surety secrets

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

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!

Security Solutions!

If you have read my (numerous!) surety articles online, you may think bonds are the only thing I care about.  While this is true, I do have ideas on other subjects and here is one that has me worried: Cyber Security.

The threats are all around us: Phishing, hacking, denial of service attacks, viruses, identity theft and credit card fraud.  It is obvious that the bad guys will never let up, never stop looking for ways to take advantage of people – unless we do something dramatic to thwart them forever.

So here they are, solutions that are inexpensive or FREE! that will help protect you, your privacy and your assets.

Protect Your Data

Do you trust the “cloud”?  What if they lose your data, sell it or they get hacked?! Here is a solution that will protect your passwords, account numbers and other valuable info, prevent all internet and email scams and assure that you have complete access to all your info, all the time.

This solution is portable and permanent, and the total cost is (you’re gonna love this): $1.79 at Staples. 

This security solution is called a “Pocket Notepad.”  Here’s how it works:

You write down all your important stuff, then you put the notepad in your pocket. 

THAT’S IT!  No hacking, no phishing, and you can take it with you when you go fishing. Totally portable!

Credit Card Fraud

So many ways for thieves to get your info.  They use skimmers to read your data. There is malware, web scams and picking through your trash.

Here is a security solution that will prevent all unauthorized use of you credit / debit cards – and this one is Free!  This solution is called “Cash.”

Cash is paper money and coins issued by the government.  You can use it to buy anything, and it is accepted everywhere.  Pay with Cash and never worry again about unauthorized access to your account.

Privacy

Facebook and other social network platforms gather your info – then what?  There is no way to predict who may have access and then misuse it.

Our final security solution is another Free one!  This will absolutely protect your info from misuse or attack on the internet.  You will still have the ability to pursue new relationships and maintain current friendships as you do with your current social media.

In fact, this solution goes even further! It enables an enhanced level of communication where you can see the individual in real time, and actually touch them!!!  It is called “Talking.”  You talk to the person, they answer you and (get this) they are right in the room with you!!!  Insane!

This is actually a very old concept that has been used successfully for thousands of years.  It is tried and proven – and it could work for you.

So there you have them, three great inexpensive / free solutions to the cyber threats we face.  Technology is the cause of the problem, and it may not be the cure.  With this article, we invite you to consider the following:

  1. You may not find the solution to every problem in your cell phone. I admit they are cool and do a lot – more every day.  But sometimes “old school” is better.  Try giving it a chance occasionally.
  2. You think all Bond People are boring? We’re not!  We love to use our knowledge and creativity to solve bonding problems. Our underwriting staff has many (many, many) years of contract surety expertise.  When you call needing a bid or performance bond up to $10 million, our greatest joy is to be the solution you were looking for.  Keep this number in your new $1.79 Notepad: 856-304-7348.

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 

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

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

Secrets of Bonding #160: Deep in the Weeds with Set Aside Letters

In this article we will peel back the onion on Set Aside Letters (SAL) issued by banks in connection with construction loans.  What are they, when they are useful for bonding companies and when are they not?

Here is the essence of such documents:

“The agreement covering the project will provide that the funds in said impound account are … to be disbursed for payment of the (Name of Project) mentioned above and only after (Bank) has satisfied itself that the work paid for has actually been performed… In the event (Borrower) fails to complete the project described herein… all funds remaining in said impound account shall be immediately available to Surety to complete and pay the costs of said project, and in such event, (Borrower) waives any claim or interest in the remaining funds. Surety shall not in any way be obligated to repay said funds so used to (Bank).

This is an irrevocable commitment of funds which is not subject to recall or offset by (Bank).”

Pretty interesting!  This letter / agreement keeps the loan in play to fund the completion of the project  – even if the borrower (bank customer) fails / defaults.

When Are Set Aside Letters Used?

These documents are a common underwriting tool when a Site or Subdivision Bond is issued by a surety. If the bond applicant (who is also the developer and borrower) is relying on a construction loan to fund the bonded work, the SAL protects the surety by providing funds for the completion of the work in the event of a default.

What a great idea.  So why don’t we use these on everything?  Let’s look at another example.

Commercial Projects

The project owner hires a bonded contractor and a bank loan will fund the project.  The bank needs a guarantee that the asset / project (which backs the loan) will be built as intended.  A Performance and Payment Bond accomplishes this and assures there will be no Mechanics Liens against the property for unpaid bills.  These two aspects benefit the project owner and the lender.  Keep in mind, in a borrower default situation, the bank becomes the new owner of the property.

It is common for the bank to stipulate that a bonded contractor be used, and they may want to be a named beneficiary on the P&P bond – accomplished by issuing a Dual Obligee Rider.  In turn, should the underwriter require a SAL from the lender?

On Commercial projects, the normal practice is to NOT obtain a SAL from the lender.  Why not?  Why is this different?

Choose one:

a. The bank is a secured lender

b. The bank can subrogate against the borrower’s assets

c. The Dual Obligee Rider serves a purpose similar to the SAL

a. and b. are true, but the answer is c.

Welcome to the Weeds

We’re going in now. The Dual Obligee Rider adds the lender as a beneficiary with all the rights and obligations of the obligee named on the bond (the project owner).  And what are they?  Obviously they are entitled to make a performance claim and have the project delivered as indicated in the contract.

The named obligee also has obligations, one of the most primary is to PAY the builder. Important: The obligee is prohibited from making a performance claim if they have failed to pay the contractor.

Therefore, when the bank is included under a Dual Obligee Rider, they accept the benefits and obligations.  If the borrower defaults, the lender cannot make a bond claim unless they continue to pay the construction loan to the surety.  (Now the bank owns the project and the surety has become the contractor.)

Summary

Is this starting to make sense?  When a borrower defaults on a commercial project, a lender included by Dual Obligee Rider cannot make a claim unless they continue to pay the project funds to the surety.

Deeper Weeds

On Site and Subdivision there is a unique risk – the lender can take a free ride on the surety by having the bonding company pay out of pocket to complete the project.

Site and Sub-D bonds have the local municipality as obligee, not the bank.  The bank doesn’t want a Dual Obligee Rider because they automatically receive a financial benefit if the municipality makes a bond claim to demand completion of the project.  If the borrower has defaulted, the bank has the opportunity to withhold the balance of the loan (the borrower is gone), and watch the surety pay to complete a project they now own.  And they were not even the bond claimant…

This is the risk sureties avoid on Site and Subdivision Bonds by requiring the SAL that keeps the loan in play, even if the bond applicant / borrower has failed.

Admittedly, this is a pretty obscure subject, but also interesting to us “bond nerds.”  It never hurts to understand how things fit together.  These skills help us solve your complicated bond opportunities.  Take advantage of our expertise when the next one pops up.

KIS Surety is the national contract bond underwriting department for Great Midwest Insurance Company, a national, corporate surety with an A-8 rating.  We throw all this underwriting talent at your bond opportunities and support contracts up to $10,000,000.

If you have a contract surety case that needs a fast, creative response, call us: 856-304-7348

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

 

Secrets of Bonding #159: Beware the False Asker

Surety Bond Producers have one main goal: produce the business and move on.

You know there is a process when submitting a surety bond for approval but hate that sick feeling when the underwriter comes back with a ton of questions.  Let’s face it, customers just want to complete the transaction and get on with their lives.  They have more important things to do than fill out forms, scan documents and complete applications.  You know you’ll get push back if you bug them.  

What’s more, the questions may result in a dead end, a declination!  Did the underwriter already form an opinion?  Did they already decide the account is not for them, but just want to complete the file… to have a complete file?

We will call such a person the “False Asker” – an underwriter who puts you through the paces, just to say no at the end.  They never really wanted to write the bond and are developing the file under false pretenses.  They send you on a fools mission.  It is 100% a waste of your time!

Or just maybe, questions are the opposite…  The bond underwriter thinks the account may be a fit, but just needs to check a few more points.  This could be the first step on a successful journey. Here’s more: There may be something wonderful about the questions good underwriters ask.  Let’s explore.

When reviewing the file, the analyst marks off elements of strength and weakness.  For example, the company is 10 years old, but current management has only been in place for a year (a plus and a minus).  Or maybe the net worth is strong, but debt is high resulting in too much leverage.  If there is more good than bad, an approval may be in order – after additional development. 

Now comes the gift: The key points, the underwriting questions, are an insight to the decision making process.  They are keys to the underwriter’s mind.  With favorable answers, authorization may ensue. The questions chart a course that the producer could imagine but not confirm.  In this manner, the underwriting questions are priceless, the keys to success.

Remember, there is room for frustration on the underwriter’s side, too.

Q. Which of the underwriting questions are optional? You know, the unimportant ones?

A. They are all important.

Sometimes we ask 5 Q’s and get back 3 A’s.  Then re-ask the 3 and get back only 2.  It’s like beating your head against the wall…

It all comes down to this:  Beware the False Asker.  You must avoid that person who churns the file and wastes your time.  Every producer has been through it.  You answer questions for two weeks and get a declination they could have figured on day one – and not wasted your time.

A good underwriter only develops an account they intend to support.  They like it and want to proceed, but must tidy up the file. Their Qs are a gift, the path forward, the key to your success if you follow through willingly and diligently.

Judge all of us by our performance:

  • Good underwriters are prompt. For example, our office provides a same day response on all submissions.
  • Are our responses concise and easy to understand?
  • Do we offer a prompt declination or clear path forward, defined by the underwriting questions that will get the deal done?

A good surety underwriter can be your important ally and business partner.  Choose us carefully based on performance, and always Beware the False Asker!

KIS Surety is the national contract bond underwriting department for Great Midwest Insurance Company, a national, corporate surety with an A-8 rating.  We throw all this underwriting talent at your bond opportunities and support contracts up to $10,000,000. 

If you have a contract surety case that needs a fast, creative response, call us: 856-304-7348

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

Bonding Companies Are ALL The Same.

OK, you know that’s not true.  In fact, your success may depend on knowing the differences between sureties.  Each one has a certain appetite, a niche.  We are all the same, and yet we are all different.

So here is a little bit about us.

What We Do

  • OUR GOAL is to be your high capacity market that provides fast, reasonable, (maybe even wonderful) underwriting responses!
  • Exclusively contract surety.  That means bid, performance and payment, and maintenance bonds.
  • We bond construction, including subcontracts, plus service and supply contracts.
  • Sovereign nation contracts are supported
  • Also demolition, abatement and remediation
  • We will consider young companies
  • Production Underwriters: We can support companies with less than perfect credit – even with liens and bankruptcies. We’re not shackled by “bonding company bureaucracy.”
  • We are flexible regarding financial statement presentation on bonds up to $10 million each.
  • We have our own contractors questionnaire, bond request form and WIP schedule because after doing this for forty-five years, we know what info helps get your deal done.
  • Our standard bond forms are unmodified AIA forms, readily accepted throughout the construction industry.
  • Our rates are flexible / competitive.
  • We are licensed to write in every state, including D.C., and can also consider overseas projects.
  • We respond to all new business submissions on the day received.
  • We are offering new agency appointments.  No volume commitment is required.
  • Our underwriting staff is available every day of the week, including evenings, 365. (You can call us right now! 856-304-7348)

What We Don’t Do

  • Fidelity bonds or surety other than contract.  For example, we do not support license & permit, court & probate, or site & subdivision.
  • Waste your time.  We only develop files we expect to write.

We not bragging.  We just wanted you to know.

Our strong financial position (Best rating: A-8) makes us a perfect fit on a wide range of opportunities.  Aggregate programs to $15 million and fast service.  How can we help you succeed today?

 

KIS Surety Bonds, LLC is the exclusive surety underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.  “steve@kisbonds.com” or call 856-304-7348.