In the same way that general practitioners aren’t expected to perform surgeries, financial service offerings are best dealt with by specialists. Here niche firm National Credit Insurance (Brokers) Pty Ltd (NCI) shines a spotlight on the value of expertise, coupled with strong market relationships, when it comes to navigating the world of surety bonds.
“Recently an Australian listed company had approached a general broker, had gone direct to all the surety markets, and got ‘no’ all the way around,” NCI surety division manager Henrik Valentin (pictured) told Insurance Business.
“They came to us and within three months we had a $5 million facility placed for them. That $5 million facility is now $10 million and in the process of increasing it to $15 million within only a 12-month period. And a lot of it is having a strong insurer relationship, and the trust that they have in you.”
According to NCI managing director Kirk Cheesman, things became very difficult on the surety side during the pandemic, with tougher assessment criteria and no new facilities really being considered.
“Even if you wanted a new facility,” noted Cheesman, “there was a lot more information required to assess your ability to get a bond facility and also the premiums increased.
“That was a tough time for businesses, but highlights how a specialist surety provider can assist businesses in going to the market rather than going direct. The ability to help with terminology and the reasons to look at the benefits of a surety bond is also a plus. Post-2020, the demand is definitely growing for the surety product.”
Unfortunately though, said the MD, the surety bond appetite from insurers seems to be shrinking. And with a record level of infrastructure, mining, and defence projects, Cheesman believes there is going to be a definite need for more surety capacity in the Australian marketplace.
As for the process and the role of the broker, Valentin said: “An underwriter is looking at financial information, which is basically telling them yesterday’s story. The forecasts are supposed to tell them what’s going on now and in the future. So, for a specialist broker, it is about changing the conversation from what happened in the past to what’s happening presently and what’s going to happen next.
“In terms of presenting these, it’s fairly intensive because of the financial due diligence due to the unsecured nature of the product. These are all done on a facility basis – a facility is pre-approved, it might be $5 million or $20 million, and then for each individual project that the contractor/client wins, they will draw against that facility limit.”
Unlike traditional bank guarantees from lenders, surety bonds from insurers do not require tangible security, prompting the abovementioned intensity and the need for the broker to effectively paint a picture for the underwriter.
“To be able to do that, it takes experience,” asserted Valentin. “You’ve got to understand the financial information in front of you; you've got to be able to present the case; and you’ve got to understand the industry sector.
“In terms of surety, we close about 90%-plus of all submissions we put to the market. It’s quite unique. Having the relationships and having the record that we have, means that when we put a submission forward, the insurer takes it seriously.”
Cheesman – who described surety bonds as a high-level product, given what it entails to manage a facility – added that they support a lot of general brokers since NCI only does trade credit and surety and not general insurances.
He told Insurance Business: “They’ll approach us and say, ‘Hey, help’. Sometimes it’s important just to reach out to a specialist. We’ll work with them, share in the incomes and support the relationship throughout. And we grow a partnership with them, because we’re no threat to the general side.”
