Surety capacity is granted against a balance sheet, and it is granted in aggregate. A contractor with the track record to win three large contracts in the same year can still find that the third bond is the one that will not be written, because what an underwriter is looking at is the total of live obligations against tangible net worth rather than any individual bond in isolation.
The uncomfortable version of this is the growth case. A business doubling its turnover is usually consuming working capital at the same time as it is adding bond exposure, which pulls the two things an underwriter looks at in opposite directions. Retained profit arrives a year after the work. Bond exposure arrives with the award.
There are three things that reliably move a capacity decision, and none of them is a better presentation of the pipeline. Real capital in the business: retained profit, or a shareholder injection, rather than a director’s loan that can be called. Structure: a counter-indemnity from the entity that holds the assets, and where a group is involved, from the parent. And release discipline — bonds discharged at practical completion instead of left running because nobody asked, which frees aggregate that has already been paid for.
The practical advice we give is unglamorous. Ask for a facility rather than a bond, ask before the tender rather than after the award, and tell us what the whole year looks like even if only part of it is real. A facility sized for the year is a conversation once. Three individual bonds are three conversations, and the third one happens under a deadline.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
