Surety Association of Wisconsin2010

Surety Losses & Profitability

Contract Surety Industry Loss RatiosCY 1958 - 2007

Source: The Surety & Fidelity Association of America

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

110.0%

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Calendar Year

LossRatio

Average Contract Surety Loss Ratio for 1958 - 2007 = 41.8%

Top Writers of All U.S. Surety

Surety & Fidelity Association of AmericaTop 15 Surety Writers

1994 vs 2007

1994 2008

Surety

($millions)

Premium Surety

1 Reliance Travelers 147.1 1 Travelers 991.62 USF&G St. Paul Travelers 144.1 2 Liberty Mutual 832.83 F&D Zurich 142.5 3 Zurich 482.34 St Paul Group Travelers 140.9 4 CNA Insurance 434.35 AIG 111.5 5 Chubb & Son 297.36 Aetna Travelers 106.6 6 Hartford 210.67 Continental CNA 100.7 7 HCC Surety Group 148.88 Fireman's Fund Gone 97.3 8 International Fidelity 118.89 CNA Insurance Companies 92.8 9 ACE Ltd. 109.1

10 Safeco Liberty Mutual 88.9 10 Arch Capital 105.911 Chubb 77.7 11 NAS Surety 101.712 Hartford 74.0 12 Great American Ins Companies 98.513 Amwest Gone 70.2 13 The Hanover Ins Group 96.714 Capsure CNA 55.3 14 Chartis Group 76.515 CIGNA Group ACE 49.7 15 RLI Insurance 73.0

($millions)

Premium

Companies that are gone in REDCompanies that merged or were sold are in BLUECompanies that merger or were sold a second time are in GREEN

2008 2009 2010

Thorough underwritingMore competition, fewer

projectsContinued Pressure on Margin

Well capitalized suretiesStratification of capacity

Increase in contractor failures

Outlook for 2010

Surety Executives Analysis Healthy Construction

MarketplaceInitial Downturn

Surety Market Capacity

Unfavorable Surety ResultsFewer Sureties – Large and Small Contractors

Middle Contractors – Less Impact ??

Favorable Surety Results ?

Higher Rates ??Improved Underwriting Terms

No new sureties – Status QuoMiddle contractors – Still Most Competitive

Increase to no Rate ChangeIncreased Underwriting Terms

Surety Market Capacity

Flat ConstructionMarketplace

Improving ConstructionMarketplace

The Current Contract Surety CycleThe Current Contract Surety Cycle

Economy

Credit Crisis Decline in Housing Market Territory Expansion/Additional

Discipline Subcontractor Risk

Subcontractor Risk

Change in construction partners financial strength

• Tighter cash flows• Weaker financial statements• Lower margin• Older/worn down equipment• Overextension of capacity to finance or

manage work programs• Ownership changes

Underwriting issues for 2010

Balance sheet management Joint ventures Warranty issues Onerous contract language Open communication with

business partners

Balance Sheet Management

CASH IS KING Control debt Adjust overhead Manage equipment utilization Manage receivables/know your owner Underbillings Maintain capital in operating entity Know your cash flow

Surety Executive Tips for Success

- Maintain profit margin, bid job not competition

- Preserve capital and stay liquid- Reduce overhead and fixed

charges- Lock in prices early- Hold on to talent

Advice for Today's Market

Know your Contractual Rights

Utilize Construction Professionals

Bank Capacity Conserve capital Prequalify

subcontractors

Contractors

Advice for Today's Market

Stay within capabilities Manage growth &

overhead Communicate Position for the market

recovery

Contractors

Position for Market Recovery

Continuity Debt Retention or addition of key people Equipment/Fleet management Know and communicate business plan

• Seek input of business partners• Know business partners needs to execute

your plan Balance sheet strength

For More Information

Thank You

Surety Association of Wisconsin