RMI Intro to Surety plus Prof V goes back to Campus Surety Prof V CEO Emeritus CNA Surety Corp Prof Emeritus UIUC Finance EVP Surety Arch Insurance Group Surety Will introduce some new concepts to you Overview of surety business Pre qualification process Compare to Insurance Banking Overview of claim process Current issues Surety What is surety Ancient process Biblical commentary Babylonian Roman times English history U S history Surety Personal surety Legal development Common law v statute Statute of frauds Development of corporate surety Surety Essence of the surety relationship Three party arrangement Surety guarantees the obligation of a primary obligor principal to a third party the obligee Surety Principal Obligee Surety Industry highlights 5 billion annual business approximately 1 of p c revenues 135 or so groups of companies write bonds in the USA Multi line and specialty companies Top ten write approx 70 of business Surety Bonds support both public and private transactions Bonds are typically statutory in nature 85 to 90 of contract industry premium relates to public works projects 99 plus of commercial premium relates to statutory obligations Surety Classifications of bonds Contract Commercial Surety Contract Bid Performance Payment Surety The bid process Discussion Underwriting pre qualification process The three Cs of Credit extension Character Capacity Capital Credit An expensive and in depth process Surety Character Too often a given but essential Stature in community reputation Relationship with other business partners Experience says watch out if an underwriter is aware of character issues Surety Capacity Proven track record on similar size scope and location of work Organization Comprehensive business plan Performance record plus the ability to meet obligations on current and future work load bonded and un bonded Continuity plan Surety Capital CPA certified audited f s for three to five years Work in process WIP for bonded and un bonded work Investment strategy Affiliated businesses Perform complete analysis Trends over time in profitability liquidity and leverage Credit history Bank relationships Accounting system cost control system CFO financial staf Reputation of CPA performing audits and other services Surety Commercial Fiduciary License and permit Court Public official Miscellaneous Fidelity Surety Some key distinctions Surety and Insurance Two party insurance v three party surety Principal insured is not directly protected by bond Third parties receive benefit Law of large numbers does not apply Loss expectation v no loss anticipated Principal is always primarily responsible for completion of the obligation Surety obligations are generally non cancelable Premium non payment not a reason for cancelation Surety Surety and banking Surety like banking is an extension of credit monetary v non monetary obligations Analysis of business very similar Repayment of credit or obligation Banks and sureties expect repayment Banks and sureties do not expect a loss Rights to pursue defaulting principal Collateral Indemnity Surety Claims process Number of alternatives Surety s responsibilities Fulfill the commitments to various stakeholders Performance Payment Other Surety Industry issues Surety has cycles too Hard and soft markets impact surety Regional and national economic impact High profile cases issues Enron and others Sub prime Capacity on major accounts Large and mega contracts Fortune 1000 exposures Surety Industry issues Expense structure Acquisition Underwriting Reinsurance Capacity Pricing Legacy issues Alternative products Insurance v surety Pricing of surety Commercial exposures create real pricing issues Rating plans are antiquated Surety International U S v Guarantee market throughout the world The European Union Other surety expansion Critical issues on business practice Cultural diferences Finding the right partners Surety Why did the Prof go back to business Surety Final thoughts Mark Vonnahme EVP Surety Arch Insurance Group Mvonnahme archinsurance com 215 606 1701
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