Our Contract Performance / Surety Bonds offer an alternative to bank guarantees. Unlike a bank guarantee, Surety bonds do not tie assets up as security. This makes Surety an extremely useful and flexible financing tool, particularly in a capital-constrained market.
Our Surety Bonds use AA – rated paper from Swiss Re International SE.
We specialise in construction and infrastructure industries and our Surety team is well-known throughout these markets for their experience, industry knowledge and responsiveness.
To discuss your Surety requirements contact Shourav Sarwar on (02) 8274 2837.
In a market characterised by credit rationing, surety bonds are the most efficient and cost effective way to finance your contract security obligations. Here’s how surety can help your business in Australia and New Zealand.
- Genuine bonding alternative to traditional secured guarantee bank facilities.
- Designed to deliver a flexible and effective bonding program, operating alongside your traditional banking lines of credit.
Frees Up Your Assets
- The bond facility is unsecured (no tangible security required), versus the banks’ secured positions.
Improves Your Liquidity
- The facility allows greater financial flexibility by allowing your organisation to leverage your capital base (better utilisation of your balance sheet), thus enhancing working capital and liquidity opportunities.
- Provides funding flexibility and options by not having to utilise your current banking lines for contingent liability (bonding) purposes (lazy capital).
Removes Growth Constraints.
- Provides certainty of capacity options in the current financial crisis.
- Financial Institutions are rationing credit and this is and will have a material impact on business.
- Close working relationship with analysts / underwriters.
- Contractors can take on more projects without being restricted by security requirements.
BENEFICIARIES / PRINCIPALS
Assetinsure Surety bonds use AA- rated paper from Swiss Re International SE, one of the world’s largest reinsurers.
Safe As A Bank Guarantee
Surety bonds carry an identical wording to a bank guarantee, following the Australian Standards AS2124 document which is an unconditional and on demand undertaking. Surety bonds carry exactly the same obligations at law as a bank guarantee.
Surety bonds are widely accepted by the private sector, federal, state and local municipalities. For a list of beneficiaries click here.
Common Misconceptions About Surety Bonds
“A surety bond is an insurance policy.”
Surety bonds provide protection for the principal of a contract against the default of the contractor. A Surety bond is an undertaking by an independent third party, “the Surety” (Swiss Re International SE), to the owner that the contractor will perform in accordance with the terms and conditions of the contract, hence a Surety bond is a three-party contract. The contractor requests the surety to issue the bond in favour of the principal. The contractor pays the premium for the Surety bond but is not the beneficiary of the bond.
“Surety bonds don’t have the same obligations as a bank guarantee.”
Surety bonds carry an identical wording as a bank guarantee and follow the Australian Standards bond templates, such as AS2124 and AS4000. Surety bonds carry exactly the same obligations at law as a bank guarantee. We can’t call our product a bank guarantee, as we are not a registered bank. Otherwise the products are identical.
“Insurance companies aren’t as secure as banks”
Assetinsure surety bonds are issued by Swiss Re International SE, which carries an AA- Standard & Poor’s Credit Rating. The chart below shows comparative bank credit ratings.
|Financial Institution||Standard & Poor’s Rating / Outlook||Market Capitalisation and ASX Ranking (if applicable)|
|Westpac Banking Corporation||AA-/stable||$87.15 billion / 3|
|Commonwealth Bank of Australia||AA-/stable||$104.32 billion /2|
|Swiss Re International SE||AA-/stable outlook||CHF 25.82 billion
|National Australia Bank Limited||AA-/stable||$67.97 billion / 5|
|Australia and New Zealand Banking Group Limited||AA-/stable||$77.15 billion / 4|
|QBE Insurance (Australia) Limited||A+/negative||$14.74 billion / 17|
|AMP Limited||no longer rated||$15.47 billion / 15|
|Suncorp-Metway Limited / Vero Insurance Limited||A+/stable and A+/stable||$14.04 billion / 18|
|Macquarie Bank Limited||A/stable||$12.81 billion / 20|
|Bendigo and Adelaide Bank Limited||A-/stable||$3.84 billion / 61|
|Bank of Queensland Limited||BBB+/stable||$2.69 billion / 81|
(data sourced from S&P February 2013)
“It’s more difficult to make a claim on a bond.”
The payment must be made to by the surety on demand (unless the bond specifically states otherwise), without any assessment as to the amount to be paid (unlike an insurance claim). The only assessment occurring is to ensure the claim is made in terms of the bond itself – a process identical to the payment of a bank guarantee.
“Surety Bonds are new and not widely accepted.”
Surety bonds have been part of the Australian market for over 50 years and are widely accepted by the private sector, federal, state and local municipalities. For a list of beneficiaries click here.
Contract bonds are primarily used in the construction and infrastructure sectors to cover performance obligations, as a flexible alternative to bank guarantees or retention funds. Types of bonds offered by Assetinsure include:
Provides security to the beneficiary against contractor non-performance or default, and supports contractor obligations during the contract period.
Supports a contractor’s bid or tender to ensure that they will enter into a contract if accepted.
Advance Payment Bonds
Secures the beneficiary’s position on funds advanced to the contractor for capital purchases or site preparation.
Retention Release Bonds
Provide security to the beneficiary when the contractor is advanced funds from the retention fund.
Secures contractor’s post-completion obligations during the warranty or latent defects period, usually 3-12 months post-completion.
Off-Site Material Bonds
If goods or materials are held off site and paid for by the beneficiary, the bond responds if the goods or materials are not available when required for use in the contract.
Surety bonds enjoy widespread acceptance across corporations and federal, state and local government.
Assetinsure has a detailed and methodical approach to underwriting surety bonds.
Key factors in this process include:
- A well-developed business
- A solid track record
- Evidence of professional financial and operational management
- Demonstrated capital retention within business
- Technical ability to deliver on all contractual requirements
- Control over exposure to existing projects
Clear documentation of these factors, as itemised in our application documents, will ensure that bond facilities are approved in a timely fashion.
As a quick guide, a bond facility is suitable for firms meeting these criteria:
- Company must turn over at least $20 Million per annum to be considered
- Must have a minimum net tangible worth of $1 Million
- Positive cash flow
- Positive working capital
- At least 3 years of continuous profitability
- Operating for at least 3 years
Assetinsure offers insurance-based financial solutions with highly-rated paper as agent for Swiss Re International SE. Assetinsure and Swiss Re are both regulated by the Australian Prudential Regulation Authority (APRA) to conduct business in Australia.
Swiss Re is a leading and highly diversified global financial services company, operating through offices in more than 25 countries. Headquartered in Zurich, it is one of the largest reinsurance companies in the world. Its shareholder equity stands at CHF 24.1 Billion, the third highest in the world reinsurance industry, and remains a well-capitalised company with a strong liquidity position.
Swiss Re International SE conforms to the guidelines for the acceptance of Performance Bonds defined by the New South Wales and Victorian state governments. Both guides recommend that you only accept Performance Bonds from banks or insurers that meet a minimum credit rating. We recommend that you review these and if you have any questions please contact one of our team.