Rim Country Living, LLC

Surety underwriting is the process that a surety uses to evaluate a principal’s risk level. The goals of the surety underwriting process are:

1. To write surety bonds for principals who are less likely to have a claim filed against them.
2. To write surety bonds for principals who will pay the surety back if the surety does pay a claim.

To achieve these goals, the surety will analyze the principal’s credit, financial position, and personal history in the underwriting process. The surety will be looking for evidence of three things:

1. Professional Capabilities: A principal should have the capability to fulfill all of their contracts. 
2. Financial Stability: A principal should be financially stable and have access to a ready supply of capital.
3. Personal Character: A principal should have solid moral character and be likely to follow the rules and laws of their profession.

The surety bond underwriting process follows these steps:

1. The principal applies for a surety bond through a surety company (Global Surety Underwriters, Inc.). 
2. On the bond application, the principal provides information to the surety about their business and financial history. 
3. The surety performs a more detailed evaluation of the principal’s information and history.
4. Based on the risk level that the underwriters determine, the surety provides the principal with a quote for a surety bond premium.

The process is relatively simple on the principal’s end. Behind the scenes, however, the surety’s underwriters are using a wide variety of factors to determine a principal’s risk level.

Surety underwriters look for anything in a principal’s personal and financial records that might indicate an elevated risk of surety bond claims. This can include: 

• Low credit score.
• Having declared bankruptcy.
• Felony convictions.
• Lack of relevant experience.
• Large amounts of debt.
• Previous surety bond claims against the principal.
• Previous license revocations, suspensions, or disciplinary actions against the principal.
• Lawsuits against the principal.
• Tax liens against the principal.

Any of the above factors will raise a principal’s surety bond premiums, but credit score is particularly important for the surety bond underwriting process. Remember that a surety bond is similar to a line of credit. Thus, any credit factors that would make it more difficult to get a loan or a credit card will also usually increase surety bond premiums. 

The surety will also examine the terms of the bond required during the underwriting process. For a surety’s underwriters, any of the following surety bond characteristics will increase the risk level of bonding a principal:

• Types of surety bond that frequently have claims filed against them.
• Surety bonds with a large penalty sum.
• Surety bonds with multi-year terms.
• Language that leaves the surety liable for an amount larger than the penalty sum.

Although we don’t provide the exact methodology that we use to weigh each factor, we use a combination of old-fashioned investigative diligence and advanced “insurtech” innovations that allow us to automatically rate various factors using big data and algorithms. 

When a principal purchases a surety bond, they usually don’t pay the full amount of the penalty sum. Instead, the principal pays a percentage of the penalty sum as a premium. The premium system helps principals meet their surety bond obligations while preventing them from having to tie up large amounts of capital in a surety bond. 

Once the principal receives their premium quote from the surety, the principal may then choose any of the following options:

• Accept the quote and purchase the surety bond.
• Shop around for a quote from a different surety or surety bond broker.
• Work with the surety to find ways to make the premium more affordable.

The last option is particularly important for principals who may be facing higher premiums.