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14th May 2020
Performance bonds market hardens as fears of a recession grow

Construction firms are observing a significant hardening of the performance bonds market as insurers back away from providing bonds to small and medium-sized contractors, according to a recent report in Construction Enquirer. As fears of a deep post-coronavirus recession intensify, specialist insurers are withdrawing from the market with only the largest of contractors still able to obtain the bonds they need.

One firm commented, “Our experience is that these insurers are now very nervous to offer bonds to all but the strongest of contracting companies due to the significant claims they are currently dealing with, and of course they are very worried about the effects that the anticipated coronavirus recession will have on the industry.”

A barrier to financial recovery

As talk now turns to the easing of lockdown restrictions, with a particular focus on getting the construction industry back on its feet, the difficulty of obtaining performance bonds could severely impact the ability of contractors (particularly smaller and medium-sized firms) to recover from the crisis. Some parties require a performance bond to be in place before granting work to a contractor; whether or not a bond is required depends on the perceived financial strength of the bidding party, which is why smaller firms are losing out.

The bonds market kicks back

In response to the Construction Enquirer report, leading bonds provider, DRS Bond Management, issued a statement claiming that the bonds market was not in crisis. It said: “Despite the severity of the COVID-19 pandemic and its commensurate impact on the global economy, the UK and Ireland Surety market is not failing.

“Whilst Sureties are underwriting with high levels of financial due diligence, bonds continue to be agreed and issued.”

It did admit, however, that lockdown has led to changes in some of their processes. For example, bond wording acceptance has tightened, while premiums have also increased as a result of an increase in claims and the economic uncertainty surrounding the coronavirus pandemic.

Markets are still available

Here at Focus, we’re working hard to assist our Broker Partners in placing business across our entire Product Range – including performance bonds. Our market is still writing bonds for contractors of all sizes, not just the largest construction businesses.

If you are having difficulty obtaining performance bonds on behalf of your clients, or have any enquiries regarding the content of this blog, please get in touch with either Alex Nicholls or Andrew Bickle at the details below:

Alex Nicholls, Underwriting Manager

Email: alexnicholls@focus-insurance.com

Tel: 0345 345 0091

Andrew Bickle, Principal Underwriter

Email: andrewbickle@focus-insurance.com

Tel: 0345 345 4611

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