An insurer is your best partner for surety bonds

Businesses bidding on new project opportunities always seek to portray their capabilities and strengths in the best possible light. But no matter how glowing their track record and balance sheet, the project owners they are trying to impress invariably require a guarantee that the proposed work will be completed as agreed or, if not, appropriate compensation is paid.

That is where surety bonds and guarantees play a big role. By financially guaranteeing that your company will fulfil the terms established in a bond, they bring confidence and high levels of trust to the relationship between you and the project owner, the beneficiary of the bond.

Here are five top reasons why insurers in particular make the best partners for companies looking to safeguard their projects with surety bonds.

1. Releasing liquidity

Surety bonds from insurers release greater liquidity for your company. By not using a bank facility, your existing bank credit lines are not stretched, and that typically frees up liquidity for other activities: to tender for further business, to invest in capital equipment, meet ongoing payment obligations, and more.

“As a financing alternative to bank guarantees, surety bonds can release working capital facilities with your bank. Not every CFO or company director is aware of this alternative!” says Jos Weerdesteyn, Director Surety & Guarantee Benelux.

2. Appetite for greater risk

An appetite for more risk is built into the DNA of insurance companies. A bank’s maximum guarantee capacity is usually based on a form of security (a mortgage, cash reserves, etc) that will govern how much credit it is willing to extend to a contractor. In contrast, insurance-backed surety providers don’t require that kind of hard security; for an insurance company, security comes in the form of sharing the risk.

3. International reach and local support

With global market intelligence and surety teams around the world, an insurer such as Allianz Trade is well placed to support your international projects through a combination of centrally managed capabilities and surety underwriters on the ground in the country where your project is taking place. By having direct access to local teams, your business is supported with deep knowledge of the country’s economic conditions, local contract language and its legal framework.

4. Longer project horizons

For a project that could run for several years, a surety bond from an insurer is likely to be the best approach. Banks are more inclined to issue guarantees up to five years; beyond that, such a long-term bank guarantee is likely to require extended due diligence, security and greater capital costs. In contrast, an insurer is happy to work with bonds that span up to eight years. And working with its reinsurance partners, bonds can be issued that last up to 15 years.

5. Benefiting from a stable credit rating

Insurance companies – especially those with an international footprint – typically have much more stable credit ratings than banks. By being able to point to an AA rating at a surety partner such as Allianz Trade, you can build trust and confidence with your client as you put a surety bond in place for a bid or to back project execution.

“An AA rating for the bond issuer brings comfort to a beneficiary, especially if you are a mid-sized company market that may not have a track record with the project owner or in the country where the project is based,” explains Jos Weerdesteyn, Director Surety & Guarantee Benelux.