bid bond

Secrets of Bonding #166: Meet the Weatherman

Tonight’s forecast: Dark!

We like to joke about the TV weather team: “I wish I had a job where I could be wrong 50% of the time!” *  But in reality, we still tune in and watch.

   Question: Is a surety bond underwriter just like a weatherperson?  How are they similar?

Both are paid to make predictions.  They gather and analyze information: “Crystal ball gazers.”  There is a hope / expectation that they will achieve some degree of accuracy.  Whether you are forecasting the POP, or the completion of a construction project, isn’t it just about the same?

You know forecasters use computer models.  They have the National Weather Service and there are Canadian and European Models.  They could just put that up on the TV screen!  We don’t really need the “local weather talent,” do we? 

What about bonding? Many sureties already use computer based programs.  These provide instant or quick answers on surety bonds that fall into certain categories.  Is that all we need?  Should we get rid of the Surety Underwriter / Weatherman entirely?  We say “No!”  Here’s why…

  • The Underwriter does more than predict the future. A good underwriter contributes to the outcome.  Their efforts positively affect many people. 
  • When bonds are approved, the bond agent makes money.  The construction company achieves new revenues. So do their suppliers and subcontractors.  Think of the ripple effect!
  • The bonding company and their reinsurers make money. 
  • Presumably something of value is built for the owner; a useful asset is created. 

Really good underwriters are more than “yes / no” decision makers, they are facilitators. The experienced underwriter sees a path forward that may not be obvious to others.  How can this deal (performance bond) be supported while protecting the interests of the surety, the guarantor of the project’s success?  Here’s where knowledge, experience and attitude come in. 

Does the underwriter want to make the deal happen, and have the know-how to do it?

These high level underwriters aren’t weathermen, they are Rain Makers!  They work actively to produce profits and success for all they touch. Without their expertise, projects would not be supported and built.  Doors get opened and companies reach new, higher levels of mutual success. 

This is a combination of science and art with a dash of experience.  And you don’t find it too often.  But when you do, grab an umbrella and watch good things happen.

KIS Surety is the exclusive national underwriting department for Great Midwest Insurance Company, an A-8 rated carrier.  Call us with your next bid or performance bond. 856-304-7348 

(Don’t miss our next exciting article.  Click the “Follow” button at the top right.)

*  Actually, weather forecasters average more than 80% accuracy.  Good job guys!

Surety Derangement Syndrome “SDS”

Why wouldn’t you be upset?!

You need a bid or performance bond for a construction project (you need it now). 

It goes from the underwriter who loves it, to the supervisor to the bond manager, then to the genius in home office who HATES it! And it only took two weeks to get… a declination.

There are just too many layers! Naturally you have Surety Derangement Syndrome!

The good news is that we will provide a solution. Here it is, your very own, “Preferred Access Code.” With this code you can cut through all the layers. You want to get right to the decision maker. Talk to the person with the authority to make it happen. Present your case and have the dialogue that can result in an approval. This is the process you’ve been hoping for, but nobody would allow you.

With your special Preferred Access Code, you can talk directly with a $10 million underwriter. Just think of it. You pick up the phone, make the call, and immediately, you have access to a $10 million approval. Awesome.

Get a pencil and write it down. Here is your special Preferred Access Code:

GIMMESTEVEPLZ

Call this number 856-304-7348 and enter your Preferred Access Code.  You will immediately be connected directly with the decision maker. Not a receptionist. Not a computer: “Your call is very important to us…” 

Not a Junior Assistant Underwriting Trainee. This is the real deal.

Say goodbye to your chronic SDS! Why put up with the aggravation when an A-rated surety opens the door for you. KIS Surety is the exclusive national underwriter for Great Midwest Insurance Company, an A-8 corporate surety.

Test your code today to verify it works, and you can use it all day, every day. That’s right. You don’t have another surety like this.

Here it is again:

856-304-7348

“GIMMESTEVEPLZ”

It’s SO HOT!

Record heat is being recorded in many parts of the country.  But what else is hot?

  1. Floyd Mayweather – Hot earner made $7.6 million per minute for his fight with Connor McGregor
  2. Stephen Curry – Hot contract, NBA’s first for over $200 million
  3. Timothy Berners – Lee (never heard of him?) Inventor of the world-wide web and creator of the first web site. He changed everything. Very hot.
  4. Surety Bonds by KIS – Exclusive national underwriters for Great Midwest Insurance Company!
  5. Bill and Melinda Gates – Hot philanthropists donated $4.78 Billion in 2017. (Don’t worry, they kept some for themselves.)

What was that number 4, Surety Bonds?! Come on!  How can they be hot?

Glad you asked:

Surety bonds are a special area of the business.  They are unique and difficult, an opportunity and sometimes an obstacle.  But they are always a chance to shine: A path to greater success for you and your clients.  All you need… is a way to get there.

What if the surety underwriters were cooperative and production oriented?

Wouldn’t THAT be hot?

You need to ask yourself

  • Do my underwriters promise a same day response?
  • Do they help me find a way to write the business?
  • Are they open to a wide range of underwriting situations?
  • Are they Problem Solvers?

If not, you need to heat up your surety bond production.  Find out why agents bring their big / tough contract surety bonds to KIS Surety, exclusive national underwriters for Great Midwest Insurance Company, an A-8 rated corporate surety specializing in bid, performance and payment bonds for contractors.

Same day response.  Bonds up to $10 million.  Flexible and creative.  THAT’S HOT!

We can help you solve your next contract surety need. KIS Surety   Call us! 856-304-7348

Our Surety Agents Look Good

* Tuesday 6/19/18: We received an urgent submission.  A new client needed a $1 million final bond. We reviewed the file immediately and sent back our “road map to success.”

Complicating factors:

  • New file.  Short fuse.  All the basic analysis, credit reports, financial evaluation, indemnity agreement, etc. were needed.
  • Another surety had issued a bid bond, but because of unexpected developments, was unable to provide the final bond
  • There was a bid spread
  • The job specifications needed clarification regarding the surety obligation and possible requirement for a maintenance bond
  • Company year-end FS was a draft
  • Analysis regarding the collection of FYE Receivables was needed
  • Two other sureties reviewed this opportunity, causing the clock to run down for the client

* Wednesday 6/20: Agent provided additional info.

* Thursday 6/21: An engineering evaluation of the project was completed, including the adequacy of price.  Wednesday evening and Thursday, the underwriting review was completed. Bond is approved!

*Friday 6/22: Bond is issued and in the hands of the agent and contractor.

Actual agent comment: “Thanks so much!  Great job!”

Making our agents look good.  That’s what we do.

We are the national contract bond underwriting department for Great Midwest Insurance Company, a corporate surety with an A-8 rating.  We can help you solve your next contract surety need. KIS Surety   Call 856-304-7348

Bucket List: Update

Great news!!  Today you can check off one more item from your Bucket List!

Current Bucket List:

  1. Learn to bartend like Tom Cruise in “Cocktail”
  2. Visit Abbey Road in London and re-create The Beatles’ cover
  3. Hug Mickey Mouse
  4. Write my name in wet cement
  5. Bury a time capsule
  6. Ride a Vespa
  7. Find a Bonding Company as Good as I Want
  8. Make a tie dye shirt
  9. Be the house on the block with the most Christmas lights
  10. Try every cheesecake at The Cheesecake Factory

Today you can finally check off #7: “Find a Bonding Company as Good as I Want” There are two big questions and we will answer them now.

First Question

What do you want from a bonding company? They must have capacity.  If the company is too small, they can only write tiny bonds.  They are of little use to Surety Bond Agents and their Contractor clients.

Good credentials.  The bonds must be widely accepted so contractors can use them on various contracts, in any state.

Flexible underwriting.  The process of getting the bond approved must be willing and aggressive, like the underwriters actually want to write the bond.

Speed.  You can’t wait forever for an answer.  How long should it take the underwriter to respond?  Basically, your Bucket List surety will give you a same day response.

Second Question

Exactly who is this extra special, wonderful bonding company? #7 is Great Midwest Insurance Company! (GMIC) Never heard of us?  We are part of Houston International Insurance Group an “Excellent” rated company in the $250 million plus category.

GMIC is a provider of contract surety bonds (bid, performance, payment) that is licensed in every state.  This corporate surety uses a flexible underwriting style that may support clients that were declined under more traditional underwriting methods.

Bonds are provided up to $10 million each with surety programs up to $15 million.

What about speed? The GMIC surety program is available exclusively through an MGU provided by KIS Surety Bonds. Our underwriting expertise originated in the early 70’s!  We have lots of experience solving problems for our clients efficiently and with a same day response.

Hooray!  You nailed #7.  When you need the next bid or performance bond call us: 856-304-7348. KIS Surety, MGU.

Now, here is a link to help you with #1: Click!

Secrets of Bonding: #163: Financial Statement Fraud!

You know the old adage, “Financial statements don’t kill people, people kill people.”

While it’s true there can be misrepresentation and deception in a financial statement (FS), the document is not inherently bad, it is the poor intentions of the preparer or company that is to blame.

As credit analysts, we always review and rely on FSs when underwriting surety bonds. We know there may be attempts to mislead our judgement or even downright deception. But the need to evaluate the financial report is unavoidable. It is considered a valuable “report card on the quality of management.”

There are three levels of financial presentation by Certified Public Accounts (CPAs):

Compilation – a properly organized report where the numbers have not been verified or evaluated by the CPA

Review – includes some checking “Review” of key elements

Audit – is the highest level and includes the CPA’s statement that they have checked and believe the numbers are correct

The reader of the FS is entitled to certain expectations: A candid and complete presentation that informs the reader. Are they entitled to more than that? Does the reader sometimes expect too much?

Let’s consider what the FS actually says, and what it doesn’t… 

The Balance Sheet

This shows assets and liabilities. It describes the dollars in the company (assets) and who owns them (liabilities and stockholder’s equity). You know many of the normal entries: Cash, accounts receivable, accounts payable, inventory, bank debt, the net worth / stockholder’s equity section, etc.

The balance sheet always has a date, such as 12/31/2017. It shows the status of these accounts on the one day. Credit analysts calculate the Working Capital aka Net Quick (NQ) which is considered a measure of short term financial strength. You find the NQ by subtracting current liabilities from current assets. When the bond underwriter has the NQ number, it can then be incorporated in the decision making.

“What size bonds will be approved for this applicant?”  “How much total capacity can they be allocated?” The NQ figure becomes a benchmark that is used for the remainder of the year.

For many analysts, this one number carries a huge importance for the following 12-15 months.

Let’s move forward one day in time, to 1/1/2018. “Happy New Year!” and let’s check the bank account. Some money has come in! The accounts receivable and cash have changed. Other elements are also different and so, if we calculate the NQ based on the 1/1 balance sheet, the NQ will probably be different from 12/31. Again, that’s because the balance sheet shows the state of these accounts on ONE DAY. It is always changing!

The reality is that the working capital number is only correct for one day, then it is subject to revision. This is not to say the number is not important or relevant. And certainly decision-makers must have annual benchmarks and a method for their determinations. It is very important, but so are other elements.

Financial Statement Fraud

The most common FS fraud is not committed against us by others. It is the self-deception we commit by over relying on these “one-day numbers.” To do so is to miss the big picture!

Underwriters love to see a big cash account sitting on that top line (of the balance sheet). But that’s a one-day number. Isn’t it even more important to determine the average funds on deposit for the prior six months or year? Many analysts fail to ask for this.

Accounts Receivable and Payable – here is another key area where the “one-day number” can easily be given a historical perspective. Aged schedules of A/R and A/P are easy to obtain and they give a view over more than one day. These documents are not automatically included in FSs, and underwriters may fail to ask for them.

Another example: A broader understanding of the banking relationship is accomplished by looking beyond the balance sheet bank debt.  A reference letter can reveal if the client has bounced checks, broken loan covenants or defaulted.

Conclusion

As readers of these documents and analysts, let’s not cheat ourselves by over relying on the balance sheet or thinking it is more than a one-day snapshot. It should be scrutinized and viewed in harmony with other key underwriting factors such as mid-year financial reports and supporting documents.

In this manner underwriters can make realistic, well-informed decisions.

Steve Golia is the National Surety Director for KIS Surety Bonds LLC, MGU for Great Midwest Insurance Company, an A-8 carrier specializing in contract surety.

The company provides Performance and Payment Bonds with speed and creativity, up to $10 million per bond.

Contact us today and let’s discuss how we can help – even if others have failed. Call 856-304-7348.

Visit us Click!

Secrets of Bonding #162: Burn Baby, Burn!

In the surety underwriting business, we are forward looking.  Bond decisions are based on a variety of factors including “The Four C’s of Bonding” (read our article #5).  Underwriters make a detailed analysis, then set surety capacity levels to administer the account. That all makes sense.

However, the forward looking analysis makes assumptions – that may or may not be correct.  If incorrect, the outcome could be devastating for the contractor and surety.

In this article we will delve into an aspect of evaluation used extensively by investors, but not so much by bond underwriters.  It is called the Burn Rate.  Mood Music: Click!

 

Here is the internet definition:  

Burn Rate is the rate at which a company is losing money.  It is typically expressed in monthly terms; “the company’s burn rate is currently $65,000 per month.” In this sense, the word “burn” is a synonymous term for negative cash flow.

It is also a measure for how fast a company will use up its shareholder capital.  If the shareholder capital is exhausted, the company will either have to start making a profit, find additional funding, or close down.

Very interesting. The reason our underwriters use the Burn Rate is because of the assumption it does not make…

Think of the typical decision-making process.  Working Capital (WC) and Net Worth are calculated then compared to the requested bonding limits. The underwriter wants to predict if the company’s financial strength is sufficient to support the amount of surety capacity.  (A 10% case?) This evaluation is important, but it assumes the client will have enough future work to fill the bonding capacity limits. But what if they don’t? Can we predict the company’s ability to survive with inadequate revenues and in the absence of profits?  Would this not be an important measure of financial strength and staying power?

The Burn Rate enables us to determine:

Runway

 A company’s “Runway” is the time it can survive on existing capital without new funds coming in.

Here’s how to calculate a company’s financial Runway. This is a hard core analysis that eliminates all expectation of new revenues. The formula requires two elements:

  1. Working Capital “As Allowed” by the underwriter’s analysis
  2. Average monthly fixed expenses

Working Capital (WC), as you may recall in Secret #4, is a measure of the company’s short term financial strength.  It calculates the assets readily convertible to cash in the next fiscal period.  Every underwriter identifies this number during their financial statement review.

If future revenues are inadequate, what is the company’s survivability?  The Fixed Expenses help us determine this fact.  These are the expenses that don’t go away, even if there are no new revenues.  Every month, you pay the rent, utilities, administrative staff, telephone, maintenance, insurance, etc.  These expenses are coming regardless of how much or how little sales are achieved.  In the absence of future revenues, it is Working Capital that must pay these monthly bills.  The Runway is how long the company can operate in this mode.  The Burn Rate reveals this survivability.

An actual client:

12/31 Working Capital As Allowed from the Balance Sheet = $1,099,000

1/31-12/31 Total Expenses from the Profit and Loss Statement (not including Cost of Goods Sold, aka Direct Expenses) = $1,243,000

Burn Rate: Average Monthly Expenses = $1,243,000 / 12 = $104,000 per month

Runway: WC Divided by Average Monthly Fixed Expenses

$1,099,000 / $104,000 = 10.6 months

Based on current expected cash flow, the company can cover it’s fixed (unavoidable) operating expenses for 10.6 months even if it has no income/ profits from new revenues.  The Runway is 10.6 months. This measure of survivability can be compared from period to period, by year, or from one company to another.

Don’t forget, when the mood music stops, the party is not over.  Our national underwriting department brings this high level of expertise and willingness to all your bid and performance bonds. 

Call us when you need a corporate surety with excellent credentials and capacity on surety bonds up to $10,000,000.  Excellence in underwriting, aggressive, creative, fast. Underwriting the way you wished it would be.

KIS Surety, exclusive national underwriters for Great Midwest Insurance Company.

 We’re available now: 856-304-7348