Surety Opportunities Emerge as Biden Administration Sets Infrastructure Goals for the Future

By: | April 15, 2021

Mark Farina joined Argo Group in September 2008 to help launch the surety operation and has been Chief Underwriting Officer since April 2013. In addition to Mark’s underwriting responsibilities, he is also responsible for the “CREW” (Credit, Risk Management, Engineering, Claims/Workout) team and Chair of the Argo Group Surety Underwriting Committee. In 2019 Mark became the Global CUO-Surety, with underwriting responsibilities over commercial, contract, and international. He can be reached at [email protected]

Natural events are often the cause of losses for other areas of the insurance industry, but in the surety market, economic crises are the culprit.

We’re paying close attention to how the Biden administration responds to the economic impact of the COVID-19 pandemic, infrastructure priorities, revised tax policies and how a historic climate agenda will affect the energy and mining sectors, as well as overall economic outlooks.

Infrastructure Investment Brings Optimism to Construction   

The surety marketplace overall is a 60/40 split in premiums from the construction and commercial sectors — both of which have slowed during the struggling economy caused by the COVID-19 pandemic.

Nearly every new administration promises an economic boost through infrastructure investments, but often they face an opposition Congress.

Given current Democratic control of both houses, we expect Biden administration infrastructure priorities to move through the legislative process with fewer restrictions. The more infrastructure projects that are out there, the more bonding they will need — and surety providers must be prepared to handle the influx of business as it gets moving.

The Surety & Fidelity Association of America partnered with S&P Global to highlight the benefits of infrastructure investments. They estimate that a $2.1 trillion infrastructure investment would result in a $5.7 trillion boost in overall economic activity in the U.S. over a 10-year period and add more than 2.3 million jobs by 2024.

Additionally, if the new administration succeeds in its efforts toward providing additional access to COVID-19 vaccinations and relief packages, there will be a direct impact on the economy that creates a positive industry outlook.

Argo Surety writes bonds for cruise liners, for example,  an industry we expect will take off again as people begin to feel it is safe to travel.

Cleaning Up Energy Creates New Opportunities 

Energy (oil and gas) and mining are important segments for the surety market, but they are also hot buttons for the Biden administration, which announced its commitments to combating climate change and promoting green energy innovations.

This is a different agenda than the previous administration, so companies in the energy space must be prepared for the changes that will come as a result. At Argo Surety, we see this as reinforcement of our partnership with companies that are good stewards of the environment as well as an opportunity to continue growing our clean energy book of business.

The bonds we write for the coal industry are reclamation bonds, which guarantee that if the operator becomes bankrupt and fails to reclaim the property (by returning it to its original condition), Argo Surety will become the responsible party to fund such reclamation. The same goes for the oil and gas sector, where we will step up to properly plug and abandon the site if the energy company fails to do so.

Sureties should already work with partners that reclaim mines as they go (concurrent reclamation) and are not wholly dependent on leaving the process up to the surety company at the end. This will be even more important as the Biden administration’s policies begin to take effect. Companies that are unable to meet requirements expose themselves and their coverage providers to unattractive risks.

At the same time, Argo Surety is increasing writings on renewables as that market continues to expand.

There is significant new business in the solar, wind, hydro and geothermal spaces. Those of us in surety anticipate a boom in those sectors with the new administration’s support and are prepared to meet those surety needs in our industry outlook.

Prepare for Changes to Happen Quickly and Aggressively 

Anytime one party controls the White House and both houses of Congress, it’s the best chance for that group to successfully push through their agenda. That means changes are likely to take place quickly, be more aggressive (especially if an opposing agenda was in place during the previous administration) and even trickle down to the state level in some cases.

We can anticipate some things that are likely to happen during the Biden administration based on his campaign rhetoric, the prior roles held by his new appointees and possible interest in pursuing “unfinished business” from the Obama administration.

Insurers must be aware how changes could affect the industries they cover and be prepared to respond as quickly as they occur. &

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