Trésorier/Treasurer magazine - N°89 - April/May/June 2015 - (Page 37)

FORUM SURETY BONDS: GAINING ACCEPTANCE GLOBALLY AS PERFORMANCE SECURITY In certain markets, most notably the Americas and certain European countries, insurance companies issue performance security known as surety bonds. In these markets, surety bonds have a prevailing existence because of a legal framework; however, in much of the international market, bonds issued through banks are the preferred choice among project owners and other bond beneficiaries. Following the recent global financial crisis, new regulations are forcing banks to adopt strategies to increase capital levels and liquidity. While these regulations are being implemented, it can be expected banks will reduce commitments for trade finance products like bonding and the costs will be pushed up. The use and availability of surety bonds issued by insurance companies take on a very important role in the management of credit facilities to address needs for bonding projects and commercial transactions. Surety bonds have a strong record of backing up construction and commercial contracts. In Europe, surety bonds represent a minority share of the market dominated by bonds and guarantees issued by banks; however, global insurance companies, highly regarded by rating agencies and with balance sheets that have fared well during the financial crisis, are positioned to expand this line of business. Also in the Belgian and Luxembourg market, we have seen an increasing interest and use of performance security, reason why more and more insurers have decided to have a representative in the Benelux region. The largest market for surety bonds is the United States, where government funded projects must be bonded not by banks, but by licensed and qualified insurance companies. In the US, the system of bonding requires performance bonds amounting to 100% of contract price, and obligates the bonding company to support completion of works in the event of contractor failure. The Latin American market, with exponential growth of infrastructure investment, is driving higher demand for surety bonding. The region's three largest economies, Brazil, Mexico and Colombia have already pledged billions in investments for PublicPrivate-Partnership around construction and improvements for transportation, telecommunications, sanitation and energy. In the US and Latin America, the local construction market rely heavily on the insurance industry to provide credit facilities for bonding; companies wishing to enter these markets from elsewhere need to adhere to local surety bonding Surety bonding is a contractual three-way relationship where the insurance company is willing to vouch with its balance sheet towards third parties for contractual obligations taken on by builders and manufacturers. practices. Other markets including Africa and Australia are also beginning to be more receptive to surety bonding. Surety bonding is a contractual threeway relationship where the insurance company is willing to vouch with its balance sheet towards third parties for contractual obligations taken on by builders and manufacturers. Standard types of surety bonds in commercial transactions include: * Bid bonds - secure reliability of an offer in a contract tender * Advanced payment bonds - secure proper use of advance payments for contractual obligations * Performance bonds - support performance of contractual obligations * Warranty bonds - guarantee correction of warranty issues during the warranty period LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE - N°89 - APR Builders and manufacturers are often required to provide their clients performance security to safeguard against nonperformance of contractual obligations. / MAY / JUN 2015 Up to now financial markets have been the first choice for businesses required to provide performance security. However, in the context of the new, and less flexible regulatory environment, alternative options are available. Nowadays, companies are increasingly turning to the insurance market for surety bonds and other performance security solutions. 37

Table des matières de la publication Trésorier/Treasurer magazine - N°89 - April/May/June 2015

Cover
Table of contents
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW ICBC
FOCUS
Treasurers' kitchen nightmare
FATCA the next hassle for corporate treasurers?
Treasury is becoming much more...
One year on - EMIRage or EMIRate?
Making the most of trade reporting data
EMIR, where do we stand?
FORUM
Surety bonds - gaining acceptance globally as performance security
The colour of money
Money Market Funds - adapting to a challenging landscape
Comment offrir un meilleur rendement monétaire dans un univers de taux bas?
CORPORATE FINANCE
A repolution - The new Repurchase Conditions
Finding a technology partner in a world of change
Raising your Cyber Security level with Cyber Threat Intelligence
15 MINUTES AVEC CBTI
THE RISK OBSERVATORY
NEWS
LIFE BEYOND NUMBERS

Trésorier/Treasurer magazine - N°89 - April/May/June 2015