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Advertising feature: Understanding the benefits of surety bonds

Surety

With cash and working capital management at the forefront of all firm’s minds in the current environment, more companies are turning to insurance company-backed bonds and guarantees as a method of enhancing their overall credit facilities and managing their liquidity according to Andrew Evans, head of Liberty Mutual Surety, United Kingdom and Ireland.

Economic uncertainty increases the risk that business partners cannot meet obligations or complete contracts. The result is that more governmental entities and private companies are requiring bonds guarantees and/or letters of credit to support commercial contracts and regulatory obligations.

Fortunately, Liberty Mutual Surety’s guarantees provide working capital efficient solutions without utilising existing credit lines with lenders. 

In its simplest form, a surety bond guarantees that one party will fulfill its obligation to another party. The obligations can be regulatory, required by a Court, or reflect private business-to-business contracts or transactions. There are a multitude of bonds types and almost every industry could utilise them. For example, construction performance bonds provide protection against contractor default resulting in a failure to complete their projects on time and within contract specifications. Regulatory bonds may allow a business to release cash held on behalf of others that would otherwise need to be ring-fenced. Pension bonds can be used to defer deficit contributions or act as contingent assets in schemes. Decommissioning bonds guarantee that equipment will be removed from renewable energy or oil and gas assets and the land will be restored to its pre-existing state.

In the UK and across Europe, companies can choose to support these obligations with a guarantee from an insurance company or with a bank guarantee or letter of credit. The biggest benefit or choosing an insurance company like Liberty Mutual is that an insurance guarantee diversifies a company’s credit options and reduces usage of existing bank credit lines. Additionally, an insurance company’s guarantee underwriter can often provide a good risk management perspective on projects or any other risks which might occur in the underlying contract or obligation.

Liberty Mutual Surety, part of financially strong Liberty Mutual Insurance, is the largest provider of surety bonds and guarantees in the world, based on publicly available data. Liberty Mutual Surety bonds are issued by Liberty Mutual Insurance Europe SE, which is rated A by Standard & Poor’s.

Guarantee providers like Liberty Mutual Surety generally also offer greater capacity, meaning bigger bonds, if you need them. That’s because surety bonds are not credited against a company’s bank line, whereas a letter of credit limits a company’s credit capacity.   

When companies work with Liberty Mutual Surety, they build long-term relationships with underwriters. Our underwriters are responsive and experienced. They understand their local and international markets, and because they are part of a financially strong global company, they can also issue bonds in more than 60 countries, something banks may have a harder time doing.

The above are just a few reasons to choose a surety bond guarantee over a bank letter of credit or guarantee but there are certainly others. 

Contact Liberty Mutual Surety for more information.

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