Determining Surety Program Size
A surety program consists of a single and aggregate limit of bonding capacity that a principal qualifies for based upon their character, capacity, and capital. The program also includes any additional tools required for the underwriting process such as the indemnity package, collateral, and funds control. The single limit is the dollar amount the underwriter determines a principal qualifies for under a single bond, whereas the aggregate amount is the maximum total amount a contractor qualifies for in either outstanding bonded liability or total backlog. Single and aggregate limits are not hard limits; bonds outside the program limits can be considered on a case-by-case basis. See the underlying considerations underwriters make when determining a company’s access to surety credit.
CHARACTER: Credit history heavily influences an underwriter’s decision; it is assumed that principals will handle their business obligations in the same manner they handle their personal obligations. Principals who have had prior bankruptcies, tax liens, or civil judgments could experience difficulties in obtaining a bond program.
CAPACITY: Underwriters look at the expertise and experience of the company. This is demonstrated through company work history, the business plan, and the resumes of the owners and key personnel. The company’s work on hand is utilized to calculate cost to complete and note any profit fade.
CAPITAL: The two most important calculations in analyzing capital are net worth and working capital. Underwriters will make necessary adjustments to assets and liabilities to determine overall financial strength, access to capital, and profitability.
Unlike insurance, surety bonds are credit-based product for which not everyone qualifies.
Working with a surety bond specialist who has intimate knowledge of the underwriting process will maximize your bond program.
To establish a connection with a Parrot Surety Producer and obtain recommendations to improve or optimize your access to surety credit, give us a squawk at 615-205-5080 or info@ParrotSuretyServices.com
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