General Inquiries

Liquidity and the Economy

  • 1.  Liquidity and the Economy

    Posted 01-14-2019 16:08

    Based on the CFMA Benchmarker reports from the last decade or more, it would seem that the construction industry, (as a whole) is maintaining higher levels of liquidity since the economic recovery.  Is this consistent with your management strategy?  What is causing this change?  Are you more risk averse?  Are bonding companies and financial institutions requiring higher liquidity levels?  Are you finding that you can and should raise margins in order to weather the next downturn? 


    As always, I really appreciate the incredible feedback and dialogue that comes from this group.  The data only tells part of the story.


    John Killingsworth, Ph.D.

    Dept. of Construction Management

    Colorado State University



  • 2.  RE: Liquidity and the Economy

    Posted 01-15-2019 09:18
    ​According to Willis Towers Watson the U.S. Surety rates will be flat to slightly lower. The reason is greater capacity is putting downward pressure on rates and improving underwriting conditions.

    Below is copy of Willis Towers Watson Study

    The marketplace remains healthy and continues to evolve.

    • The surety industry continues to outperform most other financial service sectors, which overall have performed exceptionally in the last 18-24 months. Written premium levels have increased for most surety companies year over year, with loss ratios decreasing in most cases, according to SFAA reports.
    • New entrants in 2017 and early 2018 added significant new capacity, while acquisitions and expansions improved ratings.
    • Merger and acquisition activity is projected to continue at a rapid pace for at least the next year. While this could impact competition, it is also likely to create new market and product opportunities as newly combined companies look to maintain profitability and position.

    Surety companies are looking for new growth areas and commercial surety remains a focus.

    • New products are being developed, although only a limited number have been deployed.
    • There is a renewed effort by surety companies and brokers alike to push surety bonds as an option to replace letters of credit where the obligees are open to them.
    • Insurance program bonds, environmental and creative commercial contracts are being written more readily and accepted more frequently.

    Sureties will see opportunities in 2019.

    • Large multinational construction firms in Asia/Pacific and Europe will continue to invest in North American construction firms and U.S. infrastructure projects. Current tax reform for large C corporations will drive funds repatriation into the U.S., which will increase economic growth and productivity.
    • Continued demand for repair and replacement of neglected infrastructure will drive creative P3 contracting opportunities. Look for more private involvement in traditionally public projects.
    • Rapid and aggressive residential development could give way to increased public services activity as schools and municipalities launch projects to accommodate demographic changes in many areas of the country.

    The marketplace is not without challenges.

    • In early 2018, we saw the liquidation of the second largest contractor in the U.K., Carrillion, and default/restrictions placed on a leading Brazilian contractor, Odebrecht. While their U.S. obligations have not gone into default yet, the unrealized project failures may restrain underwriting requirements for global contractors. We are watching these situations closely for potential losses that could firm up surety rates.
    • Since surety business outside of the U.S. involves significant reinsurance support, any reinsurance losses, related to surety or not, could impact surety rates.
    • Labor shortages are reaching critical levels resulting in project delays, schedule slides and rising labor costs, which are certain to impact balance sheets and backlogs in 2019. Upward pressure on costs from economic and political activities combined with unfulfillable demand will continue to strain contracting budgets.

    Jerry Whitaker BA Marketing
    Senior Partner
    Acrisure / Whitaker LaChance
    Portage MI
    (269) 585-7098