NASBP Successfully Advocates for Modification of Sureties’ Minimum Financial Strength Rating Required by Florida DOE
NASBP is pleased to announce that, as a direct result of its advocacy efforts, the Florida Department of Education (DOE) recently expanded the minimum A.M. Best financial strength rating for surety companies that prequalify contractors for educational facilities to include "A˗" or better.
On February 20, 2014, the DOE issued a Memorandum concerning a technical change to
State Requirements for Educational Facilities, 2012 (SREF) to impose a minimum financial strength rating of "A˗" (rather than "A") on surety companies that prequalify and verify bonding capacity for contractors under SREF.
Notified of SREF’s overly restrictive minimum financial strength rating by NASBP member Susan Reich, Vice-President at Florida Surety Bonds, Inc. in Maitland, Florida, NASBP promptly sent an advocacy letter, dated January 24, 2014, to the Office of Educational Facilities. Click
here to review NASBP’s letter. That same day, January 24, NASBP received an email from a DOE representative expressing appreciation for the letter and noting that the “SREF experts are out today” and hoping that “this can be resolved.” And, indeed, on January 29, NASBP received an email from DOE stating that “[w]e are in the process of amending SREF to reflect the A˗ and above. We will do this as quickly as possible. Thank you.” And to come full circle on this NASBP advocacy effort, on February 20, the DOE issued a Memorandum regarding the change to the minimum financial strength rating. Click
here to review the DOE Memorandum.
In its letter to the Office of Educational Facilities, NASBP stated “[o]verly restrictive surety financial strength rating requirements are not in the best interest of the project owner, as they limit competition, increase pricing, and deter meeting minority and disadvantaged business participation goals.” NASBP explained that both "A" and "A˗" ratings are described by A.M. Best as “Excellent” and that a minimum financial strength rating of "A˗" rather than "A" would ensure that “only surety companies with excellent financial strength ratings are permitted to prequalify contractors and provide the verification of the appropriate level of bonding capacity.” In its February 20 Memorandum, the DOE cited that as its reason for the technical change: “As both ‘A’ and ‘A˗’ are considered excellent ratings for surety companies, the technical change expands the financial strength rating to include ‘A˗’ or better.”
Issues involving financial strength ratings of surety companies are not new to NASBP. We have been successfully addressing this matter over the years, and this issue seems to arise with increasing frequency. Such rating issues originate not only with public owners but also in legislation introduced. In fact, in early 2014 NASBP engaged in a successful educational campaign to educate a state bill sponsor about financial strength ratings.
NASBP must stand at the forefront of advocating for, protecting, and advancing the interests of professional surety bond producers and of suretyship. NASBP becomes aware of many issues and matters that need its advocacy attention in both the federal arena and all the states from its members, affiliates, and associates. We urge each of you to continue to
contact NASBP when you become aware of legislation, policies, regulations, contracts and bond forms that threaten the viability of a robust, transparent, and competitive surety market.