A surety bond is a financial instrument through which an insurance company guarantees the successful performance of an Aon client to a third party, known as a beneficiary or employer. It is a written agreement that provides compensation in the event that specified obligations are not performed within a stated period.

1. Surety & Guarantee
Creating project certainty
ENTER

2. Overview
A surety bond is a financial instrument through which an insurance company guarantees the successful performance of an Aon
client to a third party, known as a beneficiary or employer. It is a written agreement that provides compensation in the event
that specified obligations are not performed within a stated period.
Benefits include:
The ability to release
working capital and
credit facilities from
the bank
Conditional wording
allowing room for
negotiation with
the beneficiary and
support from the surety
Competitive pricing A reduced need for
tangible security,
relying instead on
a group counter-
indemnity
Surety bonds can be used in a variety of
sectors including:
ƒƒ Construction
ƒƒ Engineering
ƒƒ Support services
ƒƒ Waste
ƒƒ Energy
ƒƒ Manufacturing
ƒƒ Retail
Contract
Bond
Premium
Surety
Process
Principal/
Contractor
Surety/
Guarantor
Beneficiary/
Employer
Overview
Process &
Important
considerations
Performance
bonds
Duty
deferment
Pension deficit
bonds

3. Process
In order for the surety market to consider issuing a bond for a company, they will initially need:
ƒƒ Completed facility and bond application forms
ƒƒ The latest audited company accounts
ƒƒ The most recent set of management accounts (current to within the last three months)
ƒƒ A copy of the proposed bond wording
Important considerations
ƒƒ Financial strength of company
ƒƒ History/track-record of company
ƒƒ Level of indemnity
ƒƒ Type of bond
Types of bonds
Contract
ƒƒ Performance
ƒƒ Advance payment
ƒƒ Retention
Letter of credit replacement
ƒƒ Deductible guarantee
ƒƒ Pension bond
ƒƒ Deferred consideration
Other
ƒƒ Restoration/decommissioning
ƒƒ Environmental
ƒƒ Rural payments agency
ƒƒ Customs
Process &
Important
considerations
Overview
Performance
bonds
Duty
deferment
Pension deficit
bonds

4. Performance bonds
Case Study
These bonds cover the damage or losses suffered by a beneficiary/employer in the event of
non-performance of contractual obligations by the contractor:
ƒƒ Employer often requires the contractor to guarantee their performance
ƒƒ Usually required to cover 10% of the contract value
ƒƒ Will be released upon completion of the contract/maintenance period
ƒƒ Covers the cost to complete the contract - pre or post insolvency
Aon Surety and Guarantee worked with a client to deliver a bonding solution whereby the
Local Authority was investing more than GBP 350 million in the city’s highways network.
Over a five-year period the project aimed to maintain and improve the infrastructure incorporating
thousands of kilometres of roads, footways, bridges, tunnels and highways structures.
Extending to include street lights, street trees, traffic signals and winter road maintenance, the
arrangement drew on the experience of the Surety team to provide a complex solution.
The project’s funding structure required contractual performance to be guaranteed and Aon’s
solution allowed the client to tap into a new and competitive source of capital, freeing up
bank capacity for other more appropriate types of funding
Overview
Process &
Important
considerations
Performance
bonds
Duty
deferment
Pension deficit
bonds

5. Duty deferment
Where a company is required to defer payment of VAT or other duties or levies
as opposed to paying on an individual basis.
Customs guarantee/duty deferment allows up to six weeks deferment, with benefits including:
ƒƒ Improved cash flow
ƒƒ Frees-up bank funding capacity
ƒƒ Reduced administration
Working across a broad range of industries spanning oil, retail, logistics, alcohol and tobacco,
Aon Surety and Guarantee provides duty deferment solutions for its UK and overseas clients.
Liaising with risk, finance and treasury teams, the duty deferment surety bond allows companies
to pay customs and excise duties on a monthly basis, improving cashflow and removing a
significant amount of potential administration. Optimising bank facilities and working capital
management are key drivers when selecting to use the significant and competitively priced
capacity available from the surety industry. Aon Surety and Guarantee are industry leaders in
this field and work with clients to obtain the most suitable solution for their needs.
Charges that can be deferred:
ƒƒ VAT (import and excise duty)
ƒƒ Customs and excise duties
ƒƒ Tobacco duties
ƒƒ Levies under CAP of the EEC
ƒƒ Post clearance demands
ƒƒ Anti-dumping or countervailing imposed duties
Overview
Duty
deferment
Pension deficit
bonds
Overview
Process &
Important
considerations
Performance
bonds

6. Pension deficit bonds
Aon has developed a new and innovative option for those
looking for alternative financing solutions for pension
recovery plans:
ƒƒ Pension deficit bonds provide security to the pension
fund, lengthening the recovery plan
ƒƒ Bonds reduce the risk of future trapped surplus
ƒƒ They draw on a different pool of financing that does not
affect the company’s debt management
ƒƒ Working capital is left unaffected, enabling the
company to invest funds elsewhere
ƒƒ Competitively priced compared to bank solutions
ƒƒ Facilitates corporate restructuring
ƒƒ Facilitates scheme mergers
ƒƒ Can help to manage volatility post-valuation
Benefits over using a letter of credit
Finance
A surety bond accesses a different pool of financing.
This means that while providing a pension scheme with
a letter of credit will reduce a company’s available credit
with its banks, issuing a surety bond will not.
Security
At present, it is likely that the insurers who would
provide the surety bond will have a similar or better
credit rating than the banks that stand behind the
letter of credit.
Pension
deficit bond
overview
Pension
scheme
Sponsoring
employer
Insurer
Premium
Pay-outt
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When this would be suitable:
ƒƒ As part of a valuation negotiation
ƒƒ At the renewal of a letter of credit
ƒƒ During an investment review
ƒƒ During corporate restructuring
ƒƒ During a scheme merger
ƒƒ Writing integrated risk management plans
For more information regarding the matters in this
brochure please contact:
Mark Holt
+44 (0)1245 709118
mark.holt@aon.co.uk
Justin Lee
+44 (0)1245 709120
justin.lee@aon.co.uk
Daniel Storr
+44 (0)1245 709119
daniel.storr@aon.co.uk
Contacts
Overview
Pension deficit
bonds
Overview
Process &
Important
considerations
Performance
bonds
Duty
deferment

7. About Aon
Aon plc (NYSE:AON) is a leading global provider of risk
management, insurance brokerage and reinsurance
brokerage, and human resources solutions and outsourcing
services. Through its more than 50,000 colleagues
worldwide, Aon unites to empower results for clients in
over 120 countries via innovative risk and people solutions.
For further information on our capabilities and to learn how
we empower results for clients, please visit: http://aon.
mediaroom.com.
© Aon plc 2018. All rights reserved.
The information contained herein and the statements expressed
are of a general nature and are not intended to address the
circumstances of any particular individual or entity.
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and use sources we consider reliable, there can be no guarantee
that such information is accurate as of the date it is received or
that it will continue to be accurate in the future. No one should
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after a thorough examination of the particular situation.
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