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In this post we will talk about the key elements when sending a contractors account to the surety for evaluation.
Think of the underwriters mind as a blank canvas. (Some more blank than others!) Presenting a bond account is an opportunity to paint the picture. The underwriter knows no more than you tell them. It is up to the sender to describe the key points and explain why the account deserves support.
Let’s go over the primary elements:
Introductory Letter: This letter should state how well the applicant is known. Can the sender vouch for the applicant’s honesty, good character and capabilities? The letter (which is typically just an email) should describe what’s needed – if it is a bonding program and / or a specific bond. There should also be comments about any significant underwriting points such as “The account has been declined elsewhere because…” or “The incumbent surety cannot provide the bond in question because…”
The author may also talk about any known underwriting issues and how they may be effectively addressed.
Contractors Questionnaire: All sureties have some version of this form which asks all the basic questions such as “Who owns the company?” “What kind of work do you do?” “What are the largest projects completed in the past?”
This document should be filled out completely, signed by the applicant and dated. If there is uncertainty on how to answer, don’t leave a blank. It gives the reader an uncertain feeling – which is not the picture you want to paint.
Financial Statements: These are needed for the company and its owners and should be provided in a complete form. Underwriters normally want to see 3 fiscal year-end company financials plus a current interim FS if the recent year-end is more than 6 months ago. If CPA prepared financials are not available, provide whatever info is. It may be financials prepared by a bookkeeping service or just produced from QuickBooks. Some companies only have tax returns if they have never pursued bonding in the past.
The personal financial statements are less formal. Most underwriters will accept self-prepared financial states if well-presented, signed and dated by the owners and spouses. Note: Typically, spouses are included in everything when it comes to bonds. Their names appear on the Questionnaire and personal financial statements, and they sign the General Indemnity Agreement (hold harmless for the surety) even if they are not active in the business. Underwriters take this approach because the company is jointly owned marital property.
Work In Process Schedule: Referred to as a “WIP Schedule,” this describes the financial condition of their uncompleted contracts. It indicates how much work the company has on hand and if it will be profitable. Other important info is gleaned from this document so treat it with care! CPAs normally do a good job presenting such data. But if it is being prepared by the contractor, be careful to follow the exact meaning of the column headings and fill out the form completely.
Specific Bond Needed: Provide a Bond Request Form. This document tells key details about the project and bond needed. Fill out completely and include attachments as indicated.
Optional: Include other info that may help paint the picture such as a company brochure, web site link, reference letters and resumes of key people.
When submitting an account, keep the underwriters point of view in mind. Sureties only provide bonds for applicants that present no likelihood of claim or default. It is important to show the company’s expertise, capabilities and financial strength.
Once the paperwork is moving, an “in person” meeting with the underwriter is always beneficial. Contract surety bonds have a human element that is not part of the paperwork. The underwriter must be personally convinced that the account deserves support.
If a real meeting is not possible, consider a teleconference such as Skype or Go To Meeting, or even send jpg pictures of the people, premises and some key projects.
Seize the opportunity to paint a convincing picture and gain the enthusiastic support of your surety underwriters.
The experts at Bonding Pros can help insurance agents and contractors when tough bonding situations arise. We have the markets and the know-how to succeed even when others have failed.
Give us a call today! 856-304-7348
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