Common Misconceptions

Common Misconceptions About Surety Bonds

"A surety bond is an insurance policy."

Surety bonds provide protection for the principal of a contract against the default of the contractor. A Surety bond is an undertaking by an independent third party, "the Surety" (Swiss Re International SE), to the owner that the contractor will perform in accordance with the terms and conditions of the contract, hence a Surety bond is a three-party contract. The contractor requests the surety to issue the bond in favour of the principal. The contractor pays the premium for the Surety bond but is not the beneficiary of the bond.

"Surety bonds don't have the same obligations as a bank guarantee."

Surety bonds carry an identical wording as a bank guarantee and follow the Australian Standards bond templates, such as AS2124 and AS4000. Surety bonds carry exactly the same obligations at law as a bank guarantee. We can't call our product a bank guarantee, as we are not a registered bank. Otherwise the products are identical.

"Insurance companies aren't as secure as banks"

Assetinsure surety bonds are issued by Swiss Re International SE, which carries an AA- Standard & Poor's Credit Rating. The chart below shows comparative bank credit ratings.

Financial Institution Standard & Poor's Rating / Outlook Market Capitalisation and ASX Ranking (if applicable)
Westpac Banking Corporation AA-/stable $87.15 billion / 3
Commonwealth Bank of Australia AA-/stable $104.32 billion /2
Swiss Re International SE AA-/stable outlook CHF 25.82 billion
A$27.35 billion
National Australia Bank Limited AA-/stable $67.97 billion / 5
Australia and New Zealand Banking Group Limited AA-/stable $77.15 billion / 4
QBE Insurance (Australia) Limited A+/negative $14.74 billion / 17
AMP Limited no longer rated $15.47 billion / 15
Suncorp-Metway Limited / Vero Insurance Limited A+/stable and A+/stable $14.04 billion / 18
Macquarie Bank Limited A/stable $12.81 billion / 20
Bendigo and Adelaide Bank Limited A-/stable $3.84 billion / 61
Bank of Queensland Limited BBB+/stable $2.69 billion / 81
(data sourced from S&P February 2013)

"It's more difficult to make a claim on a bond."

The payment must be made to by the surety on demand (unless the bond specifically states otherwise), without any assessment as to the amount to be paid (unlike an insurance claim). The only assessment occurring is to ensure the claim is made in terms of the bond itself - a process identical to the payment of a bank guarantee.

"Surety Bonds are new and not widely accepted."

Surety bonds have been part of the Australian market for over 50 years and are widely accepted by the private sector, federal, state and local municipalities. For a list of beneficiaries click here