Surety Alternative To The Mining Industry

While surety capacity for the mining industry continues to shrink, States are demanding greater financial certainty for closure/post closure obligations. To combat these demands, larger mining companies are pursuing a Mining Surety Reinsurance Program that requires a significant up front capital contribution. This paper outlines an alter-native program for middle market mining organizations. The program utilizes a “Blended Finite Risk” environmental insurance solution with surety acting as the “front” in states where insurance is not an acceptable form of collateral. Marsh proposes creating separate programs for each State requiring surety. The reason for separate programs stems from each states’ different surety rules. Insurance companies typically require at least $5 million in future value remediation liabilities for finite risk programs. Since most middle market mining companies have obligations that fall below this threshold, the Blended Finite Risk Program contemplates combining several companies closure/post closure liabilities to accomplish the minimum amount required by the insurance company. Why use a Blended Finite Risk Program? One of the primary benefits is the financial assurance that funds will be available for planned remediation. For example, the financial assurance may be required by a government agency. The certainty may help facilitate a merger or acquisition. Additionally, the funds may be part of a CER-CLA PRP settlement. In all cases, the insurer providing coverage would be a secure independent 3rd party. A Blended Finite Risk Program also provides a long-term solution – up to 30 years and in some select cases longer. The benefit to a state or the BLM is the removal of financial uncertainty. An insurance company writing the policy would have an AA or AAA balance sheet. The hardening of surety markets coupled with the tightening of financial assurance requirements in many states have necessitated the posting of 100% collateral. This program substantially reduces these collateral requirements.