Questions & Answers
This information is specific to QBE Surety insurance policies. If you have a more general question about your insurance, please click here >>.
QBE Contract Bonds
Q. What are Surety Bonds?
A. 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” (QBE), 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.
A Surety Bond is irrevocable and non-cancellable by the Surety. The Surety is committed to pay should default occur by the contractor. In the event of a claim under a Surety Bond, the Surety will seek a 100% recovery from the contractor through a Deed of Indemnity. Although the Surety takes over the primary obligation to pay the principal, they retain the right of recourse to the contractor. Therefore the only risk adopted by the Surety is the credit risk, if they are unable to recover funds from the contractor.
Q. Why Surety Bonds?
A. The need to provide guarantees to secure performance and other security requirements can be a major obstacle for many contractors tendering for projects. In many cases the contractor has pledged all available security to a financial institution and may have reached capacity within its agreed facility limit. QBE Surety views the contractor’s ability to fulfil its contractual performance obligations as a key underwriting element. Thus, QBE will normally support the obligations of the contractor without tangible security. This allows the contractor to free up funds, reduce debt and/or tender for additional contracts subject to the company meeting underwriting criteria. By comparison, financial institutions place more emphasis on assessing the value of the collateral/tangible security to support guarantee facilities.
Q. What security is required to establish a Surety facility?
A. A Deed of Indemnity and Guarantee or other security depending on the individual circumstances of the company.
Q. How do you apply for a Surety Bond facility?
A. Complete the QBE Corporate Questionnaire, Statement of Position (if applicable) and ensure that the supporting documentation listed in section A of the form are attached. QBE Surety staff are well versed in contracting issues and have streamlined the application procedures to ensure a quick turnaround time.
Q. What brokerage is payable on Bonds?
A. QBE Surety will pay brokerage, however the amount of brokerage will depend on the volume of business and level of involvement of the broker, otherwise please contact our general telephone number (02) 9375 4227.
Q. What are the key underwriting requirements for issuing Surety Bonds?
A. When QBE Surety assesses an application, the analysts look for specific qualities. Applications with QBE will be assessed on the following qualities:
- a well developed core business
- an undoubted solid track record
- evidence of professional control and management of company operations
- adequate liquidity necessary to support the business
- a policy of capital growth and retention within the company
- technical ability to successfully undertake the specific contracts for which contract Bonds are required
- well managed exposure to existing projects.
Q. What does it cost to establish a Surety facility?
A. The only real cost to the applicant is the legal cost associated with establishing a facility. The level of complexity of the group drives the legal costs. QBE Surety does have a discretion to be able to charge an application fee on a case-by-case basis.
Q. Is the premium paid up front upon Bond application?
A. As Bonds are irrevocable and non-cancellable by the Surety, all premium duties and costs are payable prior to the presentation (hand-over) of the Bond to the broker.
Q. What do Bonds cost?
A. In setting the premium we look at the information that is provided during the application process, which has an impact on the calculated premium. For a better indication, please contact our general telephone number (02) 9375 4227.
Q. What is the maximum period a Bond can be issued for?
A. Maximum period of five years.
Q. How quickly can a Bond be arranged?
A. Once a facility has been established a Bond can be issued and delivered within 24 to 48 hours from receipt of a specific Bond application.
Q. What is the Critical Benefit?
A. The advantages of a Surety Bond facility can be easily demonstrated using a simplistic example of a contractor with a net worth of $3 million winning a contract for $30 million and being required to lodge a Bond for $3 million (10% of the contract value). Traditionally a financial institution would require the contractor to either place $3 million plus on deposit or effect a mortgage/debenture over assets of similar value. As QBE generally do not require tangible security, a Surety Bond will deliver you the Critical Benefit. Your assets remain unencumbered, but more importantly, working capital is released to fund future contracts. This can be a make or break situation.
Q. What is the acceptance of QBE Bonds in the marketplace?
A. QBE Bonds are widely accepted by Federal, State and Local Governments and their respective agencies, and public and private enterprises.
Commercial/Residential Deposit Bonds
Q. Who can apply for a Deposit Bond?
A. Eligible applicants include individuals, companies and trusts. The applicant may be an existing property owner who wishes to purchase another property, an investor who wishes to expand their property portfolio or first home purchasers with an unconditional loan approval.
Q. What is an Indemnity and why do you have to sign it?
A. The Indemnity is a legally binding document that gives QBE the right to recover the amount of the bond from you (“the purchaser”) if you default under the contract. The bond is issued by QBE to the vendor on the basis that you will pay the vendor the bond amount on the settlement date of the contract.
Q. Will the vendor accept my Deposit Bond?
A. The Deposit Bond is a legal document and is available in all states of Australia and in New Zealand. It is at the sole discretion of the vendor to accept a Deposit Bond.QBE is a leading provider of Deposit Bonds in Australia and has high credibility and credit worthiness. And as we are Australia’s largest international general insurance and reinsurance group with an A+ Standard & Poors Rating, the vast majority of vendors will accept QBE Deposit Bonds.
Q. What happens if you default under the Contract for Sale?
A. The vendor can claim the amount specified on the bond and the Indemnity will give QBE the right to recover this amount from you, once the demand has been paid.
Q. What happens if you have a dispute with the vendor?
A. QBE is obliged to pay the vendor or bond holder the amount of the deposit within a set period after the demand is made. Even if a dispute arises between you and the vendor, QBE is still required to pay the vendor once the Bond is presented.
Q. What is the Counter Indemnity Agreement?
A. QBE Deposit Bonds are issued on the understanding that you will pay the vendor the Deposit Bond amount on the settlement date of the contract. The Counter Indemnity Agreement is part of the application form. It is a legally binding right you give to QBE Insurance to pursue recovery against you for any part of the Deposit Bond amount that must be paid to the vendor if you default under the Contract of Sale.
Q. When does the Deposit Bond terminate?
A. The Bond will terminate on the expiry date or when the Contract of Sale is completed, terminated or rescinded. If you fail to complete the purchase and the vendor demands payment from QBE, then the Bond will terminate once the claim has been paid in full.
QBE Lease Performance BondsQ. Why should landlords consider Lease Performance Bonds?
A. They provide landlords with the comfort that the tenant has been externally vetted by credit professionals and have met strict underwriting guidelines. In the event of default under a lease, the landlord can claim under the Bond.
Q. Why should tenants use Lease Performance Bonds?
A. They are a cost effective alternative to Bank Guarantees and do not impose any limitations on a tenant’s working capital. Lease Performance Bonds are independent of existing banking facilities and relationships.
Q. What is the minimum and maximum Bond value available?
A. Applications for Bonds less than $50,000 will not be considered unless part of a larger, ongoing facility. There is no set maximum Bond value.
Q. What preventing steps are undertaken in the application process?
A. All applications undergo a two-tiered process. The first tier is undertaken by Commercial Indemnity Pty Limited. Applicants who meet the minimum underwriting requirements are then passed on to QBE Insurance (Australia) Limited for further assessment. The second tier is undertaken by QBE Insurance (Australia) Limited. Successful applicants are then quoted terms and conditions and, if agreed, the documentation process is instigated.
Q. How long does the application and preventing process take?
A. Applicants should allow at least five (5) working days from the date that the underwriting information has been supplied to Commercial Indemnity Pty Limited. Applications cannot be processed unless the underwriting information has been supplied.
Q. How much does a Lease Performance Bond cost and how are fees payable?
A. There is no set scale of fees. Fees are determined on a case-by-case basis. As a rule, fees are competitive to a Bank Guarantee and are charged in advance.
Q. Under what circumstances can a Bond terminate?
A. Once issued, a Lease Performance Bond is unconditional and irrevocable. It is a pay-on-demand obligation without reference to the tenant. A Lease Performance Bond will only terminate when:
- the lease expires
- the landlord confirms in writing the bond is no longer required
- the Bond is returned to QBE Insurance (Australia) Limited
- QBE Insurance (Australia) Limited pays the landlord the sum of the Bond or such sum the landlord may demand.
Q. How does the counter indemnity agreement between the tenant and the underwriter work?
A. Before QBE Insurance (Australia) Limited issues a bond they require an indemnity agreement from the tenant and/or its indemnifiers. The indemnity agreement clearly defines the rights and obligations of each party to the Bond. In essence, the tenant and/or its principals/directors indemnifies QBE Insurance (Australia) Limited from any losses including costs associated with the Bond.
QBE Probate/Transfer Indemnity Bonds
Q. Why do public companies want representatives of deceased shareholder estates to obtain a Grant of Probate or a Transfer Indemnity Bond before they will allow shares to be transferred to the estate’s beneficiaries?
A. Public companies want to be sure that the shareholder’s “Last Will and Testament” is valid. By insisting that a Grant of Probate or Transfer Indemnity Bond is produced, they avoid the risks that they will, at a later date, be exposed to demands by other parties claiming that they hold a more valid claim on the assets of the estate and that the shareholder’s “Will” should not have been recognised.
Q. What is a Transfer Indemnity Bond and how can it be used by the estate of deceased shareholders when seeking to transfer shares in public companies?
A. A Transfer Indemnity Bond is an unconditional guarantee issued by a financially sound institution which is willing to guarantee that the “Last Will and Testament” of a deceased shareholder is indeed a valid document and should be recognised by the public company. This guarantee allows the shareholding to be transferred without the need to obtain a Grant of Probate, Letter of Administration or a Reseal of Probate.
Q. How easy is it to obtain a Transfer Indemnity Bond in lieu of a Grant of Probate?
A. It is extremely quick and easy to obtain a Transfer Indemnity Bond and can save a significant amount of time compared to obtaining a Grant of Probate. A Transfer Indemnity Bond can be obtained with or without the assistance of solicitors. The cost of purchasing a Transfer of Indemnity Bond usually compares favourably with the expenses associated with obtaining a Grant of Probate. A Transfer Indemnity Bond is widely recognised as a valid alternative by the vast majority of Australia’s publicly listed companies.
Q. Which companies accept a Transfer Indemnity Bond in lieu of a Grant of Probate?
A. Most of Australia’s large publicly listed companies are happy to accept Transfer Indemnity Bonds. Transfer Indemnity Bonds have been approved, and the use of them endorsed, by the industry’s peak body, the Securities Registrars Association of Australia Inc.
Q. Who is Australian Probate Bonds Underwriting Agency and on whose behalf do they issue Transfer Indemnity Bonds?
A. Australian Probate Bonds Underwriting Agency is a privately owned and operated specialist firm dealing exclusively in Transfer/Indemnity Bonds. It holds an authority to issue these Bonds on behalf of QBE Insurance (Australia) Limited.