Surety insurance market sees record profits due to infrastructure projects. Legislative funding boosts demand, maintaining stable pricing, profit margins at 45.6 percent. Challenges ahead post- IIJA expiration in 2026. Construction costs, labor shortages, underwriting standards pose threats.
The United States surety insurance market has enjoyed a boom the likes of which it has not seen in 10 years.
The United States surety insurance market has enjoyed a boom the likes of which it has not seen in 10 years. (Adobe Stock photo) With a hat tip to the Federal Reserve for funding transportation construction initiatives such as the IIJA and IRA, the surety market has seen steady demand for construction bonds. (Adobe Stock photo) The surety insurance sector saw a marked improvement in its direct incurred loss ratio, which fell to 20.5 percent through the 2025 third quarter. It was at 24.9 percent in 2024. (Adobe Stock photo) With the impending expiration of legislation such as IIJA, the surety market is banking on continued bond demand this year, as well as the need for insurance solutions for renewables, data centers and infrastructure for power needs. (Adobe Stock photo)
Because of the infrastructure sector, the surety insurance market is achieving profit margins it hasn't seen in 10 years.
Experiencing "a golden era of profitability," these insurers also can thank the fed for funding the transportation construction initiatives that are feeding steady demand for contractor and developer bonds.
Though not without its challenges that could erode big gains, the surety market is looking good.
"These stellar results reflect more than simple scaling," notes the editorial team at Risk & Insurance of the report from global credit rating agency AM Best.
The industry's direct incurred loss ratio improved dramatically, falling to 20.5 percent through the 2025 third quarter, compared with 24.9 percent in 2024.
The surety line maintained relatively stable pricing, with increases of less than 1 percent for 13 of the past 14 quarters, according to the AM Best report.
Despite that, the line generated nearly double-digit premium growth through the first nine months of 2025, the report said.
R&I editors wrote that the surety industry had a net profit margin of 45.6 percent in 2024. That's its highest level since 2014.
The industry's underwriting profits topped $2.35 billion for the third consecutive year, according to the Best research.
"This organic growth … demonstrates the robust underlying demand for surety bonds as contractors undertake more projects," said R&I.
They believe the growth is driven by "macroeconomic factors rather than rate increases." Chiefly, the IIJA, IRA and the CHIPS and Science Act.
These federal transportation-related bills have been instrumental in propelling this expansion, AM Best said.
"These legislative initiatives have directed substantial funding toward clean energy and semiconductor manufacturing projects," said R&I.
And at the heart of them, many of these initiatives require surety bonds for contractors.
Bright Outlook Despite Potential Slowdown
The Small Business Administration (SBA) announced in January that its Surety Bond Guarantee (SBG) program delivered record results last year. With $10.6 million in guarantees, the program enjoyed the strongest year in its history, supporting more than 2,200 small businesses.
"Especially those within the construction contracting, manufacturing and fabricating sectors," said the federal agency.
Beyond surpassing $100 billion in small business lending and investment in 2025, the SBA guaranteed a record $10.6 billion through the SBG program. Through its SBG program, the agency provides a guarantee on surety bonds for certain surety companies. This, it said, allows the companies to offer surety bonds to small businesses that might not meet the criteria for other sureties.
"Surety bonds help small businesses compete for and win public and private contracts by providing … a guarantee that the work will be completed."
Last year, the agency approved record lending through its 7(a) and 504 loan programs, totaling $45 billion to more than 85,000 small businesses, it noted. Combined with capital deployed through the SBIC and SBIR programs, the agency supported more than $100 billion in capital in FY25.
However, Kenneth Araullo with Insurance Business magazine reported funding from IIJA will wind down as the legislation expires in September 2026. This "could result in a slowdown in public spending," he said, but "other sectors are presenting growth opportunities for surety insurers."
Demand is expected to continue this year, said Araullo, in tandem with insurance solutions for renewables, data centers and infrastructure for power needs.
As tech advances and insurers explore emerging risk areas, "the build-out through additional projects may spur future premium growth," David Blades said.
Associate director of AM Best, Blades attributes the growth to public and private infrastructure initiatives over the near term.
Surety insurers may see an increase in bottom-line profits for the year, said Robert Valenta, a Best senior financial analyst.
Aggregate premiums are higher and loss ratios lower during the first nine months of 2025, he said.
Valenta noted, too, that results through that period show both continued growth for surety insurers and favorable underwriting trends.
Insurance Business reports that surety insurers have maintained underwriting and operating profitability.
They produced net profit margins above 30 percent during each of the past 11 years, from 2014 to 2024.
AM Best found that the surety line's net profit margin has outperformed every other major U.S. commercial line of insurance over that period.
"However, the … surety segment's relatively low premium volume limits its impact on the overall property/casualty industry profit margin," Araullo wrote.
Best said that from a comparative perspective the surety line's net profit margin has outperformed every other major U.S. commercial line of insurance.
With the impact on the profit margin for the industry, "the relatively low premium volume for the surety line limits that benefit," Best said of its findings.
While infrastructure investment has created a favorable environment, underwriters face mounting pressures that could erode recent gains, AM Best said.
R&I noted rising construction costs, skilled labor shortages and supply-chain disruptions are increasing claim incidences and elevating losses for insurers.
"The tight labor market has forced sureties to adopt firmer underwriting standards, disciplined pricing strategies and stricter risk selection practices."
High underwriting expense ratios mean "a formidable barrier to entry" for insurers lacking specialized systems and operational efficiencies, Best found.
"This expertise-intensive barrier has kept the market relatively consolidated," R&I said of the Best research.
Most surety specialists are dedicating more than 90 percent of their net premium written to the surety line.
"This structure also demonstrates the technical competence required to navigate the complexities of surety underwriting successfully," according to Best.
Private construction spending has declined moderately through the first half of 2025, a shift that could signal challenges ahead for premium growth, noted R&I.
"The decline in private sector construction has been partially offset by increased public construction," the editors said.
The spending is tied to ongoing infrastructure projects, "but this advantage carries an expiration date," R&I stressed.
What Happens After IIJA Expires?
Last August, the AGC released a detailed explanation of potential scenarios, once the IIJA in particular expires at the end of September 2026.
Reprinted in an issue of Ohio Contractor magazine, the article explained that IIJA provides the Highway Trust Fund (HTF) with expenditure authority.
It provides the ability for state and local governments to get reimbursed for obligations for projects.
As AGC explained, "this expenditure authority ends unless Congress passes an extension or a new reauthorization bill."
Payments on projects already obligated continue, but lettings, new grant agreements and many discretionary awards pause until Congress restores authority.
"DOT's own lapse plans underscore this: during an authorization lapse, federal-aid highway programs stop obligating new funds," AGC said.
So, what will Congress do? "History suggests we should be ready for a period of extensions before a deal lands," said the construction association.
Extensions keep formulas moving but inject planning uncertainty and can push lettings to the right if obligation limitation arrives late, it continued.
"Governors have already warned that any lapses could threaten states' abilities to maintain roads and bridges."
AGC believes discussions around the next full five-year reauthorization will focus on how to fund our nation's transportation infrastructure.
It noted that fuel taxes, the HTF's main revenue source, haven't been increased since 1993.
"And the CBO projects that under current policy, the highway account will run short of cash by FY28, with annual gaps approaching $40 billion."
AGC said analyses of CBO's baseline suggest holding spending near IIJA levels through FY27-31 would require nearly $150 billion in added resources. These resources would have to happen through either more general fund transfers, new user revenues or some mix of both.
"That reality makes a ‘same as IIJA plus all the advances' outcome less likely," said the association.
In other words, said AGC, Congress can most easily keep the HTF formulas steady for FY27 under an extension or a modest "skinny" reauthorization. This is possible because the structure already exists and states rely on it, said the association.
Recreating the extra billions for bridges and megaprojects, in particular, is the expensive choice.
The AGC said doing so requires fresh general fund commitments beyond the trust fund baseline.
"If lawmakers are searching for ways to pare back totals without cutting core formulas, dialing down or dropping the advances is the low friction lever."
So, what does all this mean for contractors in 2027? AGC told members it's safest to expect formula-heavy letting calendars and a leaner discretionary grant environment.
"In addition, expect some possible timing friction," the group said. Even if Congress avoids a lapse, multiple short extensions can shift bid dates and cash flows.
DOT's lapse guidance also reminds that while reimbursements continue for obligated projects, new obligations can't proceed without authority in place.
AGC advised members to track two numbers: The FY26 obligation limitation and the Division J annual amount that falls off without a new vote.
The FY26 obligation limitation is a workable proxy for a "flat" extension, the association explained.
Together they explain why the years following IIJA's expiration are likely to feel thinner, even if headline formula numbers look flat in nominal terms, said AGC.
"When you layer on the increased construction costs, flat nominal dollars will buy less work than they did when IIJA launched." CEG