Construction brokers around the world are fielding a choice their clients increasingly make on capital rather than cost: a bank guarantee that locks up cash and bank facility capacity, or an insurance-backed surety bond that does not, though the contractor still signs a counter-indemnity and still has to satisfy the underwriter. In recent years, procurement rules have opened to surety in several markets and the capital a bank guarantee ties up has become more expensive to leave idle.
The capacity consumed is larger than the instrument's headline cost suggests. Thane Duffin (pictured), Sydney-based CEO of Credeq Australia, part of the global underwriting management agency Credeq, said a typical civil construction company carries a contingent liability well out of proportion to its asset-backed borrowing. "Generally, 10 to 15% of their turnover would be supporting guarantees and contingent liabilities," Duffin told Insurance Business. That sits alongside working capital and equipment finance drawn from the same bank relationship.
The logic of moving it off that relationship is not regional. "Particularly sectors like construction where construction companies will require significant sort of loan funding, having a surety provider in the insurance sector free up their banking facilities is sort of globally sort of the right choice," Duffin said. Larger clients keep their primary funders and use the insurance market for additional capacity, leaving bank lines available for capital equipment.
Underwriting posture differs accordingly. Banks are traditionally security-based lenders looking to what can be secured on an existing balance sheet, Duffin said, which does not always support growth. "We would take a much more forward-looking view on a credit."
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Sequence matters as much as capacity. "A guarantee is often the leading piece of finance that you need," he said. "You secure a contract, you get the guarantee and once you've actually secured the work, then the ability to go and raise other credit lines from the banks would be easier because you've secured your order book."
In recent years, the instrument competing with surety has become more expensive to write.
AXA XL surveyed 31 senior credit and surety executives from 28 companies in the third quarter of 2024, covering market performance from 2022 to 2024, and published the findings as its Credit and Surety Market Survey 2025. The survey identified an enhanced ability to capture bank business as one driver of surety growth. One respondent, speaking to the European, UK and Irish markets, attributed that shift partly to the high cost to banks of equity for bank guarantees. Respondents put the European bond market split at roughly 70% to 80% banks and 20% to 30% sureties, with variation by market.
The forecasts follow a similar logic. Aon's 2026 Global Construction Insurance and Surety Market Report, published in May, projects the global surety market growing at approximately 5% annually and reaching roughly US$33 billion by 2032, with surety increasingly used as an alternative to bank guarantees and capacity generally plentiful for strong credits.
London brokers are building to place it. BPL, the London-headquartered credit and political risk insurance broker, launched a dedicated surety business line this month, staffed by five directors across Geneva, Paris and London, targeting corporates and financial institutions with global guarantee requirements. "Our clients are increasingly focused on diversifying sources of financial support, particularly as banks face growing balance sheet constraints," said James Reynolds, group CEO of BPL, in a launch announcement.
This substitution is not universal and the instruments are not interchangeable.
A surety bond is a conditional commitment that activates only if the principal fails to perform, according to trade credit and surety insurer Atradius, while a bank guarantee is often unconditional and payable on demand regardless of whether default has occurred. That distinction matters to the party receiving the security and it is why obligee acceptance remains the constraint on how far the substitution runs. The Guide to Construction Arbitration, published by Global Arbitration Review in 2025, records hybrid bonds emerging as a middle ground, callable on documentary evidence certified by an independent third party such as a project engineer.
There is also a credit floor. Duffin was explicit that surety is not a route for companies that have run out of options. "We're not looking to support sort of highly distressed companies," he said, adding that clients need a positive credit profile and that the product is most useful to companies that are growing.
Acceptance is being written into public procurement rules and that is what moves volume. A contractor cannot substitute a surety bond for a bank guarantee unless the tender permits it, so a single change to government bidding documents opens the instrument to an entire pipeline of work at once.
India's Ministry of Power issued an office memorandum in April accepting insurance surety bonds as an alternative to bank guarantees for bid and performance security across power procurement, covering solar, wind, hybrid renewables, pumped storage, transmission and battery energy storage. States, union territories and procuring utilities have been directed to amend their bidding documents.
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In other markets, the adaptation is structural rather than regulatory. AXA XL's respondents described bank-fronted surety in the United States, particularly in the energy sector, and syndicated facilities in Europe where banks and insurers sit alongside each other with the same client. Duffin identified electrification, data centres, health and social infrastructure and defence as the sectors carrying disproportionate growth.
Brokers placing construction risks are weighing carrier against carrier at the same time as weighing the bond against a bank guarantee. The choice can turn on whether the client's balance sheet is better served by cash held against a bank guarantee, or by borrowing room kept available for the next job.
For Duffin the answer is diversification rather than replacement. "It creates a higher level of diversity in their funding option that puts them into a position that they can get the appropriate leverage from their balance sheet," he said.
