Ratings

[Mother Bond]

How are surety companies rated? And what do the ratings mean?

[marietta68]

Originally Posted by Mother Bond

How are surety companies rated? And what do the ratings mean?

Some, but not all, surety companies are rated by the Treasury Department. Their ratings provide the largest bond amount acceptable for a bonded federal contract, although it's possible, through reinsurance, to expand that limit in some circumstances. The T-List, as it's called in the industry, can be viewed at Current Listings: Surety Bonds: Programs and Systems: Financial Management Service

The A.M. Best ratings can be found for all insurance companies, and their rating legend can be found on their web site: Best's Rating Center

In both cases, the ratings reflect the financial strength of the company.

[Mother Bond]

Is there a certain "minimum" rating I should be looking for?

[marietta68]

It depends upon who you are and the bond or program amount to be written. As a general rule, you'll want to use companies with at least a B+ or B++ rating from AM Best; anything lower indicates a weaker financial position. If you're an obligee and the entity to whom the bond was written, stronger is better because, in the event of the principal's default, you'll want to know the surety has the resources to honor its obligation. It can also be an indication of the company's stability, as we observed several years ago when Kemper withdrew from the surety business altogether. Although Kemper has fulfilled its obligations, the agents' burden of replacing all the bonds with a different surety company was considerable.

It's important to be aware that certain obligations shunned by standard surety companies may be written by B and B- rated and lower companies. As you can see on the AM Best web site, once a company has been given a C+ or C++ rating, it's considered "marginal". Since surety is all about fulfilling financial obligations, it's important for all concerned to make informed decisions.