Surety 201

1. Surety 201 Presented by: Chad Rosenberg Rosenberg & Parker

2. Outline SATs What is Surety Current Surety Marketplace Onerous Language

3. Surety Apptitude Test

4. SAT Question 1 After the U.S. what country has the most annual premium? • South Korea • Canada • Mexico • Texas

5. SAT Question 2 What was the total surety industry premium in 2008? • $2.6 Billion • $5.5 Billion • $1.2 Trillion • $8.3 Million 437

6. SAT Question 3 Between 2001 and 2003 what was the only top ten surety company that did not replace its CEO? • Chubb • USF&G • Safeco • CNA

7. SAT Question 4 A bond can be cancelled mid-term? • True • False • It Depends

8. SAT Question 5 Which Actress did not play the role of Jerry Seinfeld’s girlfriend?

9. What is Surety?

10. Surety is NOT Insurance • Three Parties • Obligee • Principal • Surety • No Losses • Indemnity • Rate OBLIGEE PRINCIPAL SURETY

11. Surety is: • Credit • Prequalification • Ongoing and Continuous • Non-Cancelable (in most cases) • A Guarantee • Leverage

12. Classes of Bonds • Contract • Commercial • Court Bond - Judicial • Court Bond - Fiduciary • License & Permit • Federal & Public Official • Miscellaneous

13. Financial Underwriting Sr. Unsecured Debt Ratings Transparency Financial Operational Financial & Credit Profile Profitability Cash Flow Liquidity Capital Base Security Packaging Collateral Indemnity

14. Sr. Unsecured Debt Ratings

15. From the Top “Companies with investment grade ratings will continue to benefit from soft market conditions.”

16. Bond Underwriting Criteria Obligation Bond Form Language Duration Bond Penalty Pricing

17. Bond Obligations • Performance and Payment • Supply • License and Permit • Customs • Injunction/Plaintiffs Appeal • Tax Appeal • Workers Compensation • Advanced Payment • Deductible • Defendants Appeal • Pure Financial Guarantee

18. From the Top “There continue to be opportunities to replace bank letters of credit on self insurer bonds, large deductible and retro obligations, and environmental type exposures.”

19. The Current Market Place

20. U.S. Surety Marketplace 1990 vs. 2008 Top 15 Sureties – 1990 Top 15 Sureties – 2008 • Fidelity & Deposit • USF&G • Reliance • Aetna • Fireman’s Fund • Seaboard • Continental • CNA • Safeco • Hartford • AIG • Chubb • St. Paul • Amwest • Cigna • Travelers • Liberty Mutual • Zurich • CNA • Chubb • Hartford • HCC • IFIC • ACE • Arch • NAS • Great American • Hanover • AIU Holdings • RLI

21. From the Top “Chubb, Travelers, Zurich and Liberty continue to drive the commercial and construction surety markets. New entrants in the commercial surety space (Argo, Berkley, HCC and Hanover) have and will continue to put pressure on terms for clients with small to medium size programs up to $50 million.”

22. Surety Companies

23. Surety Net Combined Ratio (1997 – 2008) Source: The Surety& Fidelity Association of America

24. Contract Surety Experience (1996 – 2008) Source: The Surety& Fidelity Association of America

25. Commercial Surety Experience (1996 – 2008) Source: The Surety& Fidelity Association of America

26. Quotes from Industry Leaders • “Bankruptcies were at an all time high in 2009 and this trend is expected to continue in 2010. This increase has not generated any significant loss activity for the commercial surety side of our industry. It has however made the reinsurers very nervous.  This could impact capacity in 2010 as the treaty renewal process unfolds.” • “On the heels of a profitable year for the surety industry in 2009, there is a very competitive landscape in the commercial surety arena this year.”

27. Unacceptable & Onerous Bond Forms

28. Definition “That which extends the risks and penalties beyond the normal and customary terms found in standard bond forms.”

29. Owner’s Declaration “Whenever Contractor shall be, and shall be declared by Obligee to be, in default under the Contract, the Owner having performed its obligations thereunder, the Surety shall:”

30. Limited Response Time “Surety hereby covenants to commence performance of this obligation within fifteen (15) calendar days…”

31. Responsible For All Costs “If completed by the Obligee, and the reasonable costs exceed the Balance of the Contract Price, the Surety shall pay to the Obligee such excess and any and all expenses, damages and attorney’s fees incurred by Obligee in completing the Principal’s work.”

32. Demand Language “Shall and do pay unto The School District of Philadelphia upon demand…”

33. Damages, Losses, Expenses, and Fees… Oh My! “…any and all demands, claims, actions, judgments, costs, penalties, liabilities, damages (including delay damages, disruption damages, liquidated damages, and consequential damages), losses (including without limitation, consequential losses and economic losses) and expenses (including without limitation, investigative expenses, consulting fees, experts’ fees and attorneys’ fees)…”

34. Confession of Judgment “The Principal Obligor and Surety, and each of them, hereby irrevocably authorizes and empowers the Attorney for the Unionville-Chadds Ford School District…to confess judgment against such Obligor and/or Surety for all sums due…Obligor and Surety, each, waive the right to any stay of execution and the benefit of all exemption laws…”

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