Surety Underwriting Standards Tighten Amid Rising Claims
Contractors in 2025 face tighter surety bond terms and a spike in subcontractor defaults. Surety underwriters are raising the bar on bonding as a reaction to increasing claims. Unfortunately, many subcontractors are struggling with labor shortages and cost inflation, making it harder to finish projects on time and on budget. These pressures are creating additional project risks for general contractors, including higher subcontractor default rates. For General Contractors (GCs), it’s more crucial than ever to prequalify every subcontractor, secure proper bonds, and proactively monitor cash flow.
Surety providers are tightening their underwriting standards. According to the Surety & Fidelity Association of America (SFAA), the direct loss ratio for all writers of surety bonds in the U.S. hit 24.9% in the first nine months of 2024—the highest in five years. This was driven by inflation-fueled cost overruns and a strained labor market.
Increased Claim Severity
The rising claim severity is prompting more conservative underwriting. Inflation in materials and labor means payouts are larger when defaults occur. Reinsurers have taken notice. Following an uptick in losses, particularly among small and mid-sized contractors, many reinsurers have begun to:
- demand higher retentions
- lower ceding commissions
- exclude certain bond types from coverage
Bonding Capacity
While bonding capacity is still available, surety underwriters are scrutinizing contractor financials, backlogs, and experience more closely. Some contractors face more questions, tougher terms, or lower single-job limits. Specific adjustments include:
- higher working capital requirements
- more frequent reporting
- collateral or co-surety structures (in some cases)
This shift affects not only general contractors but subcontractors as well, who are seeking their own bond lines.
Surety Confidence
If you need guidance on navigating today’s more rigorous bonding environment—or simply want to benchmark your current surety program—reach out to TSIB and speak with one of our Surety experts. Our team will analyze your financials and bonding capacity to create a strategy that keeps you building with confidence even as underwriting standards evolve.
TSIB’s Risk Consultants are currently servicing the following locations:
East Coast: New York City, NY; Bergen County, NJ; Fairfield County, CT; Philadelphia, PA
Texas: Austin, San Antonio, Houston, Dallas
California: Orange County, Los Angeles County, Riverside County, San Bernardino County, San Diego County
image credit: stock.adobe.com/contributor/209020125/kings-access
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