Is the Surety Bridge Fund like reinsurance?
While it is similar to reinsurance, it is not a transfer of risk. Reinsurance provides for funds that pass through the surety to meet the obligation. If contractor client defaulted on the repayment, the surety would be liable to the Surety Bridge Fund. Why wouldn’t a surety just provide the loan itself? It could if it wanted to. However, the surety provides for more of an arms length relationship with the owner. It doesn’t require any declaration of default or similar action to trigger the surety involvement. Why would a surety want their contractor to get funds the owner may not ultimately approve, and subsequently take a credit? Because failure to provide the liquidity to the contractor may result in cash flow problems that create the default on the job in question, or spread to other projects. Any default during the progress of the job would require a replacement contractor and while the risk to the surety is real, the risk could be far greater if allowed to fail. If the contractor
