Application: Can a surety bond always be offered after receipt of an application?
All applications for a surety facility are reviewed by an underwriter. Applications must meet the underwriting criteria in order for terms to be offered. In some cases a facility may only be offered subject to the satisfaction of additional conditions. In some cases it may, unfortunately, not be possible to offer a policy.
Application: How do I get a surety bond?
Surety bonds and guarantees are drafted to suit your needs. This makes them unique for each customer. The result is a custom made policy at a price that you can afford.
Surety insurers will provide further details without any further obligation. Telephone, e-mail and address contact details can be found under the products section of this website.
The insurance company usually needs audited accounts, up-to-date management accounts and details of your banking information. Bond application forms can be accessed on the website of most surety insurers. Applications are reviewed swiftly and all information provided is treated in the strictest of confidence.
Bank guarantees: What is the difference between a surety bond and a bank guarantee?
Surety bonds are typically conditional whereas bank guarantees are on demand. Only the performance risk lies with the surety, where the bank has the financial risk on the construction project.
Accounting wise, surety is accounted for as a liability like other insurance products whereas credit risks in a bank by nature are accounted for on the asset side.
Although in many countries originally banks mainly issued bonds, the security provided by an insurer has proven equally acceptable. This has enabled many enterprises to set up separate lines of credit and bonds with surety or insurance companies. In doing so, they protect their lines of credit with banks, which might otherwise be blocked at such time when this working capital was needed. Banks usually prefer to issue so-called “on demand” bonds and must therefore treat them as un-presented letters of credit.
Information: Why does the insurance company need so much financial information?
As a surety facility is a line of credit, your financial standing must be assessed. Rigorous underwriting criteria mean that your business needs to be understood, which involves fully reviewing audited accounts up to date management figures and banking information.
Once a facility is in place, although regular contact is maintained, no further information is normally required until facility review and bonds can be issued with the assurance that a thorough assessment has taken place.
Premium: How much will my surety bond cost?
There are no fixed rates. Each case is reviewed upon its own merits. The rate applicable will be determined by reference to all the factors considered in the underwriting appraisal but primarily the financial strength and the likely volume and nature of the bonds.
Reinsurance: How does it work?
Reinsurance as "insurance for insurance companies" allows the primary or direct insurer to lock into the capital resource of a reinsurer, to lay off underwritten risks in order to reduce volatility and to increase the spread and volume of the risk portfolio and (thus) to increase profitability. Reinsurance becomes especially important where the spread of risks (in the primary portfolio) does not exceed a critical size and the company's capital is no longer adequate to the risks accepted
These basic principles also apply to surety insurance business. In general surety insurance business is reinsured along the lines of other non-life insurance classes e.g. property and casualty insurance. This means that proportional reinsurance and non-proportional reinsurance concepts are used
Reinsurance: What does “proportional reinsurance” mean?
Proportional Reinsurance means that the Primary insurer and Reinsurer share liabilities (i.e. sums insured) in a clearly defined proportion as described within the underlying treaty. Premiums and claims are also split up according to the respective share of the risk (i.e. proportionally).
Reinsurance: What does “non-proportional reinsurance” mean?
Non-proportional reinsurance means that the reinsurer has a concrete obligation towards the insurer only if individual losses or aggregated loss amounts exceed the amount set forth in the reinsurance treaty (retention). The reinsurer is then obliged to indemnify the insurer for the loss exceeding this amount (excess loss) on a non-proportional basis.
Surety: What is a surety?
Surety bonds or guarantees secure the fulfilment of a contract or an obligation up to the limit of the bond. They protect the beneficiary against acts or events which impair the underlying obligations of the so called “principal”. Underlying obligations can either be negotiated or can have a statutory (legal) character.
Surety bonds guarantee the performance of a variety of obligations, from construction or service contracts, to licensing, to commercial undertakings. Almost any sale, service or compliance agreement can be secured by a surety bond.
Bonds and guarantees are normally required under the terms of a construction or engineering contract, or in accordance with mandatory legal requirements, to secure the obligations of the principal debtor (generally known as the principal).
A surety bond provides the security to protect the creditor against the default or insolvency of the principal up to the limit of the bond. For example, the failure of a contractor to complete a contract in accordance with its terms and specifications or the failure of an enterprise to pay taxes or customs duties to a government or department.
They play a vital part in domestic and international trade and in particular protect taxpayers against the loss of public funds.
Types of surety bonds: What kind of surety bonds does a surety insurance company issue?
The secured contractual obligation can have many forms e.g. constructing a building or being compliant to legislative regulations.
Examples:
- The failure of a contractor (principal) to complete a contract in accordance with its terms and specifications.
- The failure of an enterprise to pay taxes or customs duties to a government or department (beneficiary).
The most common types of surety bonds can be categorised as follows:
- customs, tax and/or similar bonds
- bonds concerning concessions and licenses
- judicial bonds
- bonds concerning purchases of goods and/or services
- bonds concerning leases
- bonds concerning construction and/or supply contracts
- financial bonds
But there are many types of other bonds as well.