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Today’s competitive marketplace demands certainty of contractual promises, constant focus on cost reduction, and increased working capital. Our specialists provide organisations with innovative solutions for their guarantee needs that supports their business objectives.

To run a business, companies need guarantees for contracts and other financial obligations. Surety guarantees, including bank-fronted solutions, offer the advantage of freeing up cash or preserving bank capacity, and can result in material cost savings compared to bank guarantees or letters of credit.

Marsh’s dedicated team of global surety specialists can help businesses implement strategies and solutions to release credit capacity, reduce your guarantee costs and diversify your sources of capital.

We leverage our industry expertise within the practice, along with our experience, to develop unique surety solutions across different industries and geographies. We also support your business’s profitable growth by going beyond your balance sheet to explore tailored solutions based on your underlying assets.

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Surety bonds are a contract of guarantee as distinct from an insurance contract, and accordingly, surety bonds are not regulated by the Insurance Contracts Act. Surety bonds are issued by specialist surety insurers or more typically by specialist divisions of large insurance companies. Sureties can be issued by APRA regulated sureties or by non-APRA sureties. The sureties that Marsh most commonly utilises are both APRA regulated and have credit ratings from A- to AA+ (S&P).

In Australia, surety bonds follow the market practice established by bank guarantees; they are unconditional and therefore the beneficiary is not required to prove they have incurred a loss or default prior to making a claim under the bond. Surety bonds are irrevocable and are payable upon demand. Most surety bonds are for 5-10% of the contract value, however this can vary depending upon requirements.

Unlike insurance policies, the surety is indemnified by the client for any bond amounts paid under the surety facility. In assessing whether an applicant is eligible for a surety facility, the sureties review the applicant’s financial strength, operational capability, and historical execution of contractual obligations.

Surety facilities can range from $5m to upwards of $500m with larger amounts available via syndicated or club facilities.

With few exceptions, surety bonds can be used wherever bank guarantees are used. The notable exception being that surety bonds cannot be used to secure the repayment of principle and interest.

Beneficiaries include government and semi-government departments as well as the private sector.

Responding to market needs, developed bank-fronted surety bonds which allows clients to issue beneficiaries with bank guarantees whilst not incurring any utilisation under the client’s debt facilities. In doing so, it satisfies the needs of those few beneficiaries that remain unwilling to accept surety bonds (usually because of legislation) whilst preserving the clients liquidity. In doing so, it satisfies the needs of those few beneficiaries that remain unwilling to accept surety bonds (usually because of legislation) whilst preserving the clients liquidity.

Some examples of where surety bonds have been used include:

  • To secure a general contractors performance obligations under a construction contract
  • To secure a mining companies obligation to rehabilitate a mine site
  • To secure the liability of clients that operate self-insured worker’s compensation programs
  • To secure various payment obligations.

Surety is the insurance sector equivalent of a bank guarantee. At law, both instruments are treated equally. However, surety can also help generate additional liquidity for banks and corporations and the market overall. It plays an important role with capital relief and preserving valuable liquidity resources, especially during volatile economic times.

Surety allows a business to participate in contracts that require third-party contingent collateral whilst preserving banking limits for other purposes (working capital, investment etc). It can also help improve a business’s liquidity position, as surety bonds can replace bank guarantees and thereby reduce utilisation of the client’s bank facilities. Surety bonds can be a cost competitive alternative to bank guarantees helping clients to manage their overall guarantee costs.

Responding to market needs, Marsh played a key role in developing and introducing bank-fronted surety bonds:

  • Committed surety facilities
  • Bank fronted surety bonds
  • Facilities with multiple tranches enabling the client to issue direct surety bonds or bank guarantees
  • Surety capacity for settlement risk under hedging agreements
  • Deferred equity contributions
  • Capacity for client’s based on the client’s cashflow (as distinct from P&L and balance sheet)

Marsh has also been a keen and successful advocate for the acceptance of surety bonds both within the private and public sectors.  

Our people

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Meta Hudson

Head of Credit Specialties, Marsh Specialty, Pacific

  • Australia

Eric Wojcik

Eric Wojcik

Head of Surety, Pacific - Global Leader, Bank-Fronted Surety Solutions

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”