Financiers and investors need proof that a completion guarantor has the financial resources to satisfy any potential covered losses. A bond company that is not a licensed insurance company or which lacks financial strength must secure reinsurance. Under a reinsurance policy, a financially strong, licensed reinsurance carrier (the reinsurer) agrees to accept all or a portion of the risk covered by the completion bonds issued by the completion guarantor. Few completion bonds are issued directly from a reinsurer and many are issued by unlicensed or non-admitted companies.
A cut-through endorsement letter also referred to as a loss payee endorsement or an assumption agreement, is a confirmation that any part of a loss covered by reinsurance will be paid directly to the bondholder by the reinsurer if the completion guarantor fails or is unable to pay all or any portion of a covered loss. The cut-through endorsement is so named because it provides that the reinsurance claim payment “cuts-through” the usual route of payment from the completion guarantor to the bondholder and then from the reinsurer to the completion guarantor, substituting instead the payment route of the reinsurer to the bondholder.
There may be disadvantages if your completion bond is issued by an unlicensed or unadmitted bond company.
Firstly, financiers and investors are not placed in direct contractual privity with a financially strong insurance company. Speak with your legal counsel about the benefits of having a direct relationship with a financially strong insurer.
Secondly, in such instances, the completion guarantor’s risk is usually backed by multiple reinsurers. Each reinsurer typically takes responsibility to pay only a certain proportion of any loss and no reinsurer usually accepts the risk of nonpayment by any other reinsurer.
Thirdly, a licensed insurer must comply with various state laws and regulations that govern its activities and are established to protect policyholders. An unlicensed or non-admitted completion bond company may not have to follow, and the terms and conditions of the completion bonds it issues may not be subject to, those laws and regulations.
You, your financiers, and investors may lose the rights and protections provided by those laws and regulations if you choose to accept a completion bond from an unlicensed or non-admitted bond company.
Unifi is a general managing underwriter of completion bonds for Intact Financial Corporation (Intact) and Intact Insurance Group USA, LLC (Intact Specialty), and our completion bonds are issued through their subsidiary insurance companies.
Atlantic Specialty Insurance Company is an admitted carrier authorized to write surety coverage in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, and provides our completion bonds to customers based in the United States. Intact Insurance Company is an admitted carrier authorized to write surety coverage throughout Canada and provides our completion bonds to customers based in Canada. Our completion bonds may be issued through other insurance carriers to customers based outside North America.
Intact and Intact Specialty’s insurance company subsidiaries consistently receive an A+ (superior) financial rating within the XV ($2 Billion or greater) size category from A.M. Best. Your financiers and investors are placed in direct contractual privity with an Intact or Intact Specialty subsidiary insurance company that takes full responsibility to adjust all claims and pay 100% of covered losses. Accordingly, your financiers and investors, (1) should only need to confirm Intact’s excellent financial strength rating and avoid the need to pore over the financial strength ratings of numerous insurance and reinsurance companies, and (2) will not have to separately resolve and enforce claims through multiple actions, in various jurisdictions, against multiple reinsurers, which is often a prerequisite to any loss recoveries when dealing with other bond companies.
UniFi’s re/insurance structure, which differs from that of competing completion bond companies, is designed to provide direct and uncomplicated legal and financial security and protection to producers, financiers, and investors.
Your financiers and investors should not need a cut-through endorsement letter because our completion bonds are issued directly by an Intact or Intact Specialty subsidiary insurance company with superior financial strength and ratings that takes full responsibility for paying 100% of covered losses.