The A.M. Best Co. sharply lowered to "weak" from "excellent" First Sealord Surety's credit rating, and the surety's apparent financial troubles have created problems for at least one general contractor with a few subs in default.
Big sureties such as Travelers and Liberty Mutual have remained profitable through the economic downturn by sticking to tight underwriting standards. First Sealord, based in Villanova, Pa., serves contractors whose bonded contract value averages $429,000. Surety industry executives predict increasing defaults by small subcontractors in 2012.
Sean Murphy, vice president of construction operations for Coastal Construction Group, Miami, says his company has a few subcontractors in default wherein the subs' surety bond was provided by First Sealord. "They haven't covered yet," Murphy says. "We're hoping they are covered by reinsurance. It's a little bit of a mess right now."
First Sealord officials could not be reached for comment. The company's website contains news of an impending acquisition by Torus National Insurance Co., but A.M. Best wrote that the deal may not close and that First Sealord's financial condition was worsening.
Gordon McLean, A.M. Best senior financial analyst, says that, in the previous 12 months, First Sealord had $15 million to $18 million in net written premium, with single bond limits up to $5 million.
Industry sources believe First Sealord has stopped writing new bonds. However, on First Sealord's website, there is no sign of trouble.
Ironically, the website contains a quotation from Luke: "For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him."