(September 2022)
All financial bonds are rated based on the Surety and
Fidelity Association of American (SFAA) manual. The rules provide the procedure
while the loss costs and exposure units are provided in a separate section. All
loss costs must be adjusted by the loss costs modification factors filed by the
company providing the coverage.
Rating a financial institution bond starts with the basic
bond. The basic bond consists of the following Insuring agreements:
Insuring Agreement A – Dishonesty
Insuring Agreement B – On Premises
Insuring Agreement C – In Transit
Insuring Agreement F – Counterfeit
Currency
The basic bond premium is computed as follows:
Step 1: The limit of the bond is
selected.
Step 2: The deductible is
selected.
Step 3: Step 1 and Step 2 are
added together and are considered the coverage amount in this premium
calculation.
Step 4: Select the number of
exposure units from the applicable table based on the Step 3 amount and the sum
of employees and officers.
Step 5: Select the number of
exposure units from the applicable table based on the Step 3 amount and the
number of additional locations.
Step 6: Select the number of
exposure units from the applicable table based on the deductible amount and the
sum of employees and officers.
Step 7: Select the number of
exposure units from the applicable table based on the deductible amount and the
number of additional locations.
Step 8: Add Step 4 and Step 5 together.
Step 9: Add Step 6 and Step 7
together and multiply by .85.
Step 10: Subtract Step 9 from Step
8.
Step 11: Multiply Step 10 by the
applicable loss cost table based on the class of insured code.
Step 12: Multiple Step 11 by the
company loss cost multiplier.
Step 13: Apply appropriate
modification to develop the final basic bond premium.
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Example: First
and Best Bank in Metropolis has 35 employees, five officers located in a
central bank and its three branch offices. The loss cost table factor for the
bank is 2.5. The Pretty Good Surety’s loss cost modifier is 1.10. Step 1: The selected limit is $1,000,000 Step 2: The deductible amount is $10,000 Step 3: $1,000,000 + $10,000 = $1,010,000 Step 4: The exposure unit of 9,375 is selected based on $1,010,000
limit and 40 employees/officers. Step 5: The exposure unit of 350 is selected based on
$1,010,000 limit and 3 locations. Step 6: The exposure unit of 900 is selected based a
deductible amount of $10,000 and 40 employees/officers. Step 7: The exposure unit of 50 is selected based on the
$10,000 deductible amount and 3 locations. Step 8: 9,375 + 350 = 9,725. Step 9: 900 + 50 = 950. Step 10: 9,725 - 950 = 8,775. Step 11: 8,775 X 2.5 = 21,937.5. Step 12: 21,937.5 X 1.1 = $ 24,131. Step 13: No additional modifications apply so the basic
bond premium is $24,131. Note: All values provided in this
example above are totally fictional. |
The other insuring agreements are rated based on their own
rating formulas. Many of them are written with a requirement that the amount of
coverage be no higher than the coverage provided by the basic bond.
Many of the coverages have both minimum and maximum amounts
of coverage. In addition, federal and state regulations may impose minimum
limits of coverage based on the exposed assets of the particular financial institution.