The Surety Underwriting Process: What You Need To Know

In the process of obtaining surety bonds, you may come across the underwriting process. This process is quite intimidating, especially to new surety bond applicants.

Here, we provide a brief overview of how surety bond underwriters identify risks, understand terms and conditions, and evaluate the Principal’s three C’s.

This outline also includes information the surety bond underwriters require to complete an exhaustive analysis of the Principal’s capacity to perform.

Surety bond underwriters perform these roles:


Identify risks

Once an applicant (Principal) has completed a bond application form and sent it to the Surety Company, an underwriter will initially need to determine the bonding risks involved.

The obligations of the Surety and Principal are "joint and several," meaning that it allows the Obligee to recover from the Surety, Principal, or both financially.

Surety underwriters have the authority to select which risks their bond company will approve or reject. They will determine the level of risk involved and approval by:

  • assessing the actual obligation
  • considering the agreement, regulations, and rules written on the bond form,
  • examining the Principal's capacity to perform


Understand terms and conditions

The next step in the underwriting process is to understand the terms and conditions that affect either the Principal’s performance, the bond itself, or the Surety’s guarantee. These conditions and terms are found in the bond form, specific regulations, statutes, and ordinances. Also, they can increase or reduce the Surety and the Principal’s obligation risk levels.


Three C’s of underwriting

Once a surety underwriter has identified the potential risks and became familiar with the terms and conditions of the bond, he or she can begin evaluating the Principal’s ability to perform the obligation by looking into the Three C’s of Underwriting.

The Surety industry uses “the three C’s of underwriting” in determining the Principal’s qualifications: Character, Capacity, and Capital.

Character: A surety underwriter would want to establish a bonding relationship with someone who has good character. Nobody intends to work with a dishonest and deceitful character, which will cause losses at some point.

Capacity: It means the Principal’s ability to perform the obligations described in the underlying contract. The Principal’s capacity may sometimes be based on his/her own experience, knowledge, and expertise, or that of his/her staff/employees.

Capital: This defines the financial capacity of the Principal to fund their operations and their ability to financially respond in case they are unable to perform in keeping up with the terms and conditions of the contract.


What does an Underwriting Authority do?

Only surety bond companies can perform or grant underwriting authority. Often, underwriters are Certified CPCUs (Chartered Property Casualty Underwriters).

Once they have identified risks, understood the bond terms and conditions, and evaluated the Principal’s three C’s, they will review the information submitted to them. This process could make or break a Principal’s capacity to be issued a surety bond.


Established companies, particularly long-time construction firms, have already proven their ability to perform their obligations and make profits. They make better credit risks for the Surety. However, companies that are just venturing into new products and services, such as start-ups or small businesses like car wash providers, have a certain high degree of risk for the Surety.


It is a well published fact that new businesses fail at a high rate. Issuing a bond with a high degree of risk or a long-term obligation for a new entity requires a close analysis of the experience of the owners.

Credit history:

Sureties will be more predisposed to write bonds for businesses that have a good credit standing. Your financials should be in outstanding condition. If you demonstrate good pay records, zero loans, and excellent capital, this evidence guarantees the Surety that you will also protect their “credit.”

Long-term stability:

Your business must not only be presently successful, but it should also prove that it can thrive and survive with long-term financing to continue supporting your business operations.


A surety underwriter will not only look at your existing equipment and facilities that support your current operations; you must also have a concrete plan to maintain, replace, and update obsolete equipment and facilities to produce products and services for the long haul.


One of the causes of business failures is having poor management. A surety underwriter may also assess your working personnel/staff/employees and do some credit/background checks.

Do not let the underwriting process overwhelm you. Leave it to us!

If you need to learn more about your type of surety bond, its costs, and requirements, feel free to contact us! Let us start a bonding relationship and help you increase your bonding capacity today!

Check out this Infographic!

"The Surety Underwriting Process."

The Surety Underwriting Process Infographic
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