It is important to shed light on the evolving landscape of surety bonds, with a focus on innovation, risk management and global practices. Even more critical is for organizations to discuss the strategic use of surety bonds in navigating complex global markets.
This article intends to provide valuable insights into the strategic use of surety bonds as part of a wider risk management strategy, with a strong emphasis on innovation, collaboration, and proactive planning. Additionally, organizations cannot stand still with the current state of the surety bond industry but continue to monitor the horizon for future developments.
Surety can be particularly complex for multinational companies expanding outside of its traditional markets which may have historically relied on letters of credit (LOCs) to secure project performance. For such companies, country specific surety education is necessary to understand different bond penalties, bonding conditions, and local customs and regulation. Indemnity guidance is also important as the surety’s indemnity agreement will likely be new to these clients and a surety broker can help explain the various clauses and develop a plan to negotiate these agreements. Finally, oversight is essential as the headquarters of these firms may need its surety broker to help report and manage subsidiary exposure.
$1.5B bridge project in panama
An example of a significant cross border transaction would be a recent replacement of a surety bond for a Chinese based contractor for a $1.5 billion bridge project in Panama. In this example, the surety broker was able to help the client by:
The importance of proactive risk management cannot be understated. Engaging with surety providers early and planning are both recommended to mitigate risks associated with project changes and market fluctuations. This proactive approach is crucial in maintaining project continuity and financial stability.
Current market conditions for surety bonding are generally stable for companies with strong credit profiles, but conditions are tighter for others. Procurement methods and contract terms continue to evolve and impact flexibility underwriting decisions. Understanding and adapting to these market dynamics is vital for businesses looking to leverage surety bonds effectively.
Demystifying surety bonds in how they work as well as explaining their advantages over other financial guarantees, like letters of credit, is important for the risk manager. Even with this knowledge, financial officers and risk managers need to understand the impact of legal and financial changes on these instruments, highlighting the need for continuous learning and adaptation in the field.
WTW is uniquely positioned with an approach for global client collaboration. WTW's integrated global surety practice has been pivotal in managing international surety needs, offering tailored services that cater specifically to Fortune 500 companies and large global contractors. This strategic positioning allows WTW to provide seamless solutions across borders, helping to ensure that large corporations can manage their risks more effectively.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.
