Surety Underwriting: What a Surety Underwriter Looks For
Are You Getting the Runaround on Your Surety Bond Application?
Look, if you’ve been sitting around waiting weeks for surety bond approval while your competitors are already breaking ground, you’re probably dealing with surety underwriters who don’t understand your business. And honestly? That’s on you as much as it’s on them.
We’ve worked with hundreds of contractors across Ontario, and the ones who understand surety underwriting – really understand it – get better rates, faster approvals, and way less headaches. The ones who don’t? Well, they’re still waiting for callbacks from surety companies.
Here’s what actually happens behind the scenes when you submit that bond application to experienced underwriters, and more importantly, how to make the surety underwriting process work in your favor.
What Surety Bond Underwriting Actually Involves (Spoiler: It’s Not Insurance)
Most contractors think surety bond underwriting works like car insurance. Submit your info, pay a premium, hope nothing bad happens. Wrong.
Surety underwriting is the careful assessment of whether you’ll meet your obligations – and whether you can reimburse the surety company if things go sideways. Unlike insurance underwriting (which basically assumes losses will happen), surety underwriters expect repayment from the principal. Every single transaction gets evaluated individually by the surety risk assessment team.
Think of it this way: when you get car insurance, the company knows some drivers will crash. They’re pooling that risk. But with surety bonds? The underwriter is betting you won’t default – and if you do, they’re coming after you for every penny. This fundamental difference in liability structure changes everything about how surety companies evaluate your bond application.
Who’s Actually Making These Underwriting Decisions?
Two types of people can handle your bond underwriting: either a surety underwriter (working directly for the surety company) or a broker with delegated authority from surety companies.
We’ve got delegated authority at Roughley, which means we can approve many bonds on the spot instead of sending everything up the chain to surety companies for review. But here’s the thing – whether it’s us or the company making the call, these professionals are combining financial analysis, legal knowledge, and industry experience to assess your risk profile.
And experienced underwriters are good at spotting inconsistencies in bond applications. So don’t try to hide that payment dispute from two years ago or gloss over your working capital issues when prequalifying the contractor review happens.
The Three Pillars That Surety Underwriters Are Really Judging You On
Every surety underwriter looks at what we call the “Three C’s” during their pre-approval evaluation. Master these, and you’re golden. Miss on any one of them, and you’re looking at higher premium costs or outright rejection.
Capital: This is your financial muscle. Net worth, working capital, liquidity – basically, can you pay the surety company back if needed? According to recent industry data, 60% of bond applications get rejected due to insufficient working capital. Not because contractors are bad at their business, but because they can’t prove they have the cash flow to handle potential bond claims.
Capacity: Your experience and operational capabilities in your business. How many similar projects have you completed? What’s your track record with contract bonds? We had a client last year who kept getting rejected for $500K performance bonds because all his previous work was under $100K. The underwriters couldn’t see the capacity jump, creating significant surety risk concerns.
Character:
Credit history, integrity, compliance record with your business operations. This is where that old payment dispute comes back to create liability issues. Or that time you had a licensing issue three years ago that you “forgot” to mention to the principal investigator.
The thing is, two out of three doesn’t cut it with experienced underwriters. You need all three working in your favor during the underwriting process.
Other Factors in Bond Underwriting (That You Probably Haven’t Thought About)
Beyond the Three C’s, surety underwriters are looking at bond-specific factors – amount, term, specific conditions, your history with bond claims.
Then there’s your overall business profile: how long you’ve been in business, profit margins (they want to see at least 10% consistently), debt obligations, any liens or bankruptcy history. Even if it was years ago, this affects your principal status and surety risk evaluation.
And for contract bonds specifically, they’re evaluating the actual project scope, timeline, location, and your liability responsibilities. I’ve seen performance bonds get declined because the project was in a remote location that made monitoring difficult, increasing the surety company’s exposure to risk.
How the Surety Underwriting Process Actually Works (And Why It Takes So Long Sometimes)
Here’s the typical flow: you submit your bond application, surety underwriters review your documents, assess the risk, set your premium, then issue the surety bond.
For simple commercial surety bonds – notary bonds, license bonds – this often happens same day. We can usually turn these around in a few hours with our delegated authority from surety companies.
But contract bonds? Different story. Especially for larger amounts or complex projects, you’re looking at days to weeks. The surety underwriter might need additional financial statements, project details, or clarification on your experience with similar work. This extended underwriting process helps surety companies better understand their exposure and liability.
The delays usually happen when your bond application is incomplete or raises red flags. Missing financial statements, unclear project scope, or discrepancies in your credit report – any of these can add weeks to the process and frustrate both the principal and the broker involved
What Actually Determines Your Surety Bond Premium (It’s Not Just the Bond Amount)
Your premium reflects the surety bond amount, obviously, but also your entire risk profile as assessed during surety underwriting. Those Three C’s we talked about? They directly impact your rate when surety companies evaluate your application.
We’ve seen identical surety bond amounts with premium costs ranging from 0.5% to 3% of the bond value, entirely based on the applicant’s profile and business history. The well-prepared contractors with solid documentation and clean financial statements get the lower rates from surety companies.
But here’s what most people miss: the contract surety market in Ontario is pretty competitive right now. According to the Insurance Bureau of Canada, there are over 200 licensed surety providers in the province. That means if one underwriter doesn’t like your risk profile, another surety company might view your application more favorably.
Why You Actually Want Tough Surety Underwriting (Even When It’s Annoying)
I know it seems counterintuitive, but strong surety underwriting benefits everyone in the business. Better risk evaluation means fairer pricing for contractors who have their act together. It means quicker approvals when you’re properly prepared and understand the underwriting process.
And from a business standpoint, thorough surety underwriting builds trust with project owners, lenders, and regulators. When they know the surety company actually vetted you thoroughly, they’re more confident in your ability to complete the work without generating claims.
Plus – and this matters for growing contractors – accurate surety underwriting helps you understand your actual bonding capacity. Instead of getting surprised by rejections, you know where you stand and what you need to improve in your business to reduce liability exposure.
Quick Answers to Questions About Bond Applications You’re Probably Asking
What usually causes delays in the underwriting process?
Incomplete bond applications, unclear financial statements, or discrepancies that need explanation from the principal. About 40% of applications require additional documentation before surety companies can approve.
Could I need collateral for my surety bonds?
For larger bonds or if your financials show increased liability risk, yes. Usually cash, CDs, or letters of credit that reduce the surety company’s exposure.
How do I improve my bonding capacity with surety companies?
Strengthen your balance sheet, build working capital, and maintain clean credit. Also, document your project experience clearly for experienced underwriters to review.
Does a past claim hurt future bond applications?
Depends on the circumstances and how it was resolved with the surety company. Handled professionally? Not necessarily a deal-breaker with most surety companies. Left unresolved or disputed? That creates significant problems for the principal applicant.
Your Bond Application Prep Checklist (Do This Before You Apply)
- Get your financial statements in order – ideally audited or reviewed by a CPA for surety companies to trust
- Pull your credit reports and address any issues that could affect your principal status
- Document your project experience with clear details on scope, value, and outcomes for the underwriting process
- Gather any relevant licenses, certifications, or industry credentials that reduce liability concerns
Then – and this is where most contractors mess up – set up a strategy session with a broker who actually understands surety underwriting. Not just to submit your bond application, but to position it properly for experienced underwriters review.
We do these sessions at Roughley because we’ve seen too many good contractors get rejected on technicalities that could’ve been avoided with better preparation and understanding of what surety companies really want to see.
Ready to Stop Guessing and Start Getting Approved?
Look, surety underwriting doesn’t have to be this mysterious black box that determines whether you get to bid on profitable projects. The underwriters have specific criteria, and once you understand what they’re looking for, you can prepare accordingly.
The contractors who get this right – who understand the Three C’s, prepare comprehensive applications, and work with brokers who know the market – they’re not just getting bonds. They’re getting better rates, faster approvals, and the bonding capacity to take on bigger projects.
Set your bond application up for success. Contact Roughley Insurance Brokers today to optimize your surety underwriting process and secure the right coverage – fast. Because while you’re figuring this out on your own, your competitors are already moving forward with their projects.
Note: This article provides practical insights based on our experience in the surety market. For specific legal or financial advice regarding your bonding needs, consult with qualified professionals.
