Surety Underwriting - What Exactly Do Underwriters Do?

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Surety Underwriting

What Exactly Do Underwriters Do?

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While learning about surety bonds, you might run across the term underwriting. It can seem complex and confusing, especially for those dealing with surety bonds for the first time. What exactly is underwriting? Who performs it, and how? 

When applying for a surety bond, you will need to get approval from a surety organization that issues the bond. A surety wants to know a client is reliable and bond-worthy before providing the contract, so it hires an underwriter to perform a background check. Through the underwriting process, an underwriter determines whether a person or an organization should get the bond or not. 

The final decision depends on many things, which can make underwriting a little difficult to comprehend. To help you understand underwriters and their area of work, we break down everything about surety underwriting in the following article. 

What is Underwriting?

To put things simply, underwriting or surety underwriting is a practice used in the commercial, insurance, and investment banking industries. Underwriters are employees for mortgage, loan, insurance, or investment companies. Their main job is to evaluate the financial status of clients and approve contracts, loans, insurance, surety bonds, or similar. 

To better understand the process, it’s good to refresh our knowledge about surety bonds. These contracts are made between three parties – the contractor, the surety, and the obligee. The surety issues the bond to the contractor, who needs it to guarantee the work performance to the obligee. The third party is usually a government agency that requires the bond to avoid financial losses. Therefore, the contractor purchases the bond from a surety, the company that takes over the responsibility for covering the depth in case the contractor fails to comply with the agreement. 

Now, surety underwriting is performed by sureties. These companies won’t issue a surety bond to clients who are not reliable. They look for financially stable and trustworthy individuals, which is why underwriting is so important. During the process, underwriters do everything they can to evaluate the financial situation of the client and the level of risk associated with the bond. Based on their findings, underwriters can accept or reject the client. 

What Do Underwriters Do?

As we mentioned above, surety underwriters are individuals who perform the process of underwriting for a company. Their job is to research the background of each client applying for a bond and approve or disapprove of the bond depending on the risks. 

The job of surety underwriters might sound a little complicated, but it’s quite simple. They verify the income, assets, debt, and property details of each client. Further on, underwriters calculate the risks from all the collected data. The decision is based on different information and criteria, and we will get to that part later on in the article. 

Types of Underwriters

Considering that underwriters work for mortgage, loan, insurance, and investment companies, their duties and responsibilities can vary quite a lot. Depending on the industry, there are different types of underwriters out there, each one of them specialized in a specific field. We listed some of them below according to the areas they excel in. 

Insurance Underwriters

Individuals who review applications for insurance coverage are known as insurance underwriters. Insurance brokers and other entities apply for insurance on behalf of clients. They turn over applications that underwriters review afterward and decide whether to offer insurance coverage or not. 

Basically, insurance underwriters calculate the risk of insuring a house, car, or other possessions of each client. They also cover life insurance and other similar policies. Depending on whether the applicant meets certain requirements or not, underwriters will approve or disapprove of issuing the insurance. 

Mortgage Underwriters

The job of mortgage underwriters is similar to those who work for insurance companies. Only in this case, underwriters operate within the loan industry. Mortgage loans are approved depending on an applicant’s income, credit history, debt, and savings. Underwriters are there to check the applicants’ documentation and ensure they meet all these requirements. Once they finish the work, they submit the results to the company, which further on decides whether to approve a loan or not. Underwriters also review a property’s appraisal to make sure that the home is worth the price and loan. 

Loan Underwriters

Just like mortgage underwriters, loan underwriters calculate the risks involved with each particular loan. People can apply for student loans, auto loans, personal loans, and more. The job of underwriters is to determine if the loan is safe both for the issuing company and the applicant. 

Securities Underwriters

Securities underwriters operate differently than the other types listed above. They often work with initial public offerings (IPOs) to determine the risk associated with raising money from public investors. To put things simply, IPO underwriters oversee the public issuance and distribution of securities from a particular corporation. 

Three C’s of Underwriting

Once a surety underwriter calculates all the potential risks, he or she can look into the Three C’s of Underwriting before making the final decision. The term stands for Credit, Capacity, and Collateral. These are the necessary qualifications that the principal or an applicant needs to meet to get the bond. Let’s take a look at them a little closer: 


One of the first and most important things all underwriters take into account is the credit reputation of the applicant. They check the credit report looking for unpaid card bills, delayed payments, and errors. If underwriters notice irregularities, they are likely to think of you as a high-risk applicant and may not approve your bond. Also, those who apply in the name of the company might be checked on a personal level. Because poor credit is often a sign of bad business management,  underwriters will look up into everything, including personal credit history. 


The applicant’s capacity to repay a loan is also crucial in the underwriting process. To determine this factor, underwriters check and take into account all kinds of things. They look into debt-to-income ratio, cash reserves, debt, assets, loan requirements, and much more. The income is the crucial factor because it shows the general stability of the applicant. 


Underwriters also want to determine the collateral and make sure an applicant can cover potential financial losses. For example, mortgage underwriters take into account the real value of the property which an applicant wishes to purchase. That allows them to recover the loan amount in case of any failures from the applicant’s side. 

Other Things Underwriters Might Look Into 

Underwriters approve surety bonds on a case-by-case basis. All businesses are different, so they try to consider every factor within the particular industry, company, and more. Therefore, take the Three C’s of Underwriting with caution because there might be many other factors in the evaluation of your surety bond. Some of them may include:

Bond Type and Cost

The bond type is often taken into account when it covers a large amount of money. Sometimes, the government requires a business to obtain a high-cost bond to ensure stability to the public and other companies involved in the project. In these cases, underwriters hesitate to offer a contract because they can’t be sure about the principal’s ability to repay the bond. 


When a business is applying for license and permit bonds, or other similar contracts, underwriters check its overall reliability. They look into everything starting with the company’s experience, size and scope of projects, number of projects, and much more. The main goal in the process is for the underwriters to determine whether you can keep your promises and comply with the agreement or not. 


Sometimes, underwriters also run a background check on the employees of the company applying for a surety bond. They want to make sure you have competent staff to work on a project. This significantly lowers the risk of project failure because qualified workers deliver the necessary results. 


A business that works with high-cost equipment might need to show underwriters clean maintenance records and related policies. They will probably want to know whether you can keep the equipment in proper condition, repair and replace the older models, and more. This is important because it adds to the entire picture of financial stability and responsibility. 

How Long Does Underwriting Take? 

Every underwriting process is different because it involves unique parties. Therefore, it can take a few days or a few weeks, depending on how many things are being checked. Some other factors could influence the process as well. If underwriters run into issues during the evaluations, it will definitely last longer. If they determine more documentation is needed to prove financial stability, the same will happen. However, the sooner you submit the application and all the necessary documentation, the smoother the process will be.

Ways to Help Underwriters

Knowing how the underwriting process works is not the same as understanding how to act accordingly. A surety bond applicant can still make many mistakes and face bond rejection, even with vast knowledge about underwriters. The good thing is, there are quite a few things you can do to make the underwriting process less painful and ensure positive results. 

  • First thing first, be honest. Underwriters will find out everything they want to know, so there’s no point in hiding information about income and other things. It also makes you look bad and unreliable, and underwriters will take personal impressions into account. 
  • You may also want to consider hiring an agent to help you. A person or a company well-versed in sourcing surety bonds for your industry will be able to provide the much-needed support. That will allow you to get a variety of quotes and choose the one that perfectly fits your needs and budget. 
  • Prepare all your documentation, read up on it, and double-check whether you have everything you need. Delivering all the requested information in a timely manner will make a good first impression. 
  • Try to stick with your current job. Underwriters look for employment stability and they might see changing jobs as a negative thing. 
  • The same as above applies to credits. Increasing your debt will change your DTI, and that will be counterproductive. Stay with your old car and furniture for now. 

Don’t forget that the underwriter has the power to approve or deny your surety bond, insurance, loan, or mortgage. If he or she says you’re good to go, then you have a deal, but not sooner or later than that. Therefore, carefully think about all the things that might influence the underwriter’s decision and make sure to work on them for achieving the desired results. 

The Final Word on Surety Underwriting

We can’t deny that surety underwriting is complex. Even after reading our article, you might be confused about all the factors that influence the underwriter’s decision to approve the bond. What are you required to provide for your particular business? Will an underwriter rate negatively a lack of documentation? How to know in advance whether an underwriter will approve your surety bond or not?

We recommend taking everything slowly. As mentioned earlier, underwriting is simply a process that allows an underwriter to check the client’s financial stability. A company that issues the bond just wants to make sure that you can repay the bond in case of defaults. As long as you have stable incomes, credit history, and assets, everything will be fine. If you’re not sure what to do, how to answer underwriters, or prepare yourself in advance, you can always consult a professional. 

Companies that source surety bonds have all the necessary information for you. They will clarify the surety underwriting process and take away any confusion. Even more important, you’ll get recommendations for your particular business, and therefore, have a chance to prepare better according to the bond type and specific industry. 


published on Monday, December 28th, 2020


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