Munich Re Specialty Insurance (MRSI) recently added contract and commercial surety bonds to its product portfolio – marking its initial foray into the primary surety markets in the United States.
Available in all 50 US states and Puerto Rico – and sold through MRSI’s retail broker partners – the bonds are backed by Munich Re’s financial strength, underscored by a US Treasury Listing of $429 million. Single surety bonds can be issued up to $100 million and aggregate programs up to $250 million, with the potential for larger issuances on a case-by-case basis.
Spearheading MRSI’s expansion into contract and commercial surety is David Pesce, a 35-plus-year surety executive who joined MRSI as head of surety in June 2021.
“This has been on Munich Re’s radar for about four years now,” said Pesce. “Munich Re is a substantial player in the surety reinsurance market, and we are a longtime provider of US customs bonds. This [providing contract and commercial surety] was really the next logical expansion into the other parts of the surety business.”
Pesce described surety as “a very profitable line of business,” which managed to weather the storms of COVID-19 without suffering any major damage. He also believes there are lots of opportunities on the horizon for both the contract and commercial surety markets.
The opportunities right now in the contract surety market are related to growth in the US construction sector, according to Pesce. In November 2021, US Congress passed the Bipartisan Infrastructure Deal (Infrastructure Investment and Jobs Act), a once-in-a-generation $1 trillion investment into the country’s critical infrastructure. The deal promises a huge surge in new construction, remediation, and ablation projects over the next eight years.
“When you combine that with a pretty significant pent-up demand for public works and private construction throughout the US … that brings opportunity. With more construction, comes more bonds; and with more bonds, comes more demand for contract surety,” Pesce emphasized.
“The construction industry survived through the pandemic. It was hit hard and then rebounded very quickly. We’re now seeing backlogs at or above the pre-pandemic levels, and, as companies continue to grow, that’s where the opportunities come in. You could have a company that needs a larger bond line and has either outgrown their current market, or maybe their current market’s risk appetite is such that they don’t want to provide a larger facility. So, there are plenty of opportunities.”
MRSI bonds are available for all contract markets – from small and emerging contractors to larger accounts, including bid bonds, performance bonds, payment bonds, and maintenance bonds.
The commercial surety market is “a bit more competitive,” and MRSI is looking to compete in that market, the leader stressed. Here, he sees more opportunities related to consolidation in the insurance world and how that can lead to the acquisition of surety talent and new retail broker relationships.
Specific surety bonds offered by MRSI to both small businesses, individuals, and large commercial accounts include license & permit bonds, court/fiduciary bonds, public official bonds, miscellaneous bonds, and subdivision bonds.
When asked whether MRSI launched its new primary surety products to capitalize on the construction boom promised by the Bipartisan Infrastructure Deal and post-pandemic government stimulus, Pesce said the plans were in place prior to even the conceptual infrastructure bill.
“The infrastructure that’s needed to properly do contract and commercial surety in the United States is pretty significant, so you need time to get things going,” he explained. “You can’t decide to get into the contract or the commercial surety market and expect to be up and running in a matter of a month or two. The infrastructure, the underwriting systems, and a lot of the other things you need to do to write the business, all take a lot of time.”
MRSI’s surety team may look and feel a little different to other surety units in the marketplace. Pesce revealed why: “As we’re structuring our bond department here, we’re looking to empower our field level people with decision-making authority, trying to eliminate what is typically an extra layer of oversight in the traditional surety model. Our people will have more capability to make decisions on their own, without having to report into others in a classic home office or field office environment.
“This industry is old enough that there are traditional ways of doing things, and for some carriers, that works well. But I listen to the retail agents and brokers – the people actually placing the business – and this is one of their key discussion points all the time: they want to get quicker decisions.”
The surety industry is evolving from its paper-centric past – a transformation made more urgent by the COVID-19 pandemic. Now, there are electronic versions of bonds being created, and many surety companies are better utilizing data and technology to improve efficiencies in their operations. “We’re trying to lead that adaptation,” said Pesce, with the help of Munich Re’s strong financial backing and intellectual capital.
