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The Trump administration’s imposition of tariffs and the threat of an impending trade war with China could eventually result in reduced capacity and higher rates in the political risk and trade credit insurance market. But although there is already some evidence of increased submissions by policyholders, it is too soon to see how the situation will develop, experts say. “What I think everyone is potentially worried about is escalation into a full-scale trade war where doors shut,” said Andrew Grant, a London-based partner with law firm Clyde & Co, although the majority view is matters will not reach that point. The situation, though unpredictable, is clearly heating up: The Trump administration imposed tariffs on $34 billion of Chinese product as of Friday. And, as expected, China immediately retaliated, imposing a similar 25% tariff on 545 products, including cars, soybeans and lobsters, that are also worth a total of $34 billion, while charging the U.S. with starting “the largest trade war in economic history.” The Trump administration has also imposed tariffs on foreign steel, aluminum, solar panels and washing machines from countries including Canada, Mexico, the European Union and Japan, but China is of particular concern because of the extent of its trading relationship with the United States. The often-intertwined political risk and trade credit markets are competitive, with plenty of capacity for now, experts say. “The political risk and trade credit market continues to expand,” with more than 60 companies offering coverage and the total number increasing each year, said Daniel Riordan, president of political risk, credit and bond insurance in New York for XL Group Ltd., which does business as XL Catlin. “It continues to be a specialty area that is attractive to private carriers as well as government providers, who are still quite active in the market,” he said. But the current situation could lead to increased rates. “I would definitely look for increased insurance costs across the board for direct foreign investments in countries” where there is trade conflict, said Marc Wagman, New York-based managing director, trade credit and political risk practice group, for Arthur J. Gallagher & Co. “Anytime you’re operating in an environment where the cost of regulatory compliance increases … it’s reasonable to expect there would be inherent increases in the cost of insuring risks across a wide spectrum” because “that just makes insurers nervous,” he said. But the impact in the political risk and trade credit sector, if any, will take time to emerge, say experts. “On the short-term trade side at this point in time, there hasn’t been any change yet in underwriting appetite for risks both foreign and domestic,” said Mr. Wagman. “There’s a real lag in how long this is going to take to cycle through,” he said. “We’re not going to see it until I would say, at the earliest, one year from now.” Mr. Riordan also said steel and aluminum companies “prepurchase supplies six to 12 months in advance, sometimes longer.” “The issue we see now” is the situation “may lead to a change in how U.S. creditors are treated in foreign markets, especially China,” said Clay Sasse, New York-based managing director with Aon P.L.C.’s trade credit practice. “Foreign creditors don’t always have a simple and easy time” of going through other countries’ court systems, he said, and debtors “may feel emboldened” into believing they have more of a home court advantage than they did a year ago. Claims could arise from governments issuing punitive new rules that prevent companies from operating in foreign countries, Mr. Riordan said. Those can often be as equally difficult as tariffs, he said. Meanwhile, submissions are up, say observers. “We have seen some uptick in submission activity, particularly from trading companies and exporters,” said Mr. Riordan. “There’s heighted interest there,” which is normal, he said. “This is front-page news. If you’re on the board of directors of a major trading company or exporter, you’re going to be concerned about it. Your risk management teams should be thinking about it” and assessing the situation, said Mr. Riordan. Evan Freely, New York-based managing director for Marsh L.L.C., who leads its credit specialties practice, said, “Definitely, we’re seeing more submissions,” although “I can’t specifically attribute it to tariffs, because we don’t ask that question per se.” “It’s one of maybe three or four issues driving the increase in applications, especially in those industries affected by this, whose supply chain might include steel or aluminum” or the electronics sector, Mr. Freely said. Other issues of concern, he said, include political issues in Mexico, Turkey and Colombia, North Korea, and Brexit. In addition, U.S. relations with Russia, are a “burning issue that’s always there,” he said, in addition to the unrest in the Middle East. Capacity would lessen before rates go up, Mr. Freely said. “Rates typically go up after the industry collectively takes losses. It would be a capacity issue first and a rates issue second. There’s so much competition here now from an underwriting standpoint that there’s probably less pressure on the rates to go up.” https://www.businessinsurance.com/article/20180710/NEWS06/912322545/Political-risk-trade-credit-insurance-markets-may-hinge-on-Trump-tariffs

A circuit court judge on Wednesday approved a petition to place a Sioux Falls company that insures and services student loans into liquidation. ReliaMax Surety Co. will have all remaining assets liquidated by the South Dakota Division of Insurance, which filed the petition in Hughes County Circuit Court on June 12. Dawn Dovre, a spokeswoman for the division, said the state moved to liquidate ReliaMax because the company is insolvent. The order allows the Division of Insurance to take possession of the company’s property and conduct business in the interim while winding down its affairs. “The next step of the process includes notifying policy holders, claimants and other interested parties of the liquidation status and providing established procedures to file claims,” Division of Insurance Director Larry Deiter said in a release. Mark Payne, the company’s president, did not return a message left at his office. Founded in 2006, ReliaMax initially provided insurance to banks and other lenders in the private student loan industry. By 2014, the company insured $2 billion worth of student loans. Meta Financial Group, the holding company for Meta Bank, announced to shareholders that ReliaMax insured nearly $190 million worth of the bank’s student loan portfolio. “ReliaMax and its predecessor companies have been providing private student loan insurance for over 25 years, and we are disappointed to learn of their pending insolvency,” Meta Financial Group Chairman and CEO J. Tyler Haahr said in a release. “While we expect to ultimately recover a substantial portion of our unearned premiums, the timing and amounts are unclear at this time.” Although ReliaMax announced in 2014 that its line of business was expanding, behind the scenes there were problems. The Division of Insurance conducted a market conduct examination and found the company was violating state law by transacting business in states where it had no license. The state fined the company $25,000. The company and its founder and CEO, Michael VanErdewyk, were also sued by former employees who said they were swindled out of their investments into ReliaMax, including one employee who took out a second mortgage on his home to invest $50,000. VanErdewyk, the lawsuit said, had claimed to be a business guru who had built successful companies. But, the lawsuit said, he had “a pattern of raising money from investors and then losing money; and paying himself very well regardless of the success or failure of the company.” The lawsuit alleged that behavior continued after ReliaMax was formed. “VanErdewyk has squandered company assets, used them for non-business purposes, demanded and received compensation that reflects neither his actual talent nor the company’s actual profits, and has generally treated the assets and income of ReliaMax as ‘his’ money to do with as he pleased,” the lawsuit claimed. The lawsuit settled, and the terms were confidential. The last time the state liquidated an insurance company was in 2012, when the state liquidated Northern Plains Insurance Co. of Watertown, Dovre said. https://www.argusleader.com/story/news/2018/06/27/south-dakota-officials-move-liquidate-sioux-falls-based-reliamax/739878002/

WASHINGTON, June 13, 2018 /PRNewswire-USNewswire/ — The U.S. Small Business Administration recognizes the Office of Surety Guarantees award winners for their continued work to help small contracting businesses acquire surety bonds Three SBA surety bond partners were selected to receive awards based on their participation, activity, claims and recovery and their commitment to helping small businesses obtain contracts with both government and private sector entities. Travelers Casualty and Surety Company of America was recognized as Surety of the Year. The Fedeli Group and Marcia D. Smith of Bond Specialist were honored as Surety Agency of the Year and Surety Agent of the Year, respectively. Bill Manger, Associate Administrator for the SBA’s Office of Capital Access said, “Our partners in the Surety Bond Guarantee Program have done an incredible job helping America’s small businesses and these awards are a testament to the importance of the work being done to help entrepreneurs obtain bonding and compete for contracts in a strong U.S. economy.” Surety of the Year award recipient, Travelers Casualty and Surety Company of America, has been a participant in the SBA’s Surety Bond Guarantees preferred program since 1990, and has assisted small and emerging contractors over the years through their Construction Services Express program in Exton, Pennsylvania. For more than 160 years, Travelers has earned a reputation as leading property casualty insurer. Their expertise and focus on innovation have made them a leader in personal, business and specialty insurance. “We are proud of our partnership with the Small Business Administration, and extremely honored to receive its designation as Surety of the Year,” said Bob Raney, Senior Vice President for Construction Services, Bond & Specialty Insurance at Travelers. “Travelers has a long history of helping contractors of all sizes and trades succeed, and we look forward to continuing our dedicated work with the SBA.” Surety Agency of the Year, the Fedeli Group, is a locally owned, multi-line insurance agency located in the Cleveland, Ohio suburb of Independence. They have been working with the SBA since 2007, writing bonds and insurance in Ohio, the surrounding states and much of the United States. Founded in 1988, the Fedeli Group works closely with their clients providing consultative services and innovative solutions to their risk management needs. Surety Agent of the Year, Marcia D. Smith of Bond Specialist (dba Marcia Smith Surety) entered the surety business in 1973, and worked for several major agencies and companies before starting Bond Specialist Insurance Services in 1990. Smith found the SBA Surety Bond Guarantees program to be a perfect partner for many of her clients. She placed her first client in the SBA’s SBG program in the late 1980’s and continues doing so today. The SBA Surety Bond Guarantees program has 32 surety partners and 350 active agents nationwide, and has guaranteed more than 10,000 bonds with a contract value of over six billion. More information about the SBA’s Surety Bond Guarantees program is available on the SBA.gov website. For further assistance, surety companies may contact the Acting Director of the Office of Surety Guarantees, [email protected]. https://www.prnewswire.com/news-releases/sba-recognizes-the-office-of-surety-guarantees-award-winners-300665862.html

OLDWICK, N.J.–(BUSINESS WIRE)–As reform measures across the United States significantly diminish or eliminate the need for defendants to post cash bail, the business currently handled by bail bonds agents and insurance specialists may cease to exist, according to a new A.M. Best special report. The Best’s Market Segment Report, titled, “Was 2017 the Tipping Point for the Bail Bonds Industry?” notes that critics of the U.S. bail system charge that it unfairly targets poor Americans, and now state and federal government officials have introduced numerous bills aimed at reducing cash bail as a means of pretrial detainment. Even narrow policy changes, such as the use of risk assessment tools created by data scientists and criminal-justice researchers, could help meaningfully diminish the use of pretrial incarceration across the country, though moves such as these pose a danger to the surety market’s bail bonds insurance sector. According to the report, declines have already set in, with bail bonds insurance premiums and face amounts falling in 2017, representing what looks to be a tipping point for the bail bonds industry. Net premiums written (NPW) at six of the top 10 writers of bail bonds insurance fell in 2017, and out of the nine companies whose surety bonds portfolios are composed solely or predominantly of bail bonds business, four saw a decline in NPW. For three of those four, the year-over year percentage drop was in the double digits. The total face amount of all bail bonds written increased every year from 2009 to 2016, but declined in 2017 by 4.5%, in line with the 3.8% year-over-year decline in NPW for the bail bonds segment. The legislative reform efforts advocated at federal, state and local levels have met heavy protestations from the bail bonds industry. Opponents of reform view the bail bonds system as a vital component of the criminal justice system and caution that current pretrial release systems in a number of states have led to what they have characterized as skyrocketing failure-to-appear rates and the release of dangerous criminals. With extensive reforms enacted either in 2017 or currently under consideration in a majority of states, a decided shift away from requiring money bail seems to be at hand. This appears to be particularly true with regard to misdemeanor and low-level felony cases and is likely going to be the rule more than the exception in the future. The impact could result in a significant shrinking of the surety bonds market’s bail bonds segment. A.M. Best believes that, although some surety companies have somewhat diversified portfolios, the potential impact of any reforms on the bail bonds specialty writers will be substantial. Companies that write bail bonds countrywide, or at least in multiple states, should be better able than single-state or even smaller regional insurers to adjust their strategies, and to focus on states where cash bail practices have not been substantially changed. https://www.businesswire.com/news/home/20180607005572/en/Best%E2%80%99s-Market-Segment-Report-2017-Tipping-Point