Know Surety

Blanket Bonds: Blanket Bonds is a type of surety bond coverage that provides protection for businesses in the event of employee error or dishonesty, as well in the case of theft. There are two common forms of the blanket bond. The commercial blanket bond provides protection for an employer that is far reaching in scope and in application. A commercial blanket bond provides a maximum amount of coverage in the event of any one loss, regardless of the number of employees involved in the circumstances that created the loss. With the commercial type of blanket bond, the position of the employee or employees within the firm is not a factor. Anyone from the janitor to the president of the firm may be involved and the loss will still be covered.

The second example of the blanket bond is known as a position blanket bond. With the position style of blanket bond, the employer is insured against the actions of employees who hold specific positions within the firm. The amount of the bond is based on the particular position covered. In the event that several employees are involved in the loss, the blanket bond will allow for maximum coverage that is a cumulative total of the insured amount for all positions involved in the loss.

Because each surety company has it's own underwriting guidelines for this particular commercial bond, it would be impossible to list the requirement(s) that each surety company will require for this bond as there are hundreds of different surety companies, which will result in thousands of different scenarios.

It is highly recommended that the surety broker or the principal familiarize themselves with the surety and what that particular surety requires for this type of bond.


But below is a list of all the possible information that a surety may ask for in the process of evaluating the bond.


1) A commercial bond application: This 1-2 page application will provide the surety with general information on the principal. Each surety company will have their own commercial bond application as usually the forms themselves provide the indemnification necessary to obtain the bond. While Surety A might accept Surety B's application for the purpose of running the initial credit profile, Surety A will eventually require the principal to sign (and possibly notarize) Surety A's own commercial application if the principal wants to obtain the bond. A bond application will also help the surety to determine: the bond amount, who is requiring the bond of the principal (obligee), principal’s contact information, owner(s) contact and personal information, etc. A surety can decline an applicant if they find that any of the information is inaccurate. At times, a surety will not want to write bonds when certain obligees are involved.

2) Business Financial Statements (Balance sheet, income statement, statement of cash flows and aging schedule for account receivables and account payables) are classified into 4 categories, in order of preference by the surety. Because most commercial bonds are under $100,000 in penal sum, most sureties will accept any forms of business financial statements for the commercial bond submission.

- Audited Statements: An audit verifies relevant items in the financial statement with internal and external investigations of their accuracy. The accountant certifies that the financial statement is presented in accordance with generally accepted accounting principles.

- Reviewed Statements: A review statement, which does not require the outside verification present in an audit, consists principally of a thorough review of the contractor’s financial records and the application of certain analytical procedures to the financial data. Although narrower in scope than a full audit, the review does provide some limited assurance about the financial statements.

- Compilation Statements: A compilation statement provides little or no assurance of the credibility of the figures presented and would typically be accepted only for interim statements.

- In-house Statements: An in-house statement is internally prepares and very little weight or credibility at attached to the information on the statements.

3) Resume on the owner(s): Provides a clear and concise history of the people who either own or will be overseeing the business. This will let's the surety know that the key owners/employees has the knowledge and experience to run the business and undertake that scope of work that is called upon by the bond.

4) Personal financial statements of the owner(s): Like the business financial statements, they can be audited, reviewed, compilation or in-house. Most sureties will accept in house statements as long as the key assets (cash, stocks, short term assets can be verified). Some commercial bonds, like the used car dealer bond, will require that the owner or principal of the bond have a minimum personal net worth to qualify for the bond. In instances, where the majority of the principal's net worth is in easily to verify assets such cash and short term securities, it is also recommend that as part of the submission that verification of these assets are also submitted.

5) Current Bank Statements: As previously discussed in item #4, some bonds will require that the principal have a certain net worth and among the easiest way to verify the principal's assets are to provide current bank statements and brokerage statements that can verify some of the assets that were declared in personal financial statement.

6) A copy of the license or permit: In addition to the above information, certain commercial bonds will also require that the principal has already obtained the necessary permit or license before the bond can acquired. For example, surety companies will not issue a contractor's license bond to the principal if the principal does have the requisite contractor's license or are in the process of obtaining the necessary license.