Surety Underwriters’ Outlook for Construction Markets Sours

Surety underwriters have a downbeat outlook for the recovery of construction markets, according to FMI’s second annual Survey of Surety Providers. Sixty-two percent of respondents said the U.S. nonresidential construction market will not experience growth until 2013, and 19 percent do not expect the recovery to occur until 2014.

The results are in marked contrast to FMI’s 2010 survey results, according to which the majority of respondents expected the downturn to end by late 2010 or early 2011. Only 5 percent of 2011 respondents are confident that their client construction firms are “well-positioned,” with good exposure to stable or growing markets. Surety underwriters are concerned that firms are failing to reduce overhead costs and straying from core competencies. Fifty-seven percent of respondents expect their clients to have more difficulty in obtaining bonding one year from now, and 67 percent believe clients will have more difficulty obtaining a bond two years from now.

“Surety providers look at three key factors when considering bonding applications: the expertise of the management team, the strength of the balance sheet and project history,” says Curt Young, vice president of FMI’s Investment Banking Group, which conducted the survey. “If a company is struggling financially, it is likely they have engaged in business practices that will have a detrimental impact on their long-term success.”

To learn more about this report please visit FMI's website at www.fminet.com. To learn more about financial and economic information impacting the construction industry, please contact the construction professionals of McKonly and Asbury, LLP.