1 National Association of Surety Bond Producers Commercial Surety Level III Large Account Underwriting & Management

2 National Association of Surety Bond Producers Large Accounts Defined What Constitutes a Large Account?   Program Size   $25mm Program   Potential To Grow To This Size   Market Cap/Equity   $50mm – somewhat depends on carrier   Territory of Exposure   National   Regional   International (reverse flow)

3 National Association of Surety Bond Producers Program Risk Assessment Risk Of Bond Program   High Risk Bonds   Workers Compensation Self-Insurance   Reclamation/Restoration   Customs – Countervailing, Anti-Dumping   Court – Defendants, Appeal   Lease – Term Dependent   Closure/Post Closure   Depository   Oil & Gas - depends on the carrier   Multi-Year Obligations   International

National Association of Surety Bond Producers Program Risk Assessment Risk Of Bond Program – cont.  Moderate Risk Bonds  Utility  Tax  Court  Customs  Low Risk Bonds  License  Permit  Compliance  Contract Single year/short term

5 National Association of Surety Bond Producers Program Risk Assessment Mix and Spread of Risk   Concentration of Bond Type vs. Dilution of Risk   Multiple Sureties – Equal Allocation or Mix of Bonds

6 National Association of Surety Bond Producers Underwriting Financial   Sources of Financial Information Rating Agencies (Moody’s S&P, Fitch) Analysts Reports Edgar/Financials (Company Website – investor relations tab) Annual Report/SEC Reports Publications (Forbes, WSJ, etc) Internet Sources (Google, Yahoo, Bing, etc.) - News and Financial Sections

7 National Association of Surety Bond Producers Underwriting Industry   Type – Sector, Age, Depth, Outlook   Position of Company Within the Industry   Competitiveness of Industry and Company   Diversification Within/Outside Industry Capital/Market Cap   Number of Shares X Market Price = Real Value? Footnotes/Litigation/Details

8 National Association of Surety Bond Producers Underwriting Growth and Profitability of Company   Trends   Outlook (Compare to Term on Bonds?) Leverage   Debt (Ratios, Total Debt, Types of Debt, Use Of and Turnover)   Term/Expiration (Relative to Program and Risk Profile)

9 National Association of Surety Bond Producers Underwriting   Private vs. Public Companies   Audit (Quality and Frequency of Statements)   Personal Financials (Ownership)   Parental Financials (Availability and Quality)   Rating Agency Availability in Some Cases (These can be requested by company if privately held) Compare/Contrast with Contract Underwriting

10 National Association of Surety Bond Producers Security Indemnity (What Can You Get and What Do You Need)   Organizational Charts   Indemnity needs to be in the name the financials are filed with the SEC (if public)   LLC vs. Corporations   Private Equity Owned/Involve   How structured and special considerations

11 National Association of Surety Bond Producers Security Indemnity - cont.   Parental Indemnity   When necessary   How high up to go – ultimate parent?   Sample Signature Block LLC Corp

12 National Association of Surety Bond Producers Security Indemnity - cont. Omnibus Wording -- Sample: This Agreement applies to all Bond(s) executed by Surety, whether prior to, simultaneous with, or subsequent to the date of execution of this Agreement; (1) on behalf of any Indemnitor(s) solely or as a member of a partnership, joint venture, or any other business entity or common enterprise; and/or (2) in connection with contracts for which any Indemnitor(s) acts as a silent participant; and/or (3) at the request or on behalf of any of the Indemnitor(s); and/or (4) for or at the request of any present or future parent, affiliate or subsidiary of such Indemnitor(s); and/or (5) for any third party at the request of Indemnitor(s) and/or their parents, subsidiaries and affiliates. If Hartford procures the execution of Bond(s) by other sureties, executes Bond(s) with co-sureties, or procures reinsurance, the terms and conditions of this Agreement shall inure to the benefit of such other sureties, co-sureties and reinsurers.

13 National Association of Surety Bond Producers Security Indemnity - cont.   When is it not enough?   Corporate Resolutions What are they? Why are they necessary?

14 National Association of Surety Bond Producers Security Indemnity - cont.   Corporate Resolutions cont. Discharge of Indemnity/Place In Funds Language SAMPLE: The Indemnitors will on the request of Surety procure discharge of Surety from any Bond and all liability by reason thereof. If such discharge is unattainable, the Indemnitors will if required by Surety, either deposit collateral with Surety, acceptable to Surety, sufficient to cover all exposure under such Bond or Bonds, or make provisions acceptable to Surety for the funding of the bonded obligation(s).

15 National Association of Surety Bond Producers Security Indemnity - cont.   Negotiating terms and language of Indemnity Agreements   Foreign Parents, Subordinates, Principals

16 National Association of Surety Bond Producers Security Collateral   When is it requested?   What is the purpose?   How is the amount determined?   From which entity can the collateral be provided, and in what name?   Preference Periods   What are they and why are they important?

17 National Association of Surety Bond Producers Security Collateral - cont.   Types ILOC Sample Wording Bank Pre-approval Investment Accounts What are they How is this different then cash collateral Documentation and Limitations Ownership – account and interest

18 National Association of Surety Bond Producers Security Collateral - cont.   Types cont. Cash – in trust How held Interest – earned and ownership Collateral Agreements Terms for holding and releasing collateral

19 National Association of Surety Bond Producers Management of Accounts Lines of Authority   When reviewed and renewed Interim Reporting frequency Depends on Principal if private Quarterly reports or more if public   How set and applied   Uncommitted vs Committed Lines Contrast with Bank Lines

20 National Association of Surety Bond Producers Management of Accounts Contract Reviews   Main areas of focus Term Venue Default Trigger Remedy Forfeiture Efficiency Guarantees Long Term Warranties

21 National Association of Surety Bond Producers Management of Accounts International Surety   Canada   Other Mexico Europe Asia

22 National Association of Surety Bond Producers Case Study Exxon Mobile, Starbucks, Wal-Mart?