Surety Q&A
What are the Benefits of Surety?
Surety helps facilitate two parties to enter a contract by guaranteeing the contractual obligations of
the principal. Bonds issued via the surety market are typically conditionally worded, which affords the
principal some protection through contract conditions.
Rather than using bank facilities, the surety market taps into an alternate source of capacity from the
insurance sector.
A reduced need for tangible security helps a business free up working capital and credit facilities
with off-balance-sheet solutions.
There are potential advantages with competitive premium rates compared with utilising banks.
Additional support is available from the surety company if a claim is disputed.
Why use a Specialist Surety Broker?
A surety broker can provide professional advice and has the ability to source bespoke bonding and
guarantee solutions both domestically and internationally.
Having long-standing relationships with regulated surety underwriters, a broker can obtain competitive
terms and premiums for a one-off bond, a new bonding facility or to arrange additional capacity if
required.
Specialists are able to provide expert advice on a wide range of bond wordings with a view to
protecting clients as far as possible.
Using a specialist surety broker also helps to drive the most competitive terms and ensure that risks
are presented in the best way.
What is the Underwriting Process/Criteria?
Sureties generally look to underwrite risk with a zero-loss mentality; their potential losses stem from
principal insolvency. With this in mind, underwriter criteria for risk largely centres around the
applicant’s credit strength, and the underlying obligations of the guarantee comparative to the strength
of the applicant. An initial review of a bond enquiry would focus on the applicant’s historic trading
performance, balance sheet strength and an outline of the contract to be bonded.
Once we have secured sufficient information to make a submission to the market, we would approach
suitable sureties based on the type and level of support required. From here, terms would be formalised
with any additional due diligence required by underwriters, and the surety’s security would be put in
place. This would typically be in the form of a group counter indemnity which allows a route to recovery
for the surety, should there be any claims on live bonds. It is important to remember that surety is not
an insurance product in that there is no transferral of risk. All sureties issue bonds on a recourse
basis.
