To Bond or Not to Bond
© 2014 Liberty Mutual Insurance. All rights reserved.
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Today’s Presenters
Barb D’Ettorre:
• Based in Seattle office of Liberty Mutual
Surety, manages 7 states: AK, HI, WA,
OR, ID, MT, and Northern CA.
• Over 28 years of experience in the surety
industry.
• Positions have included collateral
specialist, underwriter, and product line
manager for both Safeco and LMS.
• BS in Business Administration from
Central Washington University and holds
ASFB and CPCU designations.
Barb D’Ettorre
Core Commercial Manager
Liberty Mutual Surety
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Today’s Presenters, Continued
Debra Nelson:
• Based in Seattle office within the Western
region of Liberty Mutual Surety.
• Responsible for commercial surety bonds
in AK, HI, WA, OR, ID and Northern CA.
• Over 17 years experience in the surety
industry including over 4 years with Liberty
Mutual Surety.
• BS in Finance from the University of
Montana.
Debra Nelson
Commercial Bond Manager
Liberty Mutual Surety
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Liberty Mutual Surety
Liberty Mutual Surety™, the 2nd largest surety writer in the U.S., works
closely with independent agents and brokers and their customers to
build mutually profitable relationships by providing ease of doing
business, smart business solutions and professional, consistent and
responsive service.
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Core Contract
Core Commercial
LSF Contract
LSF Commercial (includes Online)
2014 Liberty Mutual Insurance ranked number 76 on the Fortune 100.
Financial Strength Ratings:
A.M. Best ‘A’ (Excellent) Moody’s ‘A2’ (Good) S&P ‘A’ (Strong)
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Industry Facts
• Size of industry --$5.3 billion (2013)
• 60% - 65% Contract
• 35% - 40% Commercial
• Top 4 Surety Companies = $2.4 billion
• Top 10 Surety Companies = $3.4 billion
Hawaii Facts:
• 47 writers of Surety!
• Size of industry : $34.9 million
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Historical Overview
How did surety get started?
• Suretyship is almost as old as civilization. Personal
Suretyship is referenced in biblical passages.
• Ancient Roman ordinances called for
surety on the construction of buildings
and walls.
• Corporate suretyship was a natural
progression and outcome.
• Suretyship started in America with
Fidelity Insurance Company in 1865.
• Liberty Mutual founded in 1912.
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What is Suretyship?
Definition:
• A three-party agreement
• The Surety provides a Guarantee
that the Principal will perform
satisfactorily
Principal
Surety
Obligee
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How Does Surety Differ from Insurance?
Surety
Insurance
• Three-party agreement
• Two-party agreement
• Losses not expected
• Losses expected
• Losses recoverable
• Losses not usually recoverable
• Premiums cover expenses
• Premiums cover losses, expenses
• Sureties are selective
• Insurers write most risks
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Why are you being asked to provide a bond?
Bonds provide security in many areas.
• Compliance
• Payment
• Completion of work
• Quality of work
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Underwriting information typically required
• Comparative Financial Statements
3 years
Reviewed or Audited
• Copy of Contract or Underlying Obligation
• Indemnity
• Experience or Qualifications
• Collateral
• Other – Type of Risk; Management Experience
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Indemnity—Why is this Important?
• Agreement to Hold Surety Harmless in the
event of a claim
• Specific or General in nature (common law
indemnity)
• The Surety = unsecured creditor
• Requires Corporate and often personal
guarantees
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Bond Classifications
Types of commercial surety bonds:
• Court and judicial bonds
Plaintiff, Defendant
• Fiduciary bonds
Guardian, Executor
• License and permit bonds
Regulatory, Public Safety
• Financial Guarantees
• Miscellaneous and Federal bonds
• Public official bonds
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Alternative Security to Surety
Types
• Letters of Credit
• May adversely impact credit facilities
• Cost
• Defense
• Cash Deposit
• Restricts access to cash
• Defense
• Parental Guarantee
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Public Protection Bonds
• Protects the general public against
financial damage as a result of fraud,
misrepresentation, and unfair dealings
• Required of industries that are regulated
by the state, such as trade schools,
insurance brokers, check cashing
businesses, etc.
• Common bond requirements include
motor vehicle dealer bonds, mortgage
broker bonds, and defective title bonds
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Miscellaneous Bonds
• Do not fall into well-defined category
• Protect consumers from agreements or
contracts in which people may fail to perform
• Often hazardous and strict financial
guarantees
Types
• Wage and welfare
• Utility deposit
• Lost instrument
• Customs
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Bonding opportunities/ requirements
FOLLOW THE RISK: A Tourist comes to town…..what bonds
might be behind the scenes?
• Hawaii Activity Desk
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Timeshare Plan
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Liquor tax bond
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Money Transmitter
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Promoter bonds
•
Utility deposit
•
Customs
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Common Underwriting Concerns
Bond form language to be aware of:
• Cumulative liability or “stacking”
• Forfeiture language
• Adverse selection
• Cancellation clause
• Aggregate liability clause
• Bond term
• Bond tail
• Hidden statutes
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Other Uses of Surety
• Financial Guarantees
• May not be in conflict with NY Appleton Law
Leases where guarantee does not exceed 5
years
Contracts of indebtedness or other monetary
obligations not to exceed $10 million
(not guaranteeing principal and interest)
• Competitive Advantage?
• Buyback/Repurchase Guarantees
• Guarantee of Performance
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To Bond or Not to Bond?
The End
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Thank You
© 2014 Liberty Mutual Insurance. All rights reserved.
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