In light of recent geopolitical events, Anna Morgan, Legal Director at BPL Global, addresses some of the questions that have arisen around sanctions clauses in non-payment policies, specifically the market standard ‘LSW 1865’, and sets out some key points to consider. Is non-payment due to sanctions covered under a standard non-payment policy wording? The short […]
Surety
Due to the increased acceptance of surety as collateral in recent years, insurers have, in parallel, expanded their surety offerings beyond the traditional construction sector to respond to the increased demand for issuing capacity from both financial institutions and corporates. At BPL Global, we believe the surety market has key synergies with CPRI and should be an important consideration for our clients in managing their obligations and/or credit exposure to third parties
What is surety?
A surety bond is a legally-binding guarantee that a company will carry out its obligations to a third party, involving:
- The Principal (who requests the bond to be issued, i.e. a BPL Global client)
- The Beneficiary (who benefits from the bond that can be called in the event of the Principal’s default on its contractual obligations); and
- The Surety (who issues the bond, i.e. an insurance company)
While insurance transfers the risk of financial loss to an insurance company, with a surety bond, the Principal remains financially responsible for any loss to the Surety which guarantees the Beneficiary that the obligation will be honoured.
Our experience and expertise
Surety for banks and financial institutions
Working with the surety market is becoming increasingly commonplace among banks and financial institutions, as it enables them to:
- Ensure risk mitigation remains confidential;
- Meet customer capacity requirements and maintain relationships;
- Diversify risk distribution channels to insurance companies which have credit risk profiles that are not correlated to those of banks;
- Stay in control during the default and recovery process; and
- Potentially achieve capital relief (depending on the jurisdiction).
Given the strong credit rating of surety providers, this distribution tool can provide robust risk protection with the additional potential for significant capital efficiencies relative to the underlying exposures depending on the prevailing regulatory environment.
World Leading Expertise
Thanks to favourable developments in the surety market, we are now encouraging our diverse international client base to consider sureties for certain risks and exposures.
While the CPRI market has been insuring banks for over 25 years, the surety market has historically viewed banks as competitors. However, as corporate clients have sought additional capacity in multiple jurisdictions, the surety market has increasingly realised that partnering with fronting banks can help provide a global client solution.
Surety for corporates
With surety becoming more widely accepted as a form of collateral, corporates are now considering diversifying away from their traditional use of bank issued guarantees and standby letters of credit (SBLC) to an increased use of surety. The main advantage is that the surety market can provide corporates with an alternative to bank capacity and at a competitive price.
By shifting some of their guaranteeing / bonding requirements into the surety market, a corporate can free up its working capital and bank lines thereby enabling greater headroom for growth and opportunity.
Why work with us
BPL can play a key role in assisting banks and financial institutions in their distribution strategy to sureties. We can also structure facilities for corporate clients with the surety market. In the event that local regulations or counterparty requirements demand an SBLC or bank guarantee to be in place in certain jurisdictions, BPL Global can help source a local banking partner to front such a facility.
Find out what sets us apart:
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We are proud to announce that Geraldine Gan and James Lord have been recognised in the Political Risk and Credit category at the prestigious 2021 Lloyd’s Asia Broker Awards. Broker Geraldine Gan and Assistant Director James Lord have made a notable impact on Lloyd’s platform in Singapore this year, with the award reaffirming the professionalism, […]
Sian Aspinall, Joint Managing Director at BPL Global, sits down with Markel’s Trade Credit Head of Business Development, Simon Philpin for the latest instalment of the ‘Class Conversation’ podcast, discussing key issues and developments in the credit and political risk insurance market Sian and Simon take an in-depth look at the latest trends in credit […]
In this episode of BPL Pulse’s podcast, Tim Hughes, Director at BPL Global, speaks to Andrew Beechey, Managing Director at Tierra Underwriting, about renewable energy in the Credit and Political Risk Insurance market. “Oil and gas have been the backbone of the CPRI market for many years, but we now know there is going to […]
