Suretyship is a specialized guarantee provided by surety or insurance companies that is created whenever one party guarantees the performance of an obligation by another party. Generally, there are three parties to the agreement:

• The principal is the party (you/your company) that undertakes the obligation.
• The obligee is the party (government entity or private company) that requires the bond.
• The surety guarantees that the obligation will be performed. This is the insurance company whose name appears on the bond.

The surety agency (ProSure) links the principal (you) with the appropriate bonds offered by selected surety companies.

Insurance polices transfer the risk and liability to the insurance carrier. In suretyship, the risk and liability remain with the principal.

A surety bond is an extension of credit in the form of a guarantee. A surety bond is not considered insurance to the applicant.

A surety bond is the written agreement and guarantee that usually provides for compensation in case the principal fails to perform the acts or obligation as promised.

Indemnity, in suretyship, means that in the event the surety company pays out on a valid claim, it will be fully reimbursed by the principal for all payouts and costs associated with the claim.

Any corporation, partnership or individual that meets the underwriting requirements of the surety company can be bonded.

A claim situation exists whenever the principal no longer has the ability or fails to fulfill its bonded obligation.

A principal is legally obligated to reimburse the surety company for any loss and expense incurred by the surety. The principal's obligation to the surety can therefore be greater than the original obligation to the obligee. The surety has the same recourse against the principal as any other creditor would have in recovering a loss.

The underwriting process is the complete analysis of:

• Capacity to perform
• Financial strength
• Track record & company history
• Organizational structure
• Business continuation plans
• Trade references
• Analysis of projects in progress
• Credit history
• Banking relationships & credit lines
• Character

The cost of a bond depends on several factors, including the type of bond being sought and the underwriting strength of the principal. The bond premium generally ranges from 0.5% to 3.0% of the total contract price of the obligation.

Not all surety companies are created equal. The underwriting process and values differ from surety company to surety company. Your surety agency should directly represent numerous surety companies in order to provide a bonding program that provides “seamlessness” and assists your company with its growth plans.