News

The first weeks of 2026 have brought another reminder of why financial strength and resilience remain central to surety underwriting.

Figures released by the Insolvency Service in January showed that 23,938 companies entered insolvency during 2025. The overall number was similar to 2024, but compulsory liquidations increased to their highest annual level since 2012, while the number of creditors' voluntary liquidations remained historically high.*

At the same time, the latest construction data available in January showed a further weakening in activity. Construction output fell by an estimated 1.3% in November 2025 and by 1.1% in the three months to November compared with the previous three-month period. Both new work and repair and maintenance contributed to the decline.*

For contractors seeking Performance Bonds and other forms of surety support, these figures do not mean that bonds will become unavailable. They do, however, reinforce why underwriters continue to look closely at the financial position behind each application.

Surety Is About the Ability to Perform

A surety bond is not assessed in the same way as a standard insurance policy. The surety is taking a financial interest in the applicant's ability to meet its contractual obligations.

For that reason, underwriting commonly considers the strength of the business behind the contract as well as the contract itself.

This can include:

• recent financial performance;
• liquidity and working capital;
• net assets and balance-sheet strength;
• existing debt and financial commitments;
• current work in progress;
• the size and quality of the forward order book;
• existing bonded exposure; and
• management experience and trading history.

Our Surety Underwriting guide explains these areas in more detail.

A Loss Does Not Automatically Mean a Decline

One of the common misconceptions around surety is that any loss in the latest accounts will automatically prevent a business from obtaining a bond.

That is not necessarily the case.

Underwriters may want to understand why the loss occurred, whether it was exceptional or recurring, what has happened since the accounting period ended and whether current trading indicates an improvement or further deterioration.

A business that has experienced a difficult year but has subsequently returned to profitability may therefore present a very different risk from a company where losses are continuing and liquidity is weakening.

We look at this issue specifically in our guide to surety bonds for loss-making companies.

Negative Net Assets Also Need Context

Negative net assets can also make a surety application more difficult, but again the headline number does not always tell the full story.

The underwriter may consider the composition of the balance sheet, intercompany balances, shareholder or group support, current management information and the company's ability to meet its short-term obligations.

Where a business forms part of a wider group, support from a stronger parent company may also be relevant depending on the structure of the application and the surety's requirements.

Our Negative Net Assets & Surety Bonds guide explains how these cases may be approached.

Why Some Bond Applications Are Declined

In a more challenging trading environment, contractors may also encounter situations where their existing provider is unwilling to support a new bond or increase an existing facility.

A decline from one market does not necessarily mean that the requirement cannot be placed elsewhere.

Different sureties can have different appetites for sectors, financial profiles, bond wording, contract sizes and security structures. The reasons for the original decline therefore matter.

For example, an application may have been declined because:

• the proposed contract is too large for the existing facility;
• the business has grown faster than its balance sheet;
• the surety is uncomfortable with the bond wording;
• recent financial results fall outside that market's appetite;
• existing bond exposure is already high; or
• additional security or group support is required.

Our Declined Surety Bonds page explains what can potentially be done when an application has already been refused.

Performance Bonds Remain Closely Linked to Contractor Strength

Performance Bonds are designed to provide contractual protection to the beneficiary if the contractor fails to perform in accordance with the bond wording and underlying contract.

This is why the financial and operational position of the contractor remains so important to the underwriting decision.

Where a contractor is financially strong, has appropriate experience and is taking on work that is proportionate to the size of its business, obtaining support may be relatively straightforward.

Where the business is growing rapidly, has weakened financials or requires a particularly large bond, the application may require more detailed consideration or access to alternative markets.

More information on the product and application process is available on our Performance Bonds page.

Good Information Can Make a Significant Difference

A surety can only assess the information presented to it. Where financial circumstances are more complicated, providing context can therefore be particularly important.

Management accounts, explanations of exceptional losses, current cash information, details of major contracts and evidence of group or shareholder support can all potentially help an underwriter understand a case that may initially appear difficult from the statutory accounts alone.

For contractors entering 2026 with a bond requirement, it is therefore sensible to prepare the financial and contract information early rather than waiting until a bond becomes an urgent contractual condition.

Our guide to Surety Bond Information Required sets out the information that may be requested during the underwriting process.