Executive Insights: Argo Surety's Mark Farina looks at the future for sureties
Factors such as the pandemic, a recession and the global economy will affect multiple aspects of the insurance industry in 2023.
PropertyCasualty360.com had an opportunity to ask Mark Farina some questions about the insurance industry in general and what he sees ahead in 2023 for the surety market.
PC360: Tell us a little bit about your responsibilities at Argo Surety.
Mark Farina: I’m the global chief underwriting officer for Argo Surety, a top 10 surety company in the United States. All surety written on behalf of Argo Group globally reports through me from an underwriting perspective. I helped start up Argo Surety in 2008 and co-run it with our COO, Brendan Keating.
PC360: What do you see on the horizon from an economic perspective for surety?
MF: Generally, we hear the markets talk about an impending economic downturn, inflationary concerns and tightening credit markets. Still, Argo is laser-focused on driving success for the surety business through consistent underwriting discipline, regardless of economic conditions. While we always listen to indicators from the market and our brokers, we must look further into the future.
Despite economic uncertainty in much of the financial universe, surety hasn’t experienced substantial losses, and there’s still a ton of competition. Terms haven’t changed, rates haven’t changed, and many surety companies are fighting over the same business.
To separate ourselves from the pack, we’re looking at the mid-term forecast, where the surety market may begin to absorb some of the broader uncertainty and be forced to right-size its books.
PC360: How are you accounting for that at Argo?
MF: We’ve taken a step back and projected some downturn into our roadmap for the next 12 to 18 months. Instead of anticipating that production would continue to grow our book at its constant pace, we’re looking to protect the essential parts of that portfolio by exiting businesses that we’ve assessed as having a high probability of default.
We’re working to move the business toward what we feel is necessary to protect our portfolio and margins.
PC360: Are you seeing competitors take similar action?
MF: We’re not seeing competitors make similar moves yet. We’re a bit ahead of the curve in anticipating a downturn, which allows us to right-size the business and make those fundamental changes while in a favorable economic position.
And since the market is not quite there yet, it’s much easier for us to pivot on our own versus trying to do it with the crowd in a year when everyone else is panicking and reacting to hard economic conditions.
PC360: What gives you the confidence to make these changes in anticipation of glacial economic movements?
MF: By remaining closely involved with our customers and brokers and employing strict underwriting discipline, we’ve outperformed the surety marketplace for a decade, according to the Surety and Fidelity Association of America.
We’re confident because we approach challenges head-on and make tough decisions to help Argo thrive and deliver the best results for our clients and investors.
This isn’t always easy for a surety business to achieve, it requires resources and attention to detail, but we’re fortunate to have that thanks to the steadfast leadership of Argo Group. Working directly with them allows us to have the best team at all levels of the business, including underwriting, credit, engineering and claims.
PC360: What are some of the most significant factors affecting the surety market now?
MF: The surety industry has gone through a prolonged growth period with high profits over the last 20 years and low losses, which means a lot of new entrants into the marketplace. What’s changing now started with COVID, which profoundly affected the global economy and supply chain. This snowballed into recession fears, rate increases, and costlier debt.
If the Fed continues to increase rates, we’ll see a fundamental shift in the economy, which will profoundly affect the surety market.
PC360: Where do you see the most opportunity for the insurance industry?
MF: As an industry, we can always strive to be faster and leaner. Speed kills, and insurers need to look at not just their surety teams but across all teams to assess ways to improve response times, cross-team communication and all the ways we do business. The opportunity to get work done more efficiently will only spell success for our clients and us.
PC360: What do you see as the top three issues insurers should be focusing on now?
MF: Understanding the hardening market will be essential. Insurers need to take a step back and, instead of looking to continue to grow their books, protect their portfolio by exiting accounts that they are not comfortable with or that might go under over the next few years.
Another issue that may not be apparent is in-person training. While Argo focused on building a hybrid workplace, which led to significant flexibility for our employees, the fact remains that much of our business is done in person. Insurers need to be making sure new employees are well trained.
Lastly, the supply chain affects us all: We’re seeing that in tandem with a labor shortage that bleeds into construction, causing new construction to stagnate. This, coupled with overall rising costs, should be the top priority for any surety insurer.
PC360: What opportunities does the surety market offer young professionals today? (e.g., how could they get into it and why should they consider it as a career opportunity?
MF: In my long career, I’ve had the pleasure of working with some of the most intelligent individuals around the world. For young professionals, I’d advise learning about the business and taking the necessary steps to get relevant certifications.
Any young professional in the insurance world can look to the surety industry and consider the places and people it will take you. It’s a gratifying career path.
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