As the pandemic descended upon the nation in March and April 2020 executives at Marsh clients became concerned about their overall liquidity and access to bank capacity, said Carrick Bligh, New York-based senior vice president, commercial and bank surety, for Marsh LLC.

They began drawing down from their revolving credit lines just to make sure they maintained liquidity, he said.

Marsh’s surety team decided to explore the help it could provide to its clients in this process, seeking “a true credit product that was embedded within the insurance industry,” Mr. Bligh said.

Unlike a typical letter of credit issued by a bank, an insurer-issued surety bond does not count against a company’s overall borrowing capacity, and its pricing is not tied to interest rate fluctuations. 

While team members are “big advocates for posting traditional surety bonds,” with the pandemic “we’re a lot more focused on those instances, where … the obligee or beneficiary would not allow for a traditional surety bond to be posted,” and a letter of credit is needed, Mr. Bligh said.

The solution developed by Marsh’s team was a bank-issued letter of credit 100% backed by a surety bond. The initiative won the brokerage the Insurance Broker Team of the Year award in the 2021 Business Insurance U.S. Insurance Awards.

“We could help clients free up bank liquidity,” potentially at a cost at, or below, what they would have paid for a traditional letter of credit, Mr. Bligh said.

He said that while these types of arrangements have been used internationally in the past, they are new to the U.S. and Canada.

In one instance involving a transportation client, the program was used to replace $127 million in letters of credit held as collateral by various casualty insurers on general liability and auto policies in the U.S. and Canada. The program freed up bank capacity for other corporate purposes and resulted in annual cost savings of more than $800,000 for the client.

In another case, a transaction involving an international home furnishings company freed $22.5 million of bank capacity and generated annual cost savings of more than $50,000.

Since introducing the product last year, Marsh has completed 30 deals for about 20 clients. It has worked with about 10 different surety companies and seven or eight international banks, Mr. Bligh said. 

“The market is massive,” and demand in the short and medium term will far outpace the supply, “because what we’re doing is … lining up bank capacity and limits for surety carriers to be able to execute these transactions,” marrying banks with insurers, Mr. Bligh said. 

FINALISTS

• Aon PLC — Aon’s client leadership team developed The Hard Market Playbook, which featured 50 “high impact” solutions.

• Beecher Carlson Insurance Services LLC — The Beecher Carlson team’s book of business includes public and private real estate, hospitality, manufacturing and university accounts.

• CAC Specialty — Cobbs Allen created CAC Specialty in 2019 as a specialty business focused on large public companies and financial sponsors that combined strategies and risk capital from investment banking and traditional insurance. 

• Cross Insurance — Cross Insurance’s risk management team helps clients achieve strategic business objectives through innovative risk mitigation and transfer strategies.