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Managing Bond-Related Exposures Operational Implications of High Aggregate Bond Amounts

Roanoke Trade Services, Inc. presents…. Managing Bond-Related Exposures Operational Implications of High Aggregate Bond Amounts. David F. Jordan, CHB, CPCU Vice President, Surety Compliance & Liaison. Managing Bond Exposures.

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Managing Bond-Related Exposures Operational Implications of High Aggregate Bond Amounts

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  1. Roanoke Trade Services, Inc. presents… Managing Bond-Related ExposuresOperational Implications of High Aggregate Bond Amounts David F. Jordan, CHB, CPCU Vice President, Surety Compliance & Liaison

  2. Managing Bond Exposures You just wouldn’t think that selling more could ever be anything other than good, but…

  3. Managing Bond Exposures • What is aggregate bond exposure? • Total face value of all “un-extinguished” bonds for a single principal (or group of affiliated companies) • Including continuous bond “stacking” • Face amount times number of years (including a partial year) in effect

  4. Managing Bond Exposures • Why is aggregate management important to a surety? • Insurance companies/sureties have a finite capacity for accepting premium • State & Federal regulatory factors, multiples • Large aggregates have resulted in large surety losses • Reinsurance implications • What is reinsurance? • Limited reinsurance marketplace • Basic reinsurer concerns

  5. Managing Bond Exposures • Why is aggregate management important to an importer? • Limiting LD exposure • Liability for LD exists only in bond contract (vs. duty liability which is statutory & unlimited) • The higher the aggregate bond amounts, the higher the importer’s LD exposure

  6. Managing Bond Exposures • Why is aggregate management important to an importer? (continued) • Illustration -- Importer A brings in one shipment of canned goods valued at $10,000 each month • Annual value $120,000 • Annual duties/taxes/fees $400

  7. Managing Bond Exposures • Illustration -- Importer A • Using STBs: • Annual aggregate bond amount = $360,000 • Annual LD exposure = $360,000

  8. Managing Bond Exposures • Illustration -- Importer A (continued) • Using a continuous bond: • Based on annual duties/taxes/fees, importer qualifies for $50,000 CB • Annual LD exposure = $50,000 • 86% reduction in LD exposure in comparison to using STBs

  9. Managing Bond Exposures • Why is aggregate management important to a customs broker? • Understand underwriting inquiries • Account retention • Continuous bond sales campaigns carried out by competitors

  10. Managing Bond Exposures • Why is aggregate management important to a customs broker?(continued) • Reduction of E&O exposure • If you don’t show your client how to limit exposure, he may ultimately hold you responsible for excess losses

  11. Baltimore Boston Charleston Chicago Houston Los Angeles Miami New York St. Louis San Francisco Seattle Tampa About Roanoke Trade Roanoke Trade… In 12 Cities with a Network of Agents in Over 120 Countries Over 70 years experience in managing the risks associated with global trade and transportation.

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