Four surety leaders threw their hats into the ring at the 13th Ontario General Contractors Association (OGCA) symposium in Collingwood this past week. Andrew Cartwright of FCA Insurance Brokers was pleased to host an esteemed panel consisting of Richard Grant (Trisura Guarantee), Nelson DeQuintal (Intact), Chris Kucman (Tokio Marine Canada) and Conor Smith (Swiss Re Corporate Solutions) to discuss the current state of the surety market.
The discussion was opened with a conversation around the value that each surety company brings to the table for what is ultimately a product that is a commodity. Trisura’s service innovation, Swiss Re Corporate Solutions’s global market presence, Tokio Marine Canada’s strategic relationship and cross-line capabilities and Intact’s Canada-wide staff expertise were all discussed as ways the surety companies differentiate themselves from their competitors.
New entrants to the Canadian surety market
With the pleasantries out of the way, the discussion shifted to current market conditions and how new entrants to the surety market change that dynamic. In recent years, the market for surety bonds in Canada has been extremely competitive, making it much easier for consumers to obtain bonding.
Both Tokio Marine Canada and Swiss Re are recent entrants to the Canadian marketplace as primary surety writers, offering new capacity to the market and increased choice for contractors. This provides for continued innovation, pushing existing players to continue meeting the needs of their clients. The panellists acknowledged such, while also noting the responsibility they all hold to not allow increased competition to erode the value proposition of bonds as a pre-qualification tool.
“Bonds are slow to respond”
Unsurprisingly, when intentionally antagonized with the statement that “bonds are slow to respond” and asked for their feedback, the panellists were very quick to point out some of the exciting developments in the surety industry that address this very critique of the product. For example, bond forms legislated under the Construction Act in Ontario were designed to tackle this common frustration head-on. Defined claims timelines were established to ensure uniform response timelines as well as defined process’ to ensure all parties are aware of their rights and obligations as it relates to pursuing, defending or responding to claims under a bond. Similarly, the Surety Association of Canada’s Headstart Bond also addresses many of the same time related challenges to ensure general contractors are able to secure their subtrades contractual obligations with a time sensitive bond form.
Holdback repayment bonds as a tool
The topic of the legislated bond form for Holdback Repayment Bonds in Ontario was discussed by the group. The overwhelming consensus was that these bonds were a great tool for strong, financially sound, contractors to bolster their cash position and gain quicker access to their cash and profits. That
of course comes with a caveat – this bond will not be a tool for contractors struggling with cashflow to take advantage of in order to make ends meet. To qualify for this bond type, a contractor will have to evidence strong payment practices, a healthy balance sheet and profitability.
Is it too easy to obtain bonding?
The question was posed that in the recent past contactors who have caused surety losses have been able to get bonding once again without much resistance from the surety market. Furthermore, participants questioned whether this practice erodes confidence in the product as a prequalification tool. Comments from the panellists were that it is a marketplace and different companies have different appetites. All panellists agreed certain conduct should preclude contractors from obtaining a bond facility and that the integrity of the product was important. That being said, while there have been some larger surety losses in the past few years, most surety companies have enjoyed strong results. There have been a number of companies trying to make inroads into the Canadian marketplace, which naturally affects typical underwriting considerations and standards in certain circumstances. This is a cycle and if results decline, which they will eventually, then surety terms and appetite will contract.
Advice from the panel
Exiting the major shutdowns and mandates related to COVID 19, contractors find themselves facing a litany of challenges ranging from hiring frustrations to supply chain disruptions. In light of this, our panellists took the opportunity to provide feedback on what they view as pertinent advice for the coming year:
- Read your contracts: with the world shifting to a consistent model of downloading risk, contractors are facing more onerous contractual requirements from project owners. Identify these and establish controls to mitigate these risks.
- Work with who you know: Trusted subtrades, suppliers, financial service providers and project owners are essential for success and building out a strong roster will provide stability in uncertain times.
- Cash is king: It’s no secret that interest rates are on the rise. In a time where work is plentiful and work backlogs are being filled up, cash on hand will ensure interest expenses are kept low and money is available to cashflow projects.
There was healthy optimism and excitement at the first OGCA symposium since the start of the COVID pandemic. The surety industry as a whole was ecstatic to be back discussing the opportunities and challenges that face general contractors in Ontario. Intact, Trisura, Swiss Re Corporate Solutions, Tokio Marine Canada and FCA Insurance would like to thank all those who attended the “Royal Rumble” for their participation and questions.
Andrew Cartwright is the vice-president of surety for FCA Insurance. Cartwright recently joined FCA after a decade long tenure as RVP for a large national surety company. Matt Manol is the manager of surety for FCA Insurance. Manol recently joined FCA after spending his last six years underwriting contract and commercial surety products for a large national surety company. Send comments and column ideas to firstname.lastname@example.org