Posted by & filed under Company Communications.

The SDDC has updated the new DOD Personal Property Qualification Rules (also called pamphlet 55-4) which, if passed, will take effect October 2014. Some of the new qualification rules include increases in the minimum Performance Bond and Cargo limits carried by the TSP.

As an underwriting facility for approximately 1,200 movers in the United States, Mover’s Choice and Paul Hanson Partners has ben asked by many of our brokers and insureds to comment on the proposed SDDC changes with respect to bonds and cargo limits.

CARGO
Cargo: Minimum required limit increasing from $150,000 to $500,000

A new aggregate cargo limit is necessary because most claims filed with insurance carriers on military SIT shipments are settled on the Inland Marine policy under Cargo and not Warehouse Legal Liability.

Most movers already carry a higher aggregate cargo limit than their per occurrence cargo limit (for example, a typical policy will include a per truck limit of $200,000 and per occurrence limit of $400,000), and many already carry the proposed minimum $500,000 limit.

Increasing the aggregate from $150,000 to $500,000 will likely raise the annual cargo premium by 10-15%. There should not be a problem obtaining the $500,000 limit in the insurance marketplace unless the TSP has severe or adverse loss history.

BONDING
Bond Requirements: For Domestic TSPs- Minimum $50,000 or 2.5% of the previous year DOD domestic interstate revenue whichever is greater and for International TSPs- $150,000 or 2.5% of previous year interstate DOD revenue whichever is greater.

Since the recession and downturn of 2008-2010, we have witnessed a large number of firms using built up equity to sustain their business.

Although the economy has improved, there has not been time to rebuild to the levels of equity that were in the market in 2008. Bond underwriters look for the TSP or indemnitor of the bond to be able to quickly, with cash, repay the bond if it is called.

Since bond increases will be determined by previous year revenue which is obtained by the TSP first; they must submit their financial statements to the SDDC.

Before submitting bond application for review the TSP must first submit CPA financials to SDDC to receive concrete limit requirement for their bond request.

In addition to requiring positive profits that are at or above average, bond underwriters will require:

  • Up to 2 times the bond limit in combined net worth
  • Net Quick Ratio of 1:1
  • Minimum Requirement will be CPA complied financial
    statements
  • Debt to equity ratio no greater than 3:1 and profitable 3 out of prior 4 years
  • Credit score of owner of at least 670 and no prior losses to
    surety

With these, bond companies will look for a minimum of $500,000 of equity in liquid assets for domestic TSPs and $1,000,000 for international TSPs.

If the TSP and/or indemnitor do not meet these requirements, then a substandard bond market or complete lack of options could exist.

Substandard bond companies will charge a premium on the bond of as much as 10-15% of the bond value. They will require collateral of property, homes and other non liquid assets of the indemnitor.

Assuming the TSP and/or indemnitor has the equity, the additional limit of these new bonds will cost on average 2-5% of the new and increased additional limit.

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