When it comes to surety bonds, you know your underwriter. You know the process. There are questions and answers, then a decision. Simple, right?
You rely on your rapport with the surety and know how to monitor the status of the underwriting. Maybe you understand the underwriter you see. But what about the invisible surety underwriter, a shadowy phantom who exists in every transaction, and whose opinion always affects the outcome. Call this mysterious one “The Phantom of the Underwriting Department.”
You cannot talk to the Phantom… Invisible.
There are no emails, no Q. and A.
And yet, the Phantom analyzes, reviews and influences every bonding decision. Let’s pull back the curtain on this ethereal being.
Contractors Questionnaire
It all starts here. Your underwriter looks at the basic info: How long in business? Largest prior jobs? What do they do, what do they sub?
But the phantom yearns for more. What company ownership structure was chosen? Is it a proprietorship, corporation or LLC? Did the founders make prudent decisions? These choices affect taxes, profits and future liabilities. They can help or hurt the company… and its surety.
If criminal history, litigation, tax problems or surety bond claims / losses are indicated, these may require further investigation. The Phantom will make a deeper review.
Continuity of Ownership: Who succeeds the current stockholder in the event of death? Will the company maintain operations and complete its projects? These arrangements show that management has an eye toward the future.
The Work In Process Schedule
These are requested often. They show the contracts in progress, their billing status and costs. The underwriter wants to know how much “work on hand.” Then, silently, the Phantom digs deeper.
The current expected profit is compared to the original estimate. What does this show? Is the profit expectation as predicted or better? Is the estimating department in sync with the field organization? Is job site supervision highly efficient? Can an undeclared underbilling asset be added to Working Capital?
Is the expected profit sufficient to produce a net profit at year end? The Phantom will compare the projected job profit percentage to the company Profit and Loss Statement. Based on historical expense trends, the likelihood of an upcoming profitable fiscal year-end can be verified.
Company Financial Statements
He loves these. There is so much. They talk to him. The Phantom takes full advantage of this document to determine more than just “the numbers.”
Beginning with the accountants cover letter, who has the contractor chosen for this important assignment? Are they using a construction expert? Did they pay for a quality presentation? Is the best accounting method in use? Is the fiscal date at an advantageous point in their business cycle?
Obviously, underwriters look at working capital, net worth, ratios, profitability. But there is so much more. The financial statements show how the stockholders / managers treat the company. What does it mean to them? Do they nurture and respect it, growing the tiny acorn into a mighty oak?
Past borrowing practices are revealed. Also, the relationship between financial performance and the ambitions of management.
Growth of the revenue stream is observed and management’s success in monitoring / controlling expense levels.
The Phantom reviews financial statements and tax returns to appreciate the owner’s commitment to the bonded company. This commitment is a cornerstone of the underwriter’s confidence.
Banking Relations
Very important! There are similarities between banking and surety bonds. The banker’s opinions help reaffirm the underwriting position.
The banking history can reveal good cash flow and prudent business practices. It can indicate stability, reliability and good management skills.
Credit Reports
The pay record is just the tip of the iceberg.
Now there is a historical review which indicates the adequacy of cash flow, the quality of money management, planning and the applicant’s good moral character.
The Phantom is always there, making this deeper analysis that may never be discussed, but can always make a difference.
Meet Our Phantom
Now, Remove the Mask!
Sorry, we don’t actually have any Phantoms. All our underwriters are regular people, with real experience and know-how when it comes to bid and performance bonds. Our surety professionals review the facts promptly and efficiently.
Their deep analysis enables us to support opportunities that may have been declined elsewhere.
We hope you found this article entertaining, but more importantly, informative! With us, the underwriting is deep and detailed, giving the applicant the highest likelihood of approval.
Call us with your next bid or performance bond, and speak to a real person. 856-304-7348
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FIA Surety is a NJ based bonding company (carrier) that has specialized in Site Bonds since 1979 – we’re good at it! Call us with your next one, Bid and Performance bonds, too.
Steve Golia, Marketing Mgr.: 856-304-7348