Lost instrument surety bonds are typically required when a financial certificate is lost or stolen. The reason that financial institutions or transfer agents require lost instrument surety bonds to be posted is because if the original instrument is found, the financial institution or transfer agent wants protection against having to honor the instrument.

Here are a few real-life examples:

Lost stock certificates

Let’s say you were gifted 10 shares of Microsoft stock when you were born in July of 2000. At that time, Microsoft was trading around $40 per share (split adjusted). Your parents stored the stock certificates away for you safely, and then when you graduated college you asked your parents for the certificates so that you can cash in the stock. However, your parents realized that the certificates were in a box that was discarded when they moved several years prior. While the transfer agent will have record of the shares, you will not be able to prove ownership of the shares because the certificates are unable to be found. The first thing you should do after discovering this is to contact the transfer agent and notify them about the loss and ask them to place a “stop transfer”.

The transfer agent will require you to provide an open penalty surety bond in order to get your new stock certificates.  While the value of the gift you received when you were born was around $400, the value of the bond would be for around the amount of the current value of Microsoft Stock. As of July 2022, Microsoft stock currently trades at $250 per share. In this case, you would be looking at a bond with a value of approximately $2,500 (10 shares * $250 per share).The bond penalty will be listed as “10 shares of Microsoft Stock”, the risk associated with the bond will change over time as the stock price of Microsoft fluctuates. The premium that you pay is based on the value of the stock the day the bond is issued.  They require an open penalty bond because the value of the stock will change over time.   If the lost certificates were in fact properly transferred to another individual, you could become liable for the amount when the holder attempts to cash them in. The surety company will underwrite you and provide the bond if you meet the underwriting criteria, but you will be required to sign an indemnity agreement essentially reimbursing the surety for losses incurred.  This bond does not renew and remains in force.  You only pay the premium at the time of issuance.

Lost cashier check

Have you ever been required to provide a cashier’s check? If you have, you know that these types of instruments are drawn against the bank issuing the check, rather than the individual providing the check. If you need a $5,000 cashier check, you will have to give the issuing bank $5,000 (plus any fees) in exchange for the check. Certain retailers or parties might want to be paid with a cashiers check because there is a very limited risk of the check being returned for non-sufficient funds or other reasons.

Let’s say you bring home your $5,000 cashier check and mail it out to pay for an upcoming expense. By the time you go to mail it, you can’t find the check and you have looked everywhere. Maybe your child ripped it up and threw it out or maybe it was accidentally shredded. Either way, you can’t find it and you’ve looked everywhere. After spending hours looking for the check, you return to the issuing bank and ask them to reissue the cashier’s check. The bank manager tells you that they can, but they need a lost instrument bond in case the original turns up and is presented to the bank. In this example, the bond will be for $10,000 which is two times the amount of the original check.  The bond will be in the amount of $10,000 and the value of the lost instrument will not change. This is referred to as fixed-penalty bond.  Like other lost instrument bonds, you only pay the premium once when the bond is issued.

Underwriting Requirements

If you are reading this, you probably need lost an instrument bond and are wondering what underwriting requirements there are for this type of bond.

First and foremost, the surety or agent will ask for an understanding of how the instrument was lost. It is important to have all the facts and circumstances regarding the lost item. The surety will also check your personal credit history and ask that you answer customary underwriting questions. If all the underwriting information checks out, you should be approved for a lost instrument bond. Personal indemnity is required on most lost instrument bonds.

Does Lexington National Underwrite Lost Instrument Bond?

Yes! If you are an agent looking for a market to underwrite lost instrument bonds, please give us a call or reach out using the form below. Lexington National is licensed in all 50 states and the District of Columbia and has significant expertise in underwriting lost instrument bonds.