Download presentation
Presentation is loading. Please wait.
Published byLucas Strickland Modified over 8 years ago
1
Finance 431 Surety Discussion Class II
2
Surety All businesses have surety needs
3
Surety Contract Bonds – Bid – Performance – Payment – Subdivision
4
Surety The pre-qualification process for Contract – The underwriting process
5
Surety The underwriting process Three C s of Underwriting 1. 2. 3.
6
Surety The underwriting process Three C s of Underwriting 1. Character 2. 3.
7
Surety The underwriting process Three C s of Underwriting 1. Character 2. Capacity 3.
8
Surety The underwriting process Three C s of Underwriting 1. Character 2. Capacity 3. Capital
9
Surety Contractor failure – Why do they have problems?
10
Surety Contractors fail due to : 1. Accounting & financial mgmt. problems 2. Changes in ownership or key people 3. Changes in strategic direction 4. Uncontrollable factors
11
Surety What happens in claim situation ?
12
Surety Claim situation – Several options available after investigation: 1. 2. 3. 4.
13
Surety Claim situation – Several options available after investigation: 1. Retain contractor and provide financial assistance 2. 3. 4.
14
Surety Claim situation – Several options available after investigation: 1. Retain contractor and provide financial assistance 2. Re-bid job to another contractor 3. 4.
15
Surety Claim situation – Several options available after investigation: 1. Retain contractor and provide financial assistance 2. Re-bid job to another contractor 3. Pay the amount of loss up to amount of bond 4.
16
Surety Claim situation – Several options available after investigation: 1. Retain contractor and provide financial assistance 2. Re-bid job to another contractor 3. Pay the amount of loss up to amount of bond 4. Pay the full amount of bond
17
Surety Claim cases – Public job – Private job
18
Surety Questions on Contract surety ?
19
Surety Commercial surety obligations – License and permit – Court and fiduciary – Public official
20
Surety Commercial surety Underwriting process – Very similar to contract but different too… – Complex due to many types of obligations – Industry analysis – Many obligations are long term – Many obligations are non- cancelable
21
Surety Commercial surety – Two phases in underwriting Assessment – What is the obligation ? – Can the principal do it? Protective – How can/will the underwriter protect themselves ? – What indemnity and what form ?
22
Surety Factors of significance – Reputation and standing – Ability to complete obligation – Financial condition – Quality of financial data prep and presentation – Indemnity provided General agreement of indemnity Collateral
23
Surety Commercial surety – Long term exposure business WC self insurer Reclamation Appeal bonds
24
Surety Commercial Surety – Example The facts: Fortune 100 firm Some current numbers Stockholder’s Equity: $ 3 Billion Revenue: $ 35 billion NPAT: $ 1.5 billion
25
Surety Commercial Surety – Need a program of $ 750 million in surety obligations – Include WCSI bonds totaling $ 200 million; largest bond is $ 50 million – Pricing: $ 10 per $1000 for the entire program – Do you write the bonds? – What are key underwriting considerations?
26
Surety Commercial Surety – The facts: one of Top Automakers requires an appeal bond – Bond penalty: $ 1 billion – Assume profitable, well financed – Would you write the bonds? – What considerations?
27
Surety Commercial surety High profile cases What kind of obligations
28
Surety Enron Discussion What happened
29
Surety K Mart Discussion
30
Surety California Public Utilities Discussion
31
Surety What’s happened to the industry Some historical perspectives The decade of the Nineties A changing U.S. economy Industry analysis Financial obligations Reinsurance and aggregation of exposure
32
Surety Commercial surety Some thoughts about the future of the industry
33
Surety Next class
Similar presentations
© 2024 SlidePlayer.com Inc.
All rights reserved.