2019 State of the Industry Report AGCs 2019 Conference Surety - - PowerPoint PPT Presentation

▶
2019 state of the industry report
SMART_READER_LITE
LIVE PREVIEW

2019 State of the Industry Report AGCs 2019 Conference Surety - - PowerPoint PPT Presentation

May 20, 2023 11 likes •872 views

2019 State of the Industry Report AGCs 2019 Conference Surety Bonding & Construction Risk Management January 28, 2019 - 4:30 PM to 6:00 PM William McConnell, PE JD CDT, The Vertex Companies, Inc . 1 PRELIMINARY WORK PRODUCT

slide-1
SLIDE 1

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

2019 State of the Industry Report

AGC’s 2019 Conference Surety Bonding & Construction Risk Management January 28, 2019 - 4:30 PM to 6:00 PM

William McConnell, PE JD CDT, The Vertex Companies, Inc.

1

slide-2
SLIDE 2

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Part 1. State of the U.S. Economy Part 2. State of the U.S. Construction Industry Part 3. State of the U.S. Surety Industry Presentation Overview

2

slide-3
SLIDE 3

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Volatile Equities Markets

3

Source: https://markets.businessinsider.com/news/stocks/stock-market-news-on-track-worst-december-since-great-depression-2018-12-1027837251

slide-4
SLIDE 4

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Equities Markets are Volatile

4

Source: https://fred.stlouisfed.org/series/DJIA#0

slide-5
SLIDE 5

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

S&P 500 P/E Ratio as of 1/14/19 (trailing earnings)

5

http://www.multpl.com/

slide-6
SLIDE 6

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

A bear market is a condition in which securities prices fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment. What is a Bear Market?

6

Source: https://www.investopedia.com/terms/b/bullmarket.asp

slide-7
SLIDE 7

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

The Bull of Bull Runs – as of 8/22/18

7

Source: https://www.cnbc.com/2018/08/22/longest-bull-market-since-world-war-ii-likely-to-go-on-because-us-is-best-game-in-town.html

slide-8
SLIDE 8

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Volatile Equities Markets

8

Source: https://www.cnbc.com/2018/12/05/big-money-investors-see-the-bull-market-ending-in-2019.html

slide-9
SLIDE 9

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Record Corporate Profits

9

Source: https://fred.stlouisfed.org/series/CPATAX

slide-10
SLIDE 10

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Consumer Confidence Remains High

10

Source: https://tradingeconomics.com/united-states/consumer-confidence

slide-11
SLIDE 11

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Business Optimism is Pulling Back

11

Source: https://tradingeconomics.com/united-states/business-confidence

slide-12
SLIDE 12

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

GDP Growth is Strong (Quarterly)

12

Source: https://tradingeconomics.com/united-states/gdp-growth

slide-13
SLIDE 13

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

GDP Growth is Strong (Annual)

13

Source: https://tradingeconomics.com/united-states/gdp-growth-annual

slide-14
SLIDE 14

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Unemployment is Remarkably Low

14

Source: https://fred.stlouisfed.org/series/UNRATE

slide-15
SLIDE 15

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Corporate Capex is Surging

15

Source: https://www.marketwatch.com/story/capex-is-starting-to-ramp-up-but-will-it-make-a-difference-for-stocks-2018-06-25

slide-16
SLIDE 16

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Corporate Capex is Surging

16

Source: https://www.cnbc.com/2018/09/17/companies-are-using-the-tax-cut-both-to-buy-back-their-own-shares-and-to-invest-in-the-future.html

slide-17
SLIDE 17

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Household Debt Service is in Good Shape

17

Source: https://fred.stlouisfed.org/series/TDSP

slide-18
SLIDE 18

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

M&A Activity is Surging

18

Source: http://dmi.thomsonreuters.com/Content/Files/3Q2018_MA_Legal_Advisor_Review.pdf

slide-19
SLIDE 19

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Wages are on the Rise

19

Source: https://fred.stlouisfed.org/series/ECIALLCIV#0

slide-20
SLIDE 20

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Federal Funds Rate is on the Rise (2.25 – 2.5%)

20

Source: https://fred.stlouisfed.org/series/FEDFUNDS

slide-21
SLIDE 21

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Inflation Continues to be Low to Moderate

21

Source: https://www.bls.gov/news.release/pdf/cpi.pdf

slide-22
SLIDE 22

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Inflation is Moderate

22

Source: https://www.bls.gov/news.release/pdf/cpi.pdf

slide-23
SLIDE 23

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Inflation v. Federal Funds Rate

23

Source: https://fred.stlouisfed.org/series/MEDCPIM158SFRBCLE

slide-24
SLIDE 24

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Inverted Yield Curve, Explained

24

Source: https://www.money-zine.com/definitions/investing-dictionary/inverted-yield-curve/

slide-25
SLIDE 25

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Inverted Yield Curves - Historical

25

Source: https://fred.stlouisfed.org/series/T10Y2Y

slide-26
SLIDE 26

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

The Yield Curve Inverted on 12/3/18

26

Source: https://www.blo

  • mberg.com/opi

nion/articles/20 18-12-03/u-s- yield-curve-just- inverted-that-s- huge

slide-27
SLIDE 27

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Tariff Review

27

Source: https://www.wto.org/english/tratop_e/tariffs_e/tariff_data_e.htm

slide-28
SLIDE 28

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Corporate Growth is Outpacing GDP Growth

28

Source: https://fred.stlouisfed.org/series/GDP#0

slide-29
SLIDE 29

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Deficit is Large Despite the Surging Economy

29

Source: https://fred.stlouisfed.org/series/FYFSD

slide-30
SLIDE 30

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Deficit is Large Despite the Surging Economy

30

Source: https://www.usatoday.com/story/money/economy/2018/11/04/federal-budget-deficit-2018-us-government/38319775/

slide-31
SLIDE 31

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Deficit is Large Despite the Surging Economy

31

Source: https://www.forbes.com/sites/chuckjones/2018/11/30/trumps-economy-the-federal-budget-deficit-is-on-a-path-to-1-trillion/#548e5b36231c

slide-32
SLIDE 32

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Debt is…Scary

32

Source: https://fred.stlouisfed.org/series/GFDEGDQ188S

slide-33
SLIDE 33

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Debt is…Scary

33

Source: https://en.wikipedia.org/wiki/National_debt_of_the_United_States#/media/File:US_Federal_Debt_as_Percent_of_GDP_by_President_(1940_to_2015).png

slide-34
SLIDE 34

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Debt is…Scary

34

Source: https://fred.stlouisfed.org/series/A091RC1Q027SBEA

slide-35
SLIDE 35

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Fed Debt is…Scary

35

Source: https://www.gao.gov/assets/700/692666.pdf

slide-36
SLIDE 36

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Part 1. State of the U.S. Economy Part 2. State of the U.S. Construction Industry Part 3. State of the U.S. Surety Industry Presentation Overview

36

slide-37
SLIDE 37

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Building & Construction ETF (Yahoo Finance)

37

Source: Yahoo Finance

slide-38
SLIDE 38

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Spending is at a Record High

38

Source: https://www.census.gov/construction/c30/c30index.html

slide-39
SLIDE 39

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Spending is at a Record High

39

Source: https://www.census.gov/construction/c30/c30index.html

slide-40
SLIDE 40

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Spending is at a Record High

40

Source: https://fred.stlouisfed.org/series/TTLCONS

slide-41
SLIDE 41

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Spending is Forecasted to Level Off

41

Source: http://digital.bnpmedia.com/publication/?i=546193#{%22issue_id%22:546193,%22page%22:0}

slide-42
SLIDE 42

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Spending is at a Record High

42

Source: https://www.census.gov/construction/c30/c30index.html

slide-43
SLIDE 43

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Flip on Growth

43

Source: https://www.census.gov/construction/c30/c30index.html

slide-44
SLIDE 44

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Flip on Growth

44

Source: https://www.census.gov/construction/c30/c30index.html

slide-45
SLIDE 45

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction is Outpacing the US Economy

45

Source: https://fred.stlouisfed.org/series/TTLCONS

slide-46
SLIDE 46

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Starts are Leveling Off

46

Source: https://www.construction.com/news/new-construction-starts-november-slip-7-percent-dec-2018

slide-47
SLIDE 47

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Residential Sector is Strong but not Disproportional

47

Source: https://fred.stlouisfed.org/series/PRRESCONS

slide-48
SLIDE 48

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Is Residential Real Estate Overvalued?

48

Source: https://www.zillow.com/home-values/

slide-49
SLIDE 49

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Office Construction is Rebounding

49

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-50
SLIDE 50

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Lodging has Leveled Off

50

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-51
SLIDE 51

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Commercial is Leveling Off

51

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-52
SLIDE 52

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Manufacturing is Volatile

52

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-53
SLIDE 53

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

US Dollar Index

53

Source: https://fred.stlouisfed.org/series/TWEXB

slide-54
SLIDE 54

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Health Care Remains Flat

54

Source: https://fred.stlouisfed.org/series/TLHLTHCONS

slide-55
SLIDE 55

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Health Care Remains Flat

55

Source: https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/great-consolidation-health-systems.html

slide-56
SLIDE 56

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Power Remains Flat

56

Source: https://fred.stlouisfed.org/series/PRPWRCONS

slide-57
SLIDE 57

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Power Remains Flat

57

Source: https://fred.stlouisfed.org/series/IPN22112MS

slide-58
SLIDE 58

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Public Spending Is Rebounding

58

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-59
SLIDE 59

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Pent Up Demand for Infrastructure Spending

59

Source: https://www.infrastructurereportcard.org/

slide-60
SLIDE 60

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Public Spending as a % of GDP is Historically Low

60

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-61
SLIDE 61

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Workforce

61

Source: https://fred.stlouisfed.org/series/USCONS

slide-62
SLIDE 62

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Average Hours Per Week

62

Source: https://fred.stlouisfed.org/series/AWHAECON#0

slide-63
SLIDE 63

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Unemployment Rate

63

Source: https://fred.stlouisfed.org/series/LNU04032231#0

slide-64
SLIDE 64

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Construction Establishments

64

Reduction of 120k companies

Source: https://data.bls.gov/timeseries/ENUUS00020523?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true

slide-65
SLIDE 65

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Labor Shortage

65

Source: https://www.wsj.com/articles/young-people-dont-want-construction-jobs-thats-a-problem-for-the-housing-market-1533029401

slide-66
SLIDE 66

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Labor Shortage

66

Source: https://www.usnews.com/news/the-report/articles/2018-06-15/the-us-construction-industry-is-booming-but-where-are-the-builders

slide-67
SLIDE 67

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

AE Firms Entering Construction

67

Source: https://www.enr.com/

slide-68
SLIDE 68

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Consolidation of AE Firms

68

Source: https://www.enr.com/

slide-69
SLIDE 69

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Consolidation of Large Contractors

69

Market Share of the Top 100 Contractors:

2004: 18% 2009: 26% 2016: 30% The market share of the Top 100 contractors in the US has nearly doubled in the past two decades. This trend will likely continue as AE firms enter the construction space.

slide-70
SLIDE 70

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

ENR Material Price Index (% Change YOY)

70

Source: https://www.enr.com/economics/historical_indices/material_price_index_history

slide-71
SLIDE 71

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

ENR Common Labor Index (% Change YOY)

71

Source: https://www.enr.com/economics/historical_indices/Common_Labor_Index_History

slide-72
SLIDE 72

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Tipping Point for Efficiency Gains

72

Source: https://www.economist.com/business/2017/08/17/efficiency-eludes-the-construction-industry

slide-73
SLIDE 73

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Tipping Point for Efficiency Gains

73

Source: http://ozarch.com/2018/02/platte-fifteen-construction-begin-soon-denver/

slide-74
SLIDE 74

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Tipping Point for Efficiency Gains

74

Source: https://www.constructconnect.com/blog/construction- technology/entering-age-self-driving-construction-equipment/

slide-75
SLIDE 75

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Tech Revolution

75

Source: https://www.autodesk.com/autodesk-university/class/Revit-4D-World-How-Create-4D-Ready-Model-Within-Revit-2017

slide-76
SLIDE 76

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

IOT Revolution

76

Source: https://internetofthingsagenda.techtarget.com/

slide-77
SLIDE 77

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Part 1. State of the U.S. Economy Part 2. State of the U.S. Construction Industry Part 3. State of the U.S. Surety Industry Presentation Overview

77

slide-78
SLIDE 78

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Contract Surety Industry Review – 1995 to 2006 (SFAA)

78

Source: SFAA

slide-79
SLIDE 79

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Contract Surety Industry Review – 2006 to 2017 (SFAA)

79

Source: SFAA

slide-80
SLIDE 80

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Peak Surety Losses Lag Recessionary Cycles

80

Source: SFAA

Recession Peak Contract Surety Loss Ratios 1981 – 1982: 90% to 100% from 1984-1985 1990 – 1991: 30% to 44% from 1995-1996 2001 - 2001: 67% to 73% from 2002-2004 2007 - 2009: 25% to 37% from 2011-2014

slide-81
SLIDE 81

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Peak Surety Losses Lag Recessionary Cycles

81

Right Size or Dive for Work?

slide-82
SLIDE 82

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Modest M&A Activity

82

M&A Activity in the Surety Industry:

  • Berkshire Hathaway (#29) enters surety market (Jun 12, 2014)
  • ACE acquires Chubb (#5) (Jan. 14, 2016)
  • XL exits surety marketplace (Mar 7, 2016)
  • Markel acquires SureTec (#19) (May 1, 2017)
  • Intact acquires OneBeacon (#21) (May 2, 2017)

Surety consolidation has slowed and several insurance companies have entered the surety marketplace due to remarkable industry performance over the past decade.

slide-83
SLIDE 83

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Market Share Reversal

83

Market Share of the Top 10 Surety Providers:

1980: 21% 1990: 42% 2004: 67% 2008: 68% 2014: 63% 2016: 62% 2017: 61% (through Q3) The market share of the Top 10 surety providers has not been this low for approximately 20 years.

slide-84
SLIDE 84

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Public Construction – 1995: $129.9M Public Construction – 2006: $280.9M Public Construction – 2017: $290.0M Public Construction – 2018: $310.1M Public Construction

84

Source: https://fred.stlouisfed.org/series/TLOFCONS

slide-85
SLIDE 85

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

Contract Surety Industry Risks in 2018

85

1. Labor Shortage = Safety/Quality/Schedule Issues 2. Lack of Growth in Public Construction = Low Margins for Heavy Contractors 3. Inflationary Pressures lead to Surety Losses Over Time 4. Soft Market Conditions = Potential Reduction in Underwriting Standards

slide-86
SLIDE 86

PRELIMINARY WORK PRODUCT – PRIVILEGED & CONFIDENTIAL – ATTORNEY CLIENT COMMUNICATION

End

vertexeng.com

86