Impact of COVID-19 on Insurance – Surety Insurance


Columbus, Ohio, April 2, 2020: The COVID-19 pandemic and the historic federal, state, and local government efforts to mitigate its spread has stopped the economy in its tracks. Social distancing and self-isolation may result in the US unemployment rate reaching record levels. The dialogue on business interruption insurance will continue, whether in the courts or to discuss a federal backstop. At the forefront of the issue of the ability of businesses to perform under stress is surety insurance. The insurer, as surety, is the party that guarantees the performance of another party, often a contractor or a construction project. The contract through which the guarantee is executed is a surety bond.

As of December 31, 2019, there were 323 insurers that reported direct premium written for the surety insurance line of business. There are various types of surety insurance; however, the insurers that wrote performance bonds may see a rise in claim frequency and severity as a result of unemployment, constrained cash flows, and other phenomena impacting businesses.

Direct premium written (DPW) for surety insurance for the 323 insurers was nearly $6.8 billion at year-end 2019. The top 20 writers, based on all types of surety insurance written, accounted for over $4.4 billion, 65 percent of the industry dollar volume. Surety insurance comprised approximately 17 percent of these top 20 insurers’ books of business and was but 3 percent of the books of business of all carriers writing some surety.

Despite the diversification within many of the top 20, surety insurance constituted more than 90 percent of seven insurers’ total 2019 DPW. According to Joseph L. Petrelli, President and cofounder, Demotech, the first company to review and rate independent regional and specialty insurers, “By count, the 323 carriers writing surety insurance are nearly 13% of the Property and Casualty insurers reporting to the National Association of Insurance Commissioners. With respect to the impact of COVID-19 on surety insurers writing performance bonds, keep in mind that at the time the performance bonds were written, the economy was humming, competent contractors were likely to be at full capacity, with projects in their pipeline. COVID-19 and the response to mitigate the contagion changed everyone’s world. It is unlikely that insurers writing surety insurance will be spared from future discomfort.”

A full article along with a chart of the top 20 writers of Surety Insurance by 2019 DPW can be found here.

About Demotech, Inc.

Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers. Since 1985, Demotech has served the insurance industry by assigning accurate, reliable, and proven Financial Stability Ratings® (FSRs) for Property & Casualty insurers and Title underwriters. FSRs are a leading indicator of financial stability, providing an objective baseline of the future solvency of an insurer. Demotech’s philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than solely on financial size. Visit www.demotech.com for more information.