Historically, there was little appetite from surety underwriters to provide a guarantee replacing letters of credit and an unwillingness by insurers to accept/consider an alternative to a Letter of Credit (LoC).
Marsh’s Surety Practice has worked closely with the UK surety market to develop appetite for this product and create suitable wordings. Many of the sureties are now comfortable in issuing a full on-demand guarantee, which provides the beneficiary of the guarantee a like-for-like payment mechanism to a letter of credit.
We are finding that more insurers are now happy to accept a surety guarantee as a LoC replacement. One major factor that has influenced this is the downgrading of several banks, some of which now fall under the minimum credit rating criteria requirements set by the carriers. In contrast, most of the sureties have a Standard and Poors’ rating of at least AA-.
Advantages of Replacing LoCs with a Surety Bond