How to Prequalify a Surety — and Why It’s So Important

Qualify a SuretyThe number of surety companies represented in any region can make the task of prequalifying or differentiating among them challenging to say the least. Many bond agents and brokers have access to more than 30 surety company markets, and there can be important distinctions between each of them that should be understood before a selection occurs. 

The 3 main ways to qualify a surety company

The following resources make it easy to be sure that the surety company you may do business with is reputable and licensed to do business in your state:

  1. Federal Treasury Limit (T-Listing): It’s a good idea to use this federal website, which indicates the size limit of a single job the surety is qualified by the federal government to bond. The site also indicates the states in which the company is licensed to write bonds.
  2. AM Best Company: This insurance industry rating service provides information on financial strength and insurance ratings for interested parties. You’re required to sign up for this service in order to access the information, though oftentimes surety companies will provide their agents with copies of their most recent ratings from AM Best Company.
  3. Financial review sites: Company websites such as Standard & Poor’s, Moody’s and other rating services for publicly traded surety companies can provide useful information when qualifying a surety. The sites provide company annual reports, 10-Ks and other stockholder and investor information.

Bond users should also verify the validity of bonds they’ve obtained as part of the prequalification process:

  1. Inspect powers of attorney: Owners/obligees inspect powers of attorney to be sure they are current, dated concurrently, and are valid, matching with the name on the attached bonds.
  2. Verify filed bonds are valid: Some obligees contact surety company representatives to verify bond numbers and filed bonds, and also confirm agency powers of attorney are valid by obtaining confirming documentation from the surety companies.

The most important aspects to look for in a surety company

A professional agency surety bond representative can help assist in the prequalification process by using their knowledge and relationships to match a contractor or other party with the right surety based on:

  • Underwriting capacity, flexibility, appetite, special programs available and their terms (i.e., quick bond programs).
  • Rate filings and criteria, indemnity and subordination agreement language.
  • Claim department policies and handling.
  • Additional services offered, such as bond-ability letters, peer review and analytical tools for clients.
  • Reputation, pending claims or litigation, large surety losses, personnel changes and company acquisitions or consolidations.

In addition to the above, the following resources are helpful when researching surety company information:

  • Industry associations
    • SFAA (Surety & Fidelity Association of America): This site lists company members and employee involvement in local and national chapters. Company personnel and agents can usually provide surety company rankings, written and earned premium, paid loss and combined operating ratio underwriting performance information. This can be shown for multiple years to illustrate the trend analysis of a company’s rate of growth, loss history, etc.
    • NASBP (National Association of Surety Bond Professionals): This site shows company members, methods for networking and resources for education and advocation.
  • State licensing sites
    • Sites like this one for Florida, for example, confirm company and agency licenses and allow the user to validate the agent is showing as an active licensed agent with the company.
  • Surety company websites
    • These sites show personnel, experience, underwriting appetite, bond classes the surety may support and sometimes a specialty customer.
  • Social media
    • Sites like LinkedIn may provide additional details in a search of surety companies and their personnel located locally and nationally.

Many parties rely on agency representatives to select the best surety company for their needs.  In most cases, this can be the best way of prequalifying the surety beyond the licensing, T-listing and rating agency levels mentioned earlier.

For those with significant bond needs, it’s strongly recommended to have a face-to-face meeting with the surety representatives servicing your bonds prior to selection and at least annually thereafter.

Using these tips for prequalification can help with choosing the right surety company that can fit your needs now and into the future. 

Todd Taylor, AFSB, CPCU

Todd Taylor is a contract surety bond manager with our Orlando Old Republic Surety branch office. He’s worked in the surety industry in the Midwest and Florida over 25 years. He has a bachelor's degree in business finance and CPCU, AFSB designations. He enjoys travel and photography.