What is a Surety bond? 

The surety market is a niche part of the insurance market specialising in the provision of bonds and guarantees. A surety bond is a financial instrument issued by an insurance company in the form of a ‘Guarantee’ that certifies the successful performance of one party to another under a contract. The bond provides monetary compensation in the event that specified obligations are not performed. 

Though issued by an insurance company, a surety bond does not operate as a risk transfer mechanism like traditional forms of insurance. Issued on recourse terms, it is considered a line of credit; or in accounting terms, a ‘contingent liability’ off balance sheet. Given the financial nature of bond facilities, a pre-requisite is the entry into a Deed of Counter Indemnity in favour of the surety. This is a legal agreement that affirms the surety’s common law position to seek a recovery from the bonded Principal should there be a claim. 

Benefits of surety bonds

• Flexibility and capacity to operate alongside traditional banking facilities

• No tangible security or collateral is required, thereby freeing up assets for other purposes

• Can replace Letters of Credit and Bank Guarantees, releasing trapped working capital

• Greater financial flexibility by allowing bank credit lines to be released and used more cost effectively 

• Strong financial strength rating of surety providers (between S&P A and AA), often higher than banking partners 

• Transparent and competitively priced
  

Where We Work

Surety bonds are utilised across a number of sectors in support of various contractual, regulatory and licensing requirements. Industries that often rely on surety solutions and where we are well placed to assist include, but are not limited to the following:

• Construction

• Oil & gas 

• Renewable energy & environmental technology

• Engineering

• Infrastructure / transport

• Manufacturing

• Retail

• Shipping

• Support services

• Food & drink 

• Importers / exporters 

• Shipbuilders 

• Pharmaceuticals 

• Automotive 

• Transportation 

• Waste management

• Real estate and property owners 

• Aerospace 

Understanding commercial Surety vs. contract Surety bonds

Commercial surety and contract surety bonds (also known as construction bonds) are instruments used between three parties: the principal, obligee and surety entity. All bonds provide a line of credit that acts a financial guarantee to allow the obligee to claim against the bond. As a result, the bond principal is required to reimburse the surety for all claims.

The main difference between commercial surety and contract surety bonds is the intended purpose. Commercial surety bonds are to ensure a business complies with all state regulations while contract surety bonds provide a financial guarantee for construction projects. Our team of experienced licensed and bond production associates have worked across surety types to make the complex simple.

Examples of surety bonds the market can offer

Contract bonds 
Contract bonds are typically required under the terms of a contract and guarantee a variety of obligations, from construction contracts to service and delivery contracts. Examples of contract bonds include:

• Performance bond 

• Bid bond 

• Advanced payment bond 

• Retention bond 

• Warranty & maintenance bonds

• Offsite materials bonds 

• Developers & infrastructure bonds (section agreements) 

• Ship building bonds 

• Local Government Pension Scheme bonds

Commercial bonds
Commercial bonds are used in support of regulatory and licensing requirements and other commercial undertakings. Examples of commercial bonds include: 

• Restoration bonds

• Decommissioning bonds 

• Insurance deductible guarantees 

• Deferred consideration / payment bonds 

• Environmental bonds 

• Duty deferment / customs guarantees

• Admiralty bonds 

• Travel bonds 

• Court bonds 

• Letter of credit replacements 

• Pension deficit

• Captive retention bonds