underwriting

See Inside FIA Office

Steve GoliaLeave a comment

OK, that’s not really our office.  But we want to assure you – we’re here issuing bonds, underwriting new business and making new friends!

Be careful and safe like us (not like the picture!)  FIA wants to help with the surety bonds you need including Bid, Performance, Site and Subdivision.

FIA Surety: A bonding company serving independent agents and the construction industry since 1979.

Steve Golia 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Claim Your Free Surety Bond Gift!

Steve GoliaLeave a comment

It’s easy to get in on our Free Continuing Education program. This is a gift from FIA Surety.

“One of the best CE courses I ever attended! Our producers really needed this information.”

Our program last week was a huge success.

Bonding 101 explores the theory of surety bonds including pricing, underwriting and an overview of the marketplace. We track a Bid and Performance Bond from birth to death. It’s all practical info producers need.

Currently, our courses are approved in NJ and PA. And we deliver the program at your location! This is FIA Surety’s free gift to you. Call us for details.

Since 1979 FIA has been a dependable provider of Bid, Performance, Site and Subdivision Bonds.

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Surety Bond Challenge: Solve This Problem!

Steve GoliaLeave a comment

A key vendor / supplier is demanding that a GC provide protection for their purchase agreement. However, the project owner did not stipulate a Performance and Payment bond on the contract and none was provided. The work has started and the contractor needs to get materials delivered from the reluctant vendor.

What are the possible solutions that may satisfy the vendor? Choose one!

  1. Issue a Payment Bond on the Purchase Agreement
  2. Issue a Performance & Payment Bond on the Purchase Agreement
  3. Bond the contract in a normal way (100% Performance & Payment)
  4. Issue only a Payment Bond on the contract

(1.) Issue a Payment Bond on the Purchase Agreement?
A. A vendors purchase agreement is not the same type obligation as a construction contract. A bond guaranteeing payment of the purchase agreement would be considered a Financial Guarantee Bond (Why?  See below *) They are more difficult to obtain than a Payment Bond, so that’s not be the best solution.

(2.) So what about issuing a Performance & Payment Bond on the Purchase Agreement?
A. This is also not an option due to the differences between the nature of a purchase agreement and a construction contract.  (Details below *).

(3.) Can we bond the contract in a normal way (100% Performance & Payment)? That Payment bond would cover all vendors, so it would cover the one in question.
A. Bonding a started project is always a red flag. The underwriters initial question is “Why do they want a bond now?” It does seem suspicious, like there may be a problem with the performance of the construction work or the owner received some negative info on the contractor. Maybe the contractor has a problem and the work is in jeopardy.
Another issue is the cost. If a bond was not originally required, the bond cost was not included in the contract price. This means a bond purchased subsequent to the execution of the contract will be paid for out of the contractor’s profit margin. The Principal / GC will be looking for the most inexpensive solution possible.
Keep in mind that the purchase order amount is less than the contract price, so bonding the contract would result in a bond higher (and more expensive) than actually needed.

(4.) Can we issue just a payment bond on the contract?
A. This too will be viewed as a red flag by the underwriters. Who asks for a payment bond but doesn’t want a Performance Bond? That would be unusual.

Summary
We have concluded that it will be difficult to retroactively bond the contract, the amount of the contract is more than the purchase order and only a financial guarantee bond can be issued on the purchase agreement, so a Performance Bond may not be the solution at all!

Our Solution
In this case, we offered Funds Administration instead of a bond. This was an inexpensive alternative, and provided an assurance for the vendor that bills would be paid in a routine manner. (The project owner pays the Funds Administrator who directly pays the vendor.)
Keep in mind, however, that the Funds Administrator has no obligation to the vendor. If there is an unexpected event, such as termination of the contract, the Funds Administrator does not guarantee to the vendor that they will be paid appropriately.  A bond would, if one had been written.

*The nature of purchase orders is different from construction contracts. When issuing a P&P bond on a contract, the surety depends on the fact that the obligee / beneficiary is paying for the work, and that money may be the key to solving any claim or default.

When bonding a purchase order, the obligee / beneficiary (vendor), is not paying – they are receiving payment. That is why a Financial Guarantee Bond must be used, and is why they are harder to obtain.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

(Don’t miss our next exciting article.  Click the “Follow” button at the top right.)

Alpacas vs. Llamas

Steve GoliaLeave a comment

Look at that face!  Don’t you love it? That sure is a cute Alpaca! Uh…or is it a Llama?  Hard to tell,  but  it’s  OK.  You still love it.

For Surety Bond Producers, it can be hard to tell the difference between a performance bond and a site bond.  In this case, it does matter because the apps and markets you use for performance bonds may not get you the site bond your client requires. You need to know the difference!

Info #1.  You have at least one market that is a strong, stable player on Site and Subdivision Bonds.  FIA Surety is your go to market.  We have been writing these confidently since 1979.

Info #2. FIA offers a free, accredited CE course on Site and Subdivision Bonds.  In fact we have nine accredited courses you can attend and learn “everything” about surety bonds!  Click for info and to register.

Info #3. That’s an Alpaca!  Smaller than a Llama: 150 lbs vs. 400 lbs. llamas also have longer faces and banana sized ears.  (Trick to remember: The “ll’s” in Llama look like the long ears.)

Steve Golia, AVP of Underwriting
FIA Surety is First Indemnity of America Ins. Co.: A carrier providing A rated, T-listed bonds in all states!
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417
Visit us: www.fiagroup.com

Alpaca <–> Llama

Godzilla Surety

Steve GoliaLeave a comment

He’s big.  And for Godzilla, that works!

But when you’re dealing with bonding companies, do you want big, or would you rather have responsive, nimble, flexible…?

At FIA Surety, we have had the same senior management staff in place since 1979.  Tons of stability and experience.  Compared to the big “monsters,” we’re a smaller surety. How does that help you?

Example: This week we got in a Site Bond, a type of bond many sureties do not support.  It was a little complicated.  The title to the property changed hands and the names on the documents didn’t match up.  It took some digging but we still approved it within a day. Why?  Because we can.

Nimble.  Responsive.

For some transactions you need Godzilla.  But for many others, you want the flexibility and willingness of FIA Surety.  Call us!

  • Bid Bonds
  • Performance and Payment
  • Site and Subdivision Bonds
  • Deposit Bonds for Home Builders

Steve Golia: 856-304-7348
FIA Surety is First Indemnity of America Ins. Co.  (a carrier)

For more cool bond stuff, follow this BLOG!

Working Capital Magic!

Steve GoliaLeave a comment

Working Capital: It is a key element for contractors when they apply for Bid and Performance Bonds.  Too low, and the bond or entire account may be rejected by the bonding company.  Primarily, this number is calculated once a year on the fiscal year-end financial statement.  If the Working Capital (WC) comes out low, you’re STUCK with it all year… or are you?  Are there ways to “poof!” magically find more working capital on an existing financial statement?  Why yes!

Here are three ways contractors and their insurance  / bonding agents may overcome a WC deficiency:

  1. Stockholder loan: The owner can Subordinate an existing loan to the surety.  This means the owner / creditor will not demand that the company / debtor repay funds the company has borrowed.  The Subordination removes the stockholder loan from current liabilities, thereby increasing WC.
  2. Underbillings: Accrual Method financial statements do not include the current asset called Costs and Estimated Earnings in Excess of Billings, or for short: Underbillings.  If a net Underbilling Asset is calculated, it will directly increase the WC analysis.
  3. Bank line of credit: Many analysts will add available bank credit to the WC analysis.

Note: All three of these ideas can be applied to the recent fiscal year-end statement.  You don’t have to wait for a new statement to use them!

Bonus Poof!

How to immediately increase the Net Worth (NW) analysis: Fixed assets, such as heavy equipment, are depreciated each year resulting in their declining value on the Balance Sheet. The carrying value of the asset may eventually be less than the actual “street value” of the machine.  This lost net worth can be re-captured by finding the current appraisal value.  For big and old companies, this can give a major boost to the NW calculation – and therefore the bonding.

We hope you find these four tips helpful.   They can literally improve the analysis of an existing financial statement.

Do ALL bonding companies want you to know these secrets?  Hmmmm…  We do!  FIA is a bonding company (carrier) that has served contractors and their agents since 1979.  We are flexible and creative surety bond experts.  Call us for Bid and Performance Bonds.  Call us for Site and Subdivision Bonds – our specialty!

Steve Golia, Marketing Mgr.  856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

173. Bid Results / Sgt. Joe Friday

Steve GoliaLeave a comment

    From 1951 to 1959 Dragnet was a defining police series that featured Jack Webb as Sgt. Joe Friday.  Joe was famous for an interrogation line he often used: “Just the facts, ma’am!”

When bonding companies issue bid bonds they need to gather facts, too. It is an important process with implications for both the surety and the contractor.  For mood music, click.

So here are the facts, ma’am!

Bid results are the various proposal amounts submitted by contractors pursuing a particular project.  The bids are submitted at a designated time and place.  The list of bidders “lowest, second, third, etc.,” including the company name and $ amount, are the bid results.

The first party to know this info may be the contractor. They often attend the bid opening and write down the results.  Remember, they have a vested interest in the outcome.  They’re hoping to acquire a new project.

It is important for them to report the results promptly to the bonding company.  Here’s why:

Timely Issuance of Performance Bond

If the contractor is low bidder (offering the most favorable price to do the work), an award can be expected. The performance and payment bond will be needed by a set date to avoid loss of the project.  Reporting the bid results is the first step in this process.

Excessive Bid Spreads

A “bid spread” occurs when there is a significant (>10%) difference between the low and the second bidder. This is a red flag for the surety and contractor. All the bidders wanted the work.  They spent time and money developing their proposal. An excessive bid spread means the low bidder has a unique advantage (better expertise, prior experience, special equipment, lower material prices, etc.) over the other bidders OR they made a bid mis-calculation and are underpriced. (*Why is this a concern?)

If the contractor has a special advantage, they must share this info with the bonding company in order to obtain the P&P bond when required. The surety must be confident that the project will be completed properly.

If they made an error, they must notify the obligee / project owner that they wish to withdraw their bid.  If done promptly, they may avoid having a bid bond claim (for failing to move forward.)

Restore Capacity

When a bid bond is issued, underwriters consider a portion of the contractors surety line to be in use – under the expectation that they may win the project and need a P&P bond. If the contractor / bidder is not the low bidder, the capacity is restored to their surety line to support another project – as soon as the surety is notified.

For all these reasons, the prompt reporting of bid results is necessary.  A tight bid is a win for the contractor and surety.  The bidder acquires additional sales volume and the surety books a premium.  It’s how we all make money.

* Why is an excessive bid spread a concern?

If the contractor proceeds with a project that is underpriced, they may end up losing money on the work.

It’s an issue for the surety too, because they are the guarantor of the project.  They must complete the work if the contractor defaults, and they rely on the fact that the contract amount is adequate to accomplish this.  If it is not, the surety could face a net loss.

Excessive bid spreads are bad for everyone, even the obligee. If they award an underpriced project, they may end up with poor workmanship, missed deadlines and possibly a defaulted contract, ma’am!

Want this expertise and creativity on your next Bid or Performance Bond? FIA Surety is a NJ based bonding company that can help! We have specialized in Bid, Performance, Site and Subdivision Bonds since 1979.

Steve Golia is Marketing Manager for FIA Surety.  Call Steve now: 856-304-7348

Visit us Click!

Bond Underwriting Challenge

Steve GoliaLeave a comment

This is a real case that was handled by our surety bond experts… a doozie! See what you can make of it.

The facts:

  • This is a Performance Bond request for a multi-million dollar subcontract
  • The applicant / principal is a long established company
  • They have successfully completed similar sized projects
  • The company has a modest net worth, but is on a profitable trend. Ratios are OK.
  • Personal financial statements of the stockholders add more net worth to the picture
  • The company is owned by a father and son. Son is the primary stockholder.
  • We noted their SS numbers are only a few digits apart
  • Father has a substantial net worth. Son has a small net worth as indicated on his personal statement.
  • The applicant has started the subcontract
  • The GC / obligee has a mandatory bond form – very tough. It effectively makes it a forfeiture bond (obligee completes the job and sends you the bill.)
  • Father has a living trust
  • Son also indicated he has a trust

A lot of moving parts. What are the issues?

  1. Low company net worth. Too low for the size bond requested.
  2. “Close” SS numbers imply these individuals are immigrants (received SS numbers at about the same time). Are they U.S. citizens?
  3. Started subcontract. Why were they allowed to start without a bond? Degree of completion? Work acceptable? Bills paid? On schedule?
  4. Do we want to write a forfeiture bond form (financial guarantee?)
  5. What assets are in the trusts? Can they give indemnity? Will we rely on the indemnity of a trust?

– Think of your possible solutions – 

Here is the approach crafted by our underwriters:

  1. Low company net worth. We do not prefer to require collateral because it may be counter-productive, making it harder for the client to complete the project. Instead, the client agreed to add capital to the company – an investment in their future. The funds could be a subordinated stockholder loan, or a stronger method: Additional Paid-in Capital. The latter is more permanent and therefore desirable. The client agreed to permanent capital that would be verified in writing by their CPA and supported by a current interim balance sheet.
  2. Close SS numbers. Why would we inquire about anyone with a social security number? It is because the number itself does not prove citizenship – nor does the filing of a US tax return. Non-citizens authorized to work in the U.S. can get a SS#. “Tax residents” are permanent residents and green card holders who are non-citizens required to pay U.S. taxes. All sureties are cautious when taking the personal indemnity of a non-citizen. They may easily flee the country to avoid their obligations. On this account we determined the father and son were immigrants as we suspected, and naturalized U.S. citizens.
  3. Started subcontract. This would be clarified by obtaining our All’s Right Letter from the obligee, stating the relevant facts on the project (degree of completion, on time, no problems, etc.)
  4. Bad bond form. We had previous dealings with this major GC and negotiated a bond modification that made the bond operate more normally. They agreed to use the bond mod again.
  5. Trusts. It turned out there was only one trust. The son was the beneficiary of the fathers trust, no separate trust of his own. A review of the father’s trust showed it was not prohibited from signing the indemnity agreement. However, living trusts are revocable, meaning the terms can be changed and assets moved out – making them unreliable indemnitors. And it contained the single most important asset, the father’s residence. How to overcome this last obstacle? Our solution: We will place a lien on the property giving us access regardless of changes in the trust.

There you have it. Did you come up with solutions to match ours? It was a tough / complicated case, but we worked hard to solve it.We’ll work hard to solve your bond cases too. Bid bonds, performance and payment, and also site and subdivision!

Include us in your bond production efforts. We can make it happen.

 

Steve Golia is FIA Surety’s Marketing Manager.

The insurance company provides Bid, Performance, Site and Subdivision Bonds with speed and creativity. Contact us today and let’s discuss how we can help. Call 856-304-7348.

Visit us Click! FIA Surety / First Indemnity of America Ins. Co., Morris Plains, N.J.

Surety Bonds: How I Voted

Steve GoliaLeave a comment

Last Tuesday was the big day: 

  • “The most consequential mid-terms of our lifetime!”
  • “Your mid-term vote is a chance to affirm / reject (choose one) the president’s agenda!”
  • “The end of life as we know it!”
  • “Blah-blah-blah!”

I’m not making a joke about voting.  I think it is a privilege.  As citizens of a democracy, we owe it to all who have suffered and died defending this noble right.

So on Tuesday, I awoke bursting with patriotism and planning to cast my ballot.  But I decided to do it differently.  You’ve heard the expression, “Vote With Your feet.” This time I’ll do it!

I identified myself to the voting lady and she sent me to booth #2.  I quickly removed my shoes and socks.  It was hard getting the curtain open.

I entered the booth and reviewed all the choices.  Here it comes.  I steadied myself and placed my big toe on the lever.  I need to flip the lever, slippery, hard to turn it… I got it!

It became easier as I proceeded.  At the end you push a button to register your choices.  My big toe wouldn’t fit so I used the side of my “pinky toe.” Awesome!

I must admit, voting with your feet is harder than I expected, and a lot less fun. Why do people like it so much?  Eventually… it dawned on me what the expression means.  My “foot voting” was a fiasco!

You don’t have to make the same mistake. It’s not too late for you to vote with your feet – the right way.  Choose what’s better for you.  You can do it on Surety Bonds:

  • Circular 570, T-Listed bonds in excess of $10 million
  • Increased commissions
  • Superior, 365 service.
  • Same day response on new submissions.

You can have all this.  You should have it all! Vote with your feet and come over to KIS Surety for all these benefits.  Give us a call with your next Bid or Performance Bond.

Steve Golia, National Surety Director, KIS Surety

856-304-7348

Secrets of Bonding #166: Meet the Weatherman

Steve Golia1 Comment

Tonight’s forecast: Dark!

We like to joke about the TV weather team: “I wish I had a job where I could be wrong 50% of the time!” *  But in reality, we still tune in and watch.

   Question: Is a surety bond underwriter just like a weatherperson?  How are they similar?

Both are paid to make predictions.  They gather and analyze information: “Crystal ball gazers.”  There is a hope / expectation that they will achieve some degree of accuracy.  Whether you are forecasting the POP, or the completion of a construction project, isn’t it just about the same?

You know forecasters use computer models.  They have the National Weather Service and there are Canadian and European Models.  They could just put that up on the TV screen!  We don’t really need the “local weather talent,” do we? 

What about bonding? Many sureties already use computer based programs.  These provide instant or quick answers on surety bonds that fall into certain categories.  Is that all we need?  Should we get rid of the Surety Underwriter / Weatherman entirely?  We say “No!”  Here’s why…

  • The Underwriter does more than predict the future. A good underwriter contributes to the outcome.  Their efforts positively affect many people. 
  • When bonds are approved, the bond agent makes money.  The construction company achieves new revenues. So do their suppliers and subcontractors.  Think of the ripple effect!
  • The bonding company and their reinsurers make money. 
  • Presumably something of value is built for the owner; a useful asset is created. 

Really good underwriters are more than “yes / no” decision makers, they are facilitators. The experienced underwriter sees a path forward that may not be obvious to others.  How can this deal (performance bond) be supported while protecting the interests of the surety, the guarantor of the project’s success?  Here’s where knowledge, experience and attitude come in. 

Does the underwriter want to make the deal happen, and have the know-how to do it?

These high level underwriters aren’t weathermen, they are Rain Makers!  They work actively to produce profits and success for all they touch. Without their expertise, projects would not be supported and built.  Doors get opened and companies reach new, higher levels of mutual success. 

This is a combination of science and art with a dash of experience.  And you don’t find it too often.  But when you do, grab an umbrella and watch good things happen.

Steve Golia is a long established surety bond provider and expert. Call us with your next bid or performance bond. 856-304-7348 

(Don’t miss our next exciting article.  Click the “Follow” button at the top right.)

*  Actually, weather forecasters average more than 80% accuracy.  Good job guys!