147.1
144.1
142.5
140.9
111.5
106.6
100.7
97.3
92.8
88.9
77.7
74.0
70.2
55.3
49.7
Surety
1 Travelers 2 Liberty Mutual 3 Zurich 4 CNA Insurance 5 Chubb & Son 6 Hartford 7 HCC Surety Group 8 International Fidelity 9 ACE Ltd.
10 Arch Capital 11 NAS Surety 12 Great American Ins Companies 13 The Hanover Ins Group 14 Chartis Group 15 RLI Insurance Companies that are gone in
RED
Companies that merged or were sold are in
BLUE
Companies that merger or were sold a second time are in
GREEN ($millions) Premium
991.6
832.8
482.3
434.3
297.3
210.6
148.8
118.8
109.1
105.9
101.7
98.5
96.7
76.5
73.0
Outlook for 2010
2008 2009 Thorough underwriting More competition, fewer projects Continued Pressure on Margin Well capitalized sureties Stratification of capacity Increase in contractor failures 2010
Healthy Construction
Surety Executives Analysis
Initial Downturn
Favorable Surety Results ?
No new sureties – Status Quo Middle contractors – Still Most Competitive
The Current Contract Surety Cycle
Higher Rates ??
Improved Underwriting Terms Increase to no Rate Change Increased Underwriting Terms Fewer Sureties – Large and Small Contractors Middle Contractors – Less Impact ??
Surety Market Capacity
Improving Construction Marketplace
Unfavorable Surety Results
Flat Construction Marketplace
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
Contractors
Know your Contractual Rights Utilize Construction Professionals Bank Capacity Conserve capital Prequalify subcontractors
Advice for Today's Market
Contractors
Stay within capabilities Manage growth & overhead Communicate Position for the market recovery
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