/ Updated / 8 min read
Surety underwriting team - Global RE Underwriting
Key takeaways
- Surety capacity, including reinsurance, remains broadly available and rates have barely moved in 2026.
- Tariff-driven material costs and delayed projects are putting pressure on contractor balance sheets.
- On larger projects, one contractor failure can hit performance bonds, advance payment guarantees and engineering cover at once.
A calm market on the surface
Ask most brokers about surety this year and you will hear the same thing: there is plenty of capacity. WTW’s spring update expects it to stay that way through 2026, with rates roughly flat and tighter underwriting only on the largest or riskiest jobs. The Baldwin Group says reinsurance capacity is still broadly available, and that surety keeps attracting new capital because it has been profitable for a long time and does not move with the rest of the insurance cycle.
We agree with most of that. Surety has been a good line, and the capital chasing it is not irrational. But a calm market is exactly when it is worth looking hard at the contractors underneath it.
What is squeezing contractors
Costs are the first problem. Baldwin noted US non-residential material prices up almost 10% year on year in May, partly because of tariffs. Fixed-price contracts signed a year or two ago do not always have room for that.
Delays are the second. Baldwin counted more than 75 projects worth around USD 130 billion blocked or delayed in the first quarter alone, and in the Gulf the 2026 conflict slowed project awards too. A delayed project ties up working capital and keeps bonds outstanding for longer than anyone planned. In the UK, contractor insolvencies are still running above pre-pandemic levels.
Bigger jobs, bigger bonds
Projects keep getting larger, from hyperscale data centres to transport and energy schemes, and the bonds get larger with them. The Insurer reported in September that while capacity is abundant, insurers and reinsurers are getting more selective about where they put it.
That is the right instinct. A single large contractor failure can now hit performance bonds, advance payment guarantees and the engineering cover on the same project at once. We look at that accumulation across lines, not bond by bond.
How we underwrite it
The contractor comes first. We want to understand their balance sheet, backlog, how much work they are carrying at fixed prices, their track record on projects of this size and how they have handled cost escalation so far. The bond wording matters almost as much: on-demand guarantees, common in the Middle East, behave very differently from conditional bonds when a dispute starts.
Global RE writes bonds and surety reinsurance alongside engineering, backed by A-rated retrocession, so we can look at a contractor from both sides. If you are planning your surety treaty for 2027, get in touch. We would rather talk early than at the last minute.
Frequently asked questions
- Is surety capacity tightening in 2026?
- Not broadly. Brokers including WTW and The Baldwin Group describe capacity as plentiful with roughly flat rates, although underwriters are more selective on the largest and riskiest projects.
- What is the difference between on-demand and conditional bonds?
- An on-demand guarantee can be called by the beneficiary without proving default, while a conditional bond requires the beneficiary to show that the contractor has failed to perform. On-demand guarantees are common in the Middle East and behave very differently once a dispute starts.
- What do surety reinsurers look at first?
- The contractor: balance sheet, backlog, the share of work at fixed prices, track record on similar projects and how cost escalation has been handled. The bond wording comes a close second.
