Issue No. 3, January 28, 2025

Providing a surety speed to market

Underwriting Scenario

Our client, a domestic surety company, ranked among the top 25 U.S. surety companies, received a submission from a national surety broker seeking approval for a Nevada reclamation bond for a publicly traded gold mining company. This represented a new business opportunity for the surety. The mining company had additional expansion plans for new mines, as well as increases in current exposures.

Our Recommendations

A review of the mining company financial statements and website disclosures provided a clear snapshot of a well-managed company with a strong balance sheet, zero debt, and a history of consistent profitability with payment of stock dividends to shareholders. The existing mining operations and future reserve base indicated high-quality reserves, low-cash cost per ounce projections and no need to leverage the balance sheet with debt. Utilizing data currently housed in the Kairos Information Hub, the SIAS team was able to confirm regulatory reclamation compliance with no current or historical violations. Satellite imagery confirmed the satisfactory status of reclamation.

Outcome

The surety was able to quickly respond to their broker with favorable terms and conditions, not only on the pending surety request, but also on bonds to meet the operator's expanding surety requirements.

SIAS Global . . . your “eyes” in the sky and “boots” on the ground, experts in remote analytics.

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Issue No. 2, July 26, 2024

Navigating a multi-billion dollar book of reclamation-bond exposure

Underwriting Scenario

Our client, a domestic surety company, ranked among the top 25 U.S. surety companies, via its foreign parent company, acquired a multi-billion-dollar book of reclamation-bond exposures. This recent acquisition represented $113 million in premium and an environmental exposure base of over $15 billion. The book was heavily concentrated in reclamation bonds across a wide spectrum of commodities and jurisdictions in the United States. The acquired portfolio, while historically profitable, had recently seen a shift of several of its accounts into high-risk underwriting scenarios. SIAS was tasked to analyze the book of business and assist in setting a portfolio risk management strategy to "right size" the exposure and identify any significant underwriting concerns and vulnerabilities.

Our Recommendations

The SIAS team suggested undertaking a complete exposure confirmation. Utilizing Kairos data, satellite imagery, and our proprietary Advanced Analytics, we were able to validate, on an account, permit, and bond basis, the status of all the exposure among the reclamation bonds and where our client faced significant exposure risks. Each permit was evaluated and ranked based on reclamation status, water management issues, and permit violation history. Our analytics determined the exposures by site and account, classifying each permit in terms of asset status (Ex. active mining, quality reserves, concurrent reclamation) versus liability status (Ex. inactive mining site, deferred reclamation, perpetual water management concerns, significant notices of violations), and prioritized those that needed to be addressed quickly.

Outcome

Within a few months, our client began to selectively reduce its exposure while retaining the favorably rated sites and accounts, thereby minimizing expense and potential loss activity while retaining premium. Within a year of using SIAS Global analytics and assessments, our client had entirely reevaluated the acquired book and was able to negotiate favorable terms and conditions on the renewal of their Surety Reinsurance Treaty.

SIAS Global . . . your “eyes” in the sky and “boots” on the ground, experts in remote analytics.

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Issue No. 1, July 19, 2024

Managing the probable maximum loss on a failing gold mine

Underwriting Scenario

Recently, a gold mine operating for decades in a remote area of Nevada shut down all operations due to the loss of financial support from its banks and parent organization. Regulators were requiring a significant increase in the posted security guaranteeing final reclamation. Regulators indicated a full penal sum forfeiture demand was forthcoming if the bond was not increased.

Before engaging SIAS, our client had previously issued a $15 million hard-rock reclamation bond for the mining company secured by $6 million in collateral. Meanwhile, regulators were looking for a substantial penal sum increase of $6 million to be in place immediately. So, under a very tight timeline, our client asked us to provide an assessment of the permitted area.

Our Findings

Once engaged by our client our proprietary satellite imagery analysis and Kairos data confirmed that the site had been minimally active for years. No active mining or reclamation was taking place, and the potential economic recovery of ore from the primary heap leach pad was questionable, which made the property of limited value to attract potential investors. It also appeared that most of the heavy mining equipment needed for reclamation had been removed from the site.

Our Recommendations

We recommended to our client not to waste time and money visiting the site. Based on our imagery classifications, duration of exposure, and amount of mine-influenced water present at the site, the estimated cost to reclaim exceeded the current bond penal sum and increasing the bond made no sense. No tangible opportunity existed for saving money by the surety entering into a reclamation agreement with the regulators and performing the reclamation utilizing a third-party contractor. The best strategy for the surety was to liquidate the deposited collateral and tender a payment to the obligee for the entire penal sum of the bond and post a loss reserve for the difference between the collateral and the penal sum of the bond.

In less than a week, the SIAS team put its resources into action and arrived at a comprehensive analysis and a workable strategy that saved our client significant claim adjustment expense dollars in the face of a potential maximum loss scenario.

SIAS Global . . . your “eyes” in the sky and “boots” on the ground, experts in remote analytics.

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