A surety bond can be defined in its simplest form as a written agreement to guarantee compliance, payment, or performance of an act. Surety is a unique type of insurance because it involves a three-party agreement. The three parties in a surety agreement are:

• Principal – the party that purchases the bond and undertakes an obligation to perform an act as promised.
• Surety – the insurance company or surety company that guarantees the obligation will be performed. If the principal fails to perform the act as promised, the surety is contractually liable for losses sustained.
• Oblige – the party who requires, and often receives the benefit of the surety bond. For most surety bonds, the oblige is a local, state or federal government organization.

Unlike most insurance policies, surety bonds do not protect the owner of the policy. A surety bond is typically written to protect, indemnify, or provide a financial guarantee to third parties such as customers, suppliers or state taxpayers. If one of these parties is damaged financially by the principal’s violation of bonding terms and conditions then a claim may be filed against the bond. The claim is then investigated by the oblige and if determined to be valid, the insurance company and the principal are typically liable for any damages up to full amount of the bond. The surety company has agreed to undertake the risk in exchange for a premium paid by the principal.
Suppliers participating in tenders need guarantees – to secure their own supply or that of their subcontractors – then surety bonds insurance is the right product for them. You can save considerable sums of money if you insure your risk of defaulting under a work or supply contract.

Type of bonds:

• bid bonds
• advance payment bonds
• performance bonds
• warranty bonds
• retention bonds

Why surety bond insurance makes sense:

• excellent alternative to a bank guarantee which does not increase exposure with banks
• no strain on the cash flow
• customizable to your unique needs