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 letters of credit.
Marsh’s dedicated team of global surety specialists can help businesses implement strategies and solutions to release credit capacity and mitigate financial risks.
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.
Surety bonds are guarantees issued by an insurance company on behalf of a firm in favor of a beneficiary. They are used to guarantee completion of a project or the supply of a good or service.
The most common beneficiaries of surety bonds are government entities, for example, in relation to a road project financed by a government using taxpayer funds. Such entities may also include taxation authorities, customs authorities, courthouses, and environmental protection agencies.
In the private sector, a beneficiary is the party serving as the employer, project owner, or buyer of construction projects or manufactured products.
Surety bonds also can be used as a (permissible) payment guarantee and are either regulatory or commercial/contractual in nature.
Those that are regulatory in nature include:
Non-regulatory bonds are issued as contract or payment security to support contractual or payment obligations. The surety acts as a third-party guarantee.
Surety is the insurance sector equivalent of a bank guarantee (i.e., letter of credit). However, surety can 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. It can also help improve a business’s liquidity position, as surety bonds sit off the balance sheet, and therefore do not use lending facilities. Surety can further improve liquidity positions as bonds can be posted in lieu of capital payments.
Many businesses make use of surety, including, for example: