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1
National Association of Surety Bond Producers
Commercial SuretyLevel III
Large Account Underwriting & Management
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National Association of Surety Bond Producers
Large Accounts Defined
What Constitutes a Large Account? Program Size
$25mm Program Potential To Grow To This Size
Market Cap/Equity $50mm – somewhat depends on carrier
Territory of Exposure National Regional International (reverse flow)
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National Association of Surety Bond Producers
Program Risk Assessment
Risk Of Bond Program High Risk Bonds
Workers Compensation Self-Insurance Reclamation/Restoration Customs – Countervailing, Anti-Dumping Court – Defendants, Appeal Lease – Term Dependent Closure/Post Closure Depository Oil & Gas - depends on the carrier Multi-Year Obligations International
National Association of Surety Bond Producers
Program Risk Assessment
Risk Of Bond Program – cont. Moderate Risk Bonds
Utility Tax Court Customs
Low Risk Bonds License Permit Compliance Contract
• Single year/short term
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National Association of Surety Bond Producers
Program Risk Assessment
Mix and Spread of Risk Concentration of Bond Type vs. Dilution of Risk Multiple Sureties – Equal Allocation or Mix of
Bonds
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National Association of Surety Bond Producers
Underwriting
Financial Sources of Financial Information
• Rating Agencies (Moody’s S&P, Fitch)• Analysts Reports• Edgar/Financials (Company Website – investor relations tab)• Annual Report/SEC Reports• Publications (Forbes, WSJ, etc)• Internet Sources (Google, Yahoo, Bing, etc.)
- News and Financial Sections
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National Association of Surety Bond Producers
Underwriting
Industry Type – Sector, Age, Depth, Outlook Position of Company Within the Industry Competitiveness of Industry and Company Diversification Within/Outside Industry
Capital/Market Cap Number of Shares X Market Price = Real Value?
Footnotes/Litigation/Details
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National Association of Surety Bond Producers
Underwriting
Growth and Profitability of Company Trends Outlook (Compare to Term on Bonds?)
Leverage Debt (Ratios, Total Debt, Types of Debt, Use Of
and Turnover) Term/Expiration (Relative to Program and Risk
Profile)
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National Association of Surety Bond Producers
UnderwritingPrivate vs. Public Companies
Audit (Quality and Frequency of Statements)Personal Financials (Ownership)Parental Financials (Availability and Quality)Rating Agency Availability in Some Cases
(These can be requested by company if privately held)
Compare/Contrast with Contract Underwriting
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National Association of Surety Bond Producers
SecurityIndemnity
(What Can You Get and What Do You Need)Organizational Charts
Indemnity needs to be in the name the financials are filed with the SEC (if public)
LLC vs. CorporationsPrivate Equity Owned/Involve
How structured and special considerations
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National Association of Surety Bond Producers
SecurityIndemnity - cont.
Parental IndemnityWhen necessary
How high up to go – ultimate parent? Sample Signature Block
LLC Corp
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National Association of Surety Bond Producers
SecurityIndemnity - cont.Omnibus Wording -- Sample: This Agreement applies to all Bond(s) executed by Surety, whether prior to, simultaneous with, or subsequent to the date of execution of this Agreement; (1) on behalf of any Indemnitor(s) solely or as a member of a partnership, joint venture, or any other business entity or common enterprise; and/or (2) in connection with contracts for which any Indemnitor(s) acts as a silent participant; and/or (3) at the request or on behalf of any of the Indemnitor(s); and/or (4) for or at the request of any present or future parent, affiliate or subsidiary of such Indemnitor(s); and/or (5) for any third party at the request of Indemnitor(s) and/or their parents, subsidiaries and affiliates. If Hartford procures the execution of Bond(s) by other sureties, executes Bond(s) with co-sureties, or procures reinsurance, the terms and conditions of this Agreement shall inure to the benefit of such other sureties, co-sureties and reinsurers.
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National Association of Surety Bond Producers
SecurityIndemnity - cont.
When is it not enough?
Corporate Resolutions• What are they? • Why are they necessary?
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National Association of Surety Bond Producers
SecurityIndemnity - cont.
Corporate Resolutions cont.
Discharge of Indemnity/Place In Funds Language
SAMPLE:
The Indemnitors will on the request of Surety procure discharge of Surety from any Bond and all liability by reason thereof. If such discharge is unattainable, the Indemnitors will if required by Surety, either deposit collateral with Surety, acceptable to Surety, sufficient to cover all exposure under such Bond or Bonds, or make provisions acceptable to Surety for the funding of the bonded obligation(s).
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National Association of Surety Bond Producers
SecurityIndemnity - cont.
Negotiating terms and language of Indemnity Agreements
Foreign • Parents, Subordinates, Principals
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National Association of Surety Bond Producers
Security
Collateral When is it requested? What is the purpose? How is the amount determined? From which entity can the collateral be
provided, and in what name? Preference Periods
What are they and why are they important?
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National Association of Surety Bond Producers
Security
Collateral - cont. Types
• ILOC Sample Wording Bank Pre-approval
• Investment Accounts What are they How is this different then cash collateral Documentation and Limitations Ownership – account and interest
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National Association of Surety Bond Producers
Security
Collateral - cont. Types cont.
• Cash – in trust How held Interest – earned and ownership
• Collateral Agreements Terms for holding and releasing collateral
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National Association of Surety Bond Producers
Management of AccountsLines of Authority
When reviewed and renewed• Interim Reporting frequency
Depends on Principal if private Quarterly reports or more if public
How set and applied Uncommitted vs Committed Lines
• Contrast with Bank Lines
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National Association of Surety Bond Producers
Management of AccountsContract Reviews
Main areas of focus• Term• Venue• Default Trigger• Remedy• Forfeiture• Efficiency Guarantees• Long Term Warranties
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National Association of Surety Bond Producers
Management of AccountsInternational Surety
Canada Other
• Mexico• Europe• Asia
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National Association of Surety Bond Producers
Case StudyExxon Mobile, Starbucks, Wal-Mart?