national association of surety bond producers

1

National Association of Surety Bond Producers

Commercial SuretyLevel III

Large Account Underwriting & Management

2


Large Accounts DefinedWhat 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)

3


Program Risk AssessmentRisk 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


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

5


Program Risk AssessmentMix and Spread of Risk Concentration of Bond Type vs. Dilution of Risk Multiple Sureties – Equal Allocation or Mix of

Bonds

6


UnderwritingFinancial

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

7


UnderwritingIndustry

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

8


UnderwritingGrowth 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)

9


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

10


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

11


SecurityIndemnity - cont.

Parental IndemnityWhen necessary

How high up to go – ultimate parent? Sample Signature Block

LLC Corp

12


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.

13



When is it not enough?

Corporate Resolutions• What are they? • Why are they necessary?

14



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).

15



Negotiating terms and language of Indemnity Agreements

Foreign • Parents, Subordinates, Principals

16


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?

17


SecurityCollateral - 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

18


SecurityCollateral - cont.

Types cont. • Cash – in trust

How held Interest – earned and ownership

• Collateral Agreements Terms for holding and releasing collateral

19


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

20


Management of AccountsContract Reviews

Main areas of focus• Term• Venue• Default Trigger• Remedy• Forfeiture• Efficiency Guarantees• Long Term Warranties

21


Management of AccountsInternational Surety

Canada Other

• Mexico• Europe• Asia

22


Case StudyExxon Mobile, Starbucks, Wal-Mart?

national association of surety bond producers

Documents

riskconcentration of

risk profile

program size

mix of bonds

outlookposition of company

financial sections

types of debt

total debt