Our history

Introduction (year 2007)

A few weeks ago I had the opportunity to hold a very pleasant conversation with our president, Dr. Aníbal López. For different reasons, we recalled some past events of our Association which have either gone unnoticed or not been attached much significance, but which have by now become anecdotes or part of our history.

As I have had the privilege of being part of this Association since 1972, Aníbal suggested that I should write about some of these events. I gladly accepted his invitation and proposed that I should talk, in first place, about the initial steps of the Association, including the men who founded it and their contributions in those early years.

Since such a piece of writing could turn out to be rather long, we decided to divide it into short chapters so that our present colleagues will be able to get acquainted with or recall some of the events that gave life and shape to our Association throughout its nearly 35 years of existence.

Let us start, then...

In early 1972, eighteen companies operating in the surety sector, mainly from the American continent, endorsed the Jamaica Charter and committed themselves to working in their respective countries in order to gather their colleagues together.

The companies that met in Jamaica are listed in a number of PASA publications, and the contents of the charter‑which continues to be the guiding principle of our Association‑are already well known to all readers.

On this same occasion it was decided to hold the First Assembly that year and Mexico volunteered to host it. The place selected was the port of Acapulco, and the dates, from Sunday, October 29 to Wednesday, November 1.

The Bay of Acapulco was a wonderful choice. In addition to having luxurious hotels with the required facilities, both the size of the city and its tourist attractions made it the ideal place to hold our first meeting. I should note, however, that due to the growth it has experienced over the past three and a half decades, Acapulco has become a somewhat difficult place, and meetings are now carried out in large hotels, where all the activities are centralized.

What was this first Assembly like? It was both simple and very cordial; with fifty-four delegates and sixteen observers in attendance.

Our first President was Mr. Pascual Gutierrez Roldán; Vice President, Richard A. Hubbard; Treasurer, Antonio P. Lomónaco; and Secretary General, Agustín de Vedia, Jr. The Executive Committee consisted of six members and the Permanent Committees were: Organization and Admission (coordinated by INA Reinsurance Co.); Legal (La Venezolana de Seguros); Finance (Highlands Insurance Co.); and Technical (Compañía Colombiana de Seguros).

One of the opening speeches was delivered by Mr. Pascual Gutierrez Roldán, President of the Managing Board of La Guardiana. It was a friendly address; he gave an overview of our country, described its social and economic aspects, and welcomed the attendants on behalf of the host companies.

From the words of Charles K. Cox, President of the Insurance Company of North America, I remember a phrase: "Many bricks are needed to make a building," making reference to the determined and persistent work undertaken by those eighteen surety companies that endorsed the Jamaica Charter. And he concluded by stating that the path to success consists in modifying our own ideas and complementing them with others in order to grow under the philosophy of excellence.

Finally, Agustín de Vedia summarized the purpose of creating this Association as an institution from which our aims could be made known worldwide: "It is by being aware of such responsibility that we have prepared ourselves to build, within this new scenario, our own technical and commercial capacity to facilitate the effective performance of our duties." He then praised the personal efforts of Richard A. Hubbard, Jack Fitzgerald, and Jaime Encinas, and their unwavering support to the creation of our Association.

The story goes on...

October, Monday 30, 1972. We were in Acapulco at "La Veranda", the restaurant where all the participants had breakfast at 9 a.m., before the sessions started. At that place I met many of the people I will describe in future renderings. Numerous events took place that day; the Executive Committee met in the morning; the first formal general meeting attended by founding, active, and associate members was held in the afternoon. The following appointments were confirmed: Mr. Pascual Gutiérrez Roldán, President; Antonio P. Lomónaco, Treasurer; and Agustín de Vedia, Jr., Secretary General. The statutes were ratified, and active and founding members were presented with scrolls and medals. That first day finished with an informal reception at the same hotel.

The following day, Tuesday 31, after the opening session, the first panel, called "Contractors Consortium," was held. It was coordinated by Pedro Escudero, who for many years was the deputy director of La Guardiana; the panelists were Donald Spickard, Vice President of General Insurance from Seattle, and Jaime Encinas, assistant to the General Director of INA Reinsurance Co. With the above-mentioned subject, our Association started a new practice that has now become a tradition: shared conferences delivered by speakers operating on different markets and who have made extremely valuable contributions.

Curiously enough, the words with which Mr. Spickard started his speech already pointed to a problem to be solved shortly, the issue of policies for large projects which require the participation of several contractors or those that, being so complex, require the participation of several specialists. He explained that the times called for the gathering of a team of contractors so that, through their joined effort, they would carry out large works such as the Hoover Dam. This example led him to talk about the way a surety-underwriter should analyze the responsibility he would undertake: "He knew the contractor, his abilities, his experience, economic capacity, and prestige"; "He had evaluated the members of the potential contractors association and had read the agreement they had signed ..."

The experience gathered from past verbal understandings made it necessary for the careful surety to go through the above-mentioned points before signing. He ended with a statement I still remember: "Many of the contracts, agreements, subcontractors' guarantee policies, and additional detailed information that the surety collects before signing serve no useful purpose when the agreement terms are complied with; the only case they are invaluable is when all that legal framework is required due to the principal's non-compliance; at that moment, they can no longer be gathered. We had better be cautious when the policy is issued, as if it were to be claimed."

Jaime Encinas, in turn, talked about the kind of association the contractors may form. He referred to different successful cases where this kind of association had been implemented to carry out contracts, its advantages, as well as the legal principles applicable in different countries. It should be remembered that in the early 70s, the "joint venture", a legal mechanism that is widely used today and that has rendered significant benefits, was still a long way off throughout the world. It is quite possible that mechanisms may have been created in our Association that helped develop this kind of agreement, a contribution we might have not given its true value yet.

The above speeches had a surprising effect. Mr. Escudero skillfully managed to encourage all attendants to join in the debate and go into further details. Each participant realized that the contributions from colleagues served to find answers to some cases or questions we might have posed ourselves. We certainly welcomed that our similarities in the operations had their counterpart in the other countries represented at the meeting. This made people who had just met that morning get closer; even if we worked daily at distant places, our work was similar in content and possible solutions.
The moderator had to adjourn the meeting because the time allotted to technical discussions had elapsed. We had to get ready for a dinner outside our hotel.

The Mexican surety companies had organized a dinner at "La quebrada," a typical place in Acapulco. It may be unique in the world (probably already known by some of my readers). The place is located almost at the center of this port. It is a cliff about 35 meters high, and cliff divers jump off its highest crag when they see that an incoming wave is going to hit the rocky wall. It is risky and impressive. The show starts when the cliff diver plunges off the crag, swims across the sea and climbs the cliff. On reaching the rock that is on top, he lights two torches and holds them in each of his hands, comes closer to the precipice to assess the speed of the incoming wave and times his amazing dive into the wave crest. The story goes that many years ago, at the end of the 30s, Johnny Weissmuller (the actor who played Tarzan) jumped off and confirmed it was extremely risky.

At that place there is a terrace with a hotel restaurant that used to be very famous. This is why the Mexican sureties chose that particular site to have that first dinner. It goes without saying that we never expected any of our guests, and least of all any of the hosts, to imitate the cliff divers.

So we had the opportunity of watching many shows of these world-famous and daring locals, who are still putting on this particular and famous show. The dinner was a success.

I will finish this second part of my story by commenting that when we came back to our hotel, Mr. Ignacio Gómez Urquiza‑whom I will be talking about in detail in future renderings‑kindly invited us, who had already stayed up too late or I would rather say survived, to a famous private club, "Armando´s le Club," which was very close to the hotel.

The wealthy owners of Acapulco's houses used to go to this classy and exclusive place. They met there after dinner and used to share the evening with their guests. It was the first posh disco at the port. On arriving we noticed that "Nacho," as we used to call him, was not only well known, but also seemed to own some square meters of the club. "Don Nacho," said the waiter at the door, "please come in with your guests"; "Captain don Nachito, it is good to see you, how many people are going to be at 'your' table today?" At that typically noisy place he greeted many people and introduced us to the owner. We stayed there for quite a while. Nacho seemed to have just got up in the morning. He was tireless.

One by one we said goodbye to our host. When I got to the hotel, I realized it was almost 5 a.m., in a few more hours the second seminar would start. It had been a long day, we had been active for 22 hours.

PASA I General Assembly continues to stir memories.

And November 1st, 1972, finally came, a day with no fewer activities than we had had the previous days. The academic issues to be addressed would be innovative and interesting; the social aspect would be represented by our farewell dinner. I think this narrative will be much more interesting if I refer to the subjects discussed in the panels for they are still topical.

The second panel, "Counterguarantees," started at 09:30 a.m. and was conducted by William French, vice president of American Re. Co. The lecturers were Arturo Brillembourg, president of La Venezolana de Seguros; Mario Granai, general manager of Grani & Townson; and Firmino Whitaker, general director of São Paulo Cía. General de Seguros, all of them founders of the Association.

It would be too long to detail each of the excellent presentations made by the four lecturers. So, I will try to summarize them, noting especially, however, that their contributions produced far-reaching effects on the development of the surety companies and, as you surely know, these subjects are a part of our daily activities.

First, if we start from the concept that counterguarantees or indemnity agreements are a means to protect our entities from possible financial losses arising from surety bond claims, it is essential that, before considering their advantages, we evaluate the obligation to be guaranteed and ascertain the technical, financial and moral capacity of the potential principal. Then, our first conclusion was, "issuance shall not be based on the counterguarantee; first we have to evaluate which the responsibility of the surety company should be if the surety bond is underwritten."

In theory, the surety company grants the principal a guarantee‑in consideration of the payment of a premium‑so that the principal can comply with his contractual commitment. On the other hand, the principal shall provide the surety company with evidence of his capacity to perform the obligation.

He also has to prove solvency‑his own solvency or a third-party guarantee‑so that, in case of nonperformance, the surety company will have the necessary liquidity available to pay the beneficiary. Second conclusion, "any type of guarantee does not turn a bad case into a good one, and much less a high premium."

Each lecturer detailed the wide variety of guarantees that the professional surety may provide, pointing out those that‑according to their own experience‑are more effective. The legal instrument allows for the acceptance of a third-party obligee, then, although the principal may not have the financial capacity to cancel the surety bond amount, the third party commits itself to do it. Under these obligations to do, it is essential to show the capacity to perform the obligation, as well as moral solvency. Third conclusion, "the principal's record in a surety company is extremely important."

An instrument known in Mexico as "afectación en garantía" (lien), which has been regulated by the Surety Companies Federal Law, was given as an example. The characteristic of this type of instrument is that once registered in the Public Registry of Property and Commerce, the surety company has a lien on the property up to the cancellation of the guarantee.

The last lecture of this panel dealt with guarantees based on the applicant's or principal's solvency. Large contractors, multinational companies, companies listed in the stock exchanges or just qualified companies required‑and continue to require‑surety bonds to guarantee several types of obligations. They did not grant‑and do not grant today‑guarantees exceeding their own solvency, as they have the necessary economic capacity to meet their obligation to the surety company in case of nonperformance. Fourth conclusion, "it is convenient to fix an underwriting limit and consider the possibility of creating a registry of obligations in force for large users." This last conclusion reminds me that some years ago we had high and repeated claims from clients that we thought were quite solvent. However, today we are well acquainted with those cases, and we realize that all forecasts become real when rules are not complied with.

Coming back to the panel, the reduced number of attendants allowed us to frequently participate in the debate, making it more interesting. We all had the same problems and doubts, and hence we wanted to know each other's experiences. Although we were aware of a certain progress, new and complex solutions came up. However, time was running out and we had to start the next panel, so decided we would discuss this subject again shortly.

William Fettis, vice president of Seaboard Surety Co., and Grant W. Laycock, manager of the Canadian Indemnity Co., were the ones in charge of conducting the third panel "Rates and Rating Structures." Each lecturer based his presentation on how a surety bond contract is entered into in their respective countries when public works are involved. William mentioned the first law on the subject sanctioned in the United States of America (1894) and the subsequent Miller Act, and pointed out the relationship between percentages collected and the guaranteed amounts. Grant, on the other hand, explained the federal license of the Canadian government to grant the operating license established by the Canadian and British Insurance Companies Law.

One of the most interesting subjects was competence with banks due to the costs of the bank guarantees. The differences between both types of entities were explained, as well as the advantages of surety bonds over letters of credit. As this subject will be discussed in a future article‑because it was referred to in several presentations‑I will not develop it further now.

The last presentation of that morning, "Insurance and surety bonds, analysis and main differences," was given by Mr. Pedro Escudero, deputy director of La Guardiana, Compañía General de Fianzas. This short lecture was especially relevant, since most of the companies participating in the Assembly had the possibility to issue surety bonds as miscellaneous indemnity bonds. Then, Pedro began by detailing the main characteristics of each contract from the legal, technical, operating and commercial standpoints. The terms used in our agreements for both operations have been confusing from the very beginning. However, three aspects suffice to establish the differences: a) Surety bonds cover a responsibility; insurance, a risk (technical); b) Surety bonds are bought; insurance is sold (commercial); c) Legal obligations vary according to the contracting parties.

The time allotted to the presentations had elapsed. In my opinion, that morning of November 1st, 1972, set the guidelines we have followed since then to submit papers and organize our events along the thirty-five years of life of our dear PASA. Throughout PASA's life many questions have been posed: we answered some of them, other answers came with time. Likewise, we have had both successful and not so successful experiences.

As I anticipated at the beginning, from the experience gained that day the analysis of the technical aspects is worth mentioning. A good and careful underwriting, as an essential element, together with the counterguarantee and the monitoring of the principal's contract performance help us achieve successful operations. In a few words, less volume and more quality are better, because success is not measured by sales but by results. There was also a reference to the importance of pricing the service rendered because the company has to consolidate its reserves. Possibly, the companies will try to find a good actuarial formula to increase their reserves. However, any collection for a business that has had a bad underwriting process will not be enough to cover the loss it may generate. The surety company has to control the quality of the principal. Clients are the reflection of the company and are crucial in keeping a business running; it is therefore essential to know them well. On the other hand, all of us have reinsurers that rely on our daily underwriting. If we duly appreciate the significance of reinsurers, we can always count on their support. That day we discussed these subjects which are still valid today.

I will end my story of the last day of our first Assembly with a comment on the gala dinner, which required black tie (I think that never in Acapulco has an event been‑and will never be‑attended in such attire). The event that would mark the beginning of a friendship with all colleagues from different parts of the world ended on the top floor of the Hyatt Hotel, with a scenic view of the bay. Although most attendees had not met before, we agreed to meet a short time later in Venezuela. I should also say that late at night we took off our coats and black ties and once again went with Nacho to say farewell to his already famous discotheque, Armando's.

PASA's II General Assembly was going to be held.

The months that went by between November 1972 and January 1974 proved fruitful. The small candle lit in Jamaica had built in intensity and the first results became evident in Acapulco. During such time the relationships between surety companies in the continent had increased, and many European and Asian counterparts, who had joined us as guest participants in our first General Assembly, would soon become members.

The telex machine (a short-lived machine that soon became a museum item) was our fast means of communication. Long letters, typed on mechanical typewriters or on the new electric ones, containing questions and answers were sent by the Secretariat. We sometimes had long-distance calls between fixed telephones (just think that today we have to ask "where are you?" when someone calls!).

The II General Assembly was being organized. It would be held in Macuto, Venezuela, from Sunday, January 20 to Wednesday, January 23, 1974, and hosted by Arauca, Cía. Anónima de Seguros y Reaseguros; Ávila, Cía. Anónima de Seguros; C. A. American International; General de Seguros y Reaseguros; Horizonte C.A. de Seguros; La Seguridad; La Venezolana de Seguros, C.A.; and Seguros Caracas, Compañía Anónima Venezolana. All of them participated in the Organizing Committee which devoted so much care and endeavor to prepare the program of activities under the guidance of the late Dr. Arturo Brillembourg, and with the assistance of Nieves Duque, Gustavo Massiani, Gustavo Rojas, Antonio Luque, Luis Álvarez, Ricardo Echeverría, and other good friends whose names now slip my mind.

We were looking forward to arriving in La Guaira, staying in Caraballeda and traveling in the cable car to Caracas‑a great adventure! Although the social events were eagerly awaited, the academic subjects raised even more expectations and there was a good number of them. Activities started off on Sunday 20, with an excellent cocktail party given by La Venezolana de Seguros (Arturo's company). The Executive Committee and the Permanent Committees had previously held their respective meetings.

Some of us had already met, others were new acquaintances, but we all promptly became old friends. Two persons I will refer to on future occasions came to this event: Dr. Carlos Dupont and his wife, Cristina, who attended the Assembly on behalf of Aseguradora de Créditos y Garantías, from Buenos Aires.

The Assembly venue was great: although it was some kilometers away from Caracas‑at a distance which made it possible for us to visit the Venezuelan capital city on many occasions‑, it provided a suitable environment for our working, social and sports meetings.

I will talk later about the anecdotes which, same as in Acapulco, were many, and will now go through the very important working subjects dealt with.

The opening ceremony started with a speech delivered by Dr. Brillembourg. His message was the prelude to and an overview of what we would be reviewing during those three days; in the course of almost eighteen months, the concept of surety bond in its specific guarantee contract form had been developed to be used in international investment operations.

Dr. Héctor Hernández Carabaño, Minister of Development in Venezuela, attended the opening ceremony on behalf of the President of the Republic. In his speech he referred to the interdependence of countries and to the need for them to achieve common goals and keep their problems and solutions in mind, while maintaining their own sovereignty and traditions. He also mentioned the way in which guarantees issued by the private sector would boost the economy. He ended by quoting a phrase from the speech given by Simón Bolívar in Angostura, in connection with the effort the public and private sectors should make jointly: "The best form of government is that which results in the highest possible degree of happiness, the best social security and the highest political stability."

For his part, Dr. Agustín de Vedia Jr., who at the time acted as general secretary of the Association, detailed the topics we would be discussing: counter-guarantees, rating structures, fronting agreements, avals for credit bonds, and credit insurance in Spain. He also announced the incorporation of 23 new active members, which brought the number of member companies of the Association to 63, with 18 countries being represented.

At this Assembly Eng. Pascual Gutiérrez Roldán would leave the position of president of the Association to Mr. Richard A. Hubbard. They both made warm and touching comments about the events that took place during this first term, as well as about the future projects of the Association under the incoming president.

Mr. Freeborn G. Jewett, Jr., General Counsel of the Inter-American Development Bank, was a guest lecturer. In the first part of his impressive speech, he described the development of the Institution he belonged to and the activities carried out in different countries. Mr. Jewett then referred to the relationship between the Bank and surety companies, and detailed the incentives granted to guaranteed projects and the different contract phases.

At the end of that morning Dr. José Antonio Mayobre, former minister of economy and Central Bank advisor, spoke about monetary regulations.

Continuing with our II General Assembly...

Let me pick up the thread now with the meeting we held in Venezuela back in 1974. In my previous article I mentioned that our Association's II General Assembly was characterized for providing the framework for detailed presentations about our technical operation. These were accompanied with research related to the prevailing legislation in the various countries that made up the recently created PASA. The matter of credit insurance in the Spanish market was also presented at this forum, an issue that I will come back to in future chapters. During its first year our Association had compiled a vast amount of working material, which constituted a solid base for its future development.

Given the importance of the historic experience of the "crisis of the Venezuelan avals," the article focuses on this topic only. Doctor Arturo Brillembourg, who sat on the Wednesday, January 23 panel along with Eduardo Wallis and Carlos G. Rancel, made an excellent presentation of the case. The 90-minute long session‑conducted in the manner of business schools‑proved entirely too short for his dissertation. It was followed up with a question period. Even though many questions went unanswered due to lack of time, this event led to the structuring of presentations of real cases that could serve for reflection and experience.

In 1958 the Venezuelan market was made up of 77 insurance companies, of which 39 were national and 28 were foreign. They operated along the traditional lines of life and property damage insurance. Credit bond (fianza de crédito) was included in the latter. After the crisis in 1966, only 45 companies, 27 national and 16 foreign, were left standing. I will now illustrate what happened during this period. In early 1959, the country underwent a recession that crushed economic activity and, as a result, the global demand for services. This crisis had its costs: canceled life insurance policies and loans on them.
Consequently, the industry's income and reserves diminished. At any rate, the losses continued to rise. Operating costs also grew. Even though the credit bonds in course were secured by real estate, their value dropped to approximately 70 per cent. The beneficiaries were divided into two groups: on the one side, a large percentage of banks and financial institutions; on the other, foreign creditors. In 1960 vast sums had already been paid out, but the payment of reinsurance to major reinsurance companies was still pending.

Most of these credit bonds had been issued to guarantee the construction companies the funds received, and the beneficiaries were public and private institutions. The work was financed through commercial papers that were placed on the domestic and international markets, with the guarantee of this aval of the insurer. Obligations were contingent and for a very short term. The advance payment bonds and performance bonds had not been included.

As Don Arturo says: "…The changes in monetary movement that had been induced by the adverse results of the balance of payments in 1958, and the short-term nature of the instruments that were guaranteed, in the hands of Venezuelan and foreign creditors, produced an almost dramatic strain amongst the Venezuelan insurers. Despite the excellent condition of the country's industry in early 1960, the prevailing state of illiquidity and the drop in the industry's liquid assets merely worsened the crisis …".

He continues, "…The political changes in the country brought to an end the interdependence that had developed among the large contractors. […] Projects previously prepared were abandoned‑with expenses on those contractors‑and contracts stopped being tendered to these same firms, which were heavily insured, giving rise to a chain of bankruptcies and breaches of contract. […] The national banks fell back on the guarantees that had been issued; impacting on the international market […] The crisis was thus a crisis of organization heightened by excessive competition in the bonanza years."
The crisis lasted practically all of 1960, following conversations between the beneficiaries and the Chamber of Insurance Companies, which, in turn, met with the reinsurers to discuss possible solutions. One alternative was to issue bonds with the backing of guarantees in the hands of the insurers. Another was to create firms that would liquidate the assets. The second option was chosen, with the renewal or extension of those avals which were more likely to be collected.

The insurance industry was severely affected by the crisis as it had impacted on its liquidity and deteriorated its profitability. Nevertheless, the companies learned a lesson: although the causes were external, their own structures were weak and they had written risks with an inappropriate technique. At any rate, the reinsurers behaved well. They waited patiently for the payment of the guarantees, and over time, recovered the losses they had paid.

I have referred to the words of the speakers in this article for I wished to transmit the feeling of anguish that our colleagues experienced years ago. There is no doubt that some overly tempting "business" lands on our desks everyday; however, on analysis we find that we would be underwriting a term payment. The surety bond acts as a legal instrument to guarantee, not as payment. The creativity born out of anguish leads us to implement commercial practices that prove disastrous in the short or long run. We direct underwriters should not forget that we have partners who, through their reinsurance treaties, have put their trust in us. That is why we should follow the Italian saying: "He who goes slowly goes far."

Moving on to the II General Assembly...

In my last article, I mentioned the masterly conference given by the late Dr. Arturo Brillembourg, but did not comment on the social atmosphere nor the subjects that would be discussed and the committees that had already started their work. For me, this General Assembly allowed us to meet the expectations we all had to learn about how the guarantee system operated in many countries around the world. Jamaica was the place where the Association was formed, Acapulco the place where we were full of expectations, and Caracas the city where the first results were shown, as I will tell you later. Seventy-three representatives from 15 countries attended this General Assembly, as well as 20 invited observers from 15 new companies, which led to the incorporation of companies from other continents. The Permanent Committees (Finance, Juridical, Publicity, Claims and Arbitration, and Technical) grew in number of members and their respective responsibilities were determined.
I will first comment on the prelude to the technical aspects discussed by Mr. Freeborn G. Jewett, Jr., who had been invited by Mr. Richard Hubbard. As a member of the Inter-American Development Bank Board of Governors, he talked about the importance his institution attached to the guarantee business for investment projects. The IDB had been founded a few years before (1959) with the purpose of supporting infrastructure projects underway in Latin American countries. At that time, it already had 23 members, and during the previous year it had financed a large number of investment projects amounting to hundreds of million dollars; it was rather similar to the World Bank and they complemented each other in their activities. For our commercial purposes he gave us a detailed account of how they encouraged the issuance of the guarantees required to grant the loans; starting with the bid bonds, and once the loan had been granted, followed by advance payment and performance bonds in favor of the country contracting the works. We are now well aware of this, but it was from then on that we started to consider two subjects that were to become very important in a short time (although today they are common practice): contractor joint ventures and their guarantees or collaterals, as well as the likelihood of inflation. I will talk about them in future chapters.

The Technical Committee was headed by Luciano Herrera and William French, who gathered information about the legal requirements for the guarantee business by analyzing the existing situation in 15 countries, including Canada with two legal systems‑one for the east and another for the west part of the country‑and Puerto Rico's with other US states. Only Mexico and Guatemala had separate different laws for the Surety and Insurance sectors, and we all had control authorities. The survey, which consisted of more than 30 questions, led us to consider that it would be suitable for this committee to include the new members in the survey so that the operation could be standardized in certain subjects, especially issuance requirements and costs.

The subject of counterguarantees was presented by Messrs. Pedro Escudero and John B. Fitzgerald. Pedro was one of the promoters of surety bonds in Mexico. In La Guardiana, where he was the Director (and Mr. Ignacio Gómez Urquiza, the General Director), he was the first to develop technical issuance, supported by guarantees and based on the principals' experience, as well as on accurate knowledge about their economic and moral standing. Jack, for his part, made a thorough analysis of the characteristics a good underwriting should have and, relying on his wide knowledge and expertise from his long career at INA Reinsurance Company, he gave a speech that taught me a great deal. He said "every bond entails an option, you either do it in a routine or a special way, but the excellence in its acceptance, which makes a business successful and different from others, comes from clear judgement, expertise and skills […] a thorough analysis of the documentation is an accurate barometer of our technology. […].counterguarantees are support tools that will protect our business." I would add that the follow-up of the guaranteed obligation is instrumental in preventing an eventual claim.

Our good friend Mario Granai, Jr. presented an interesting paper on rates analysis; he broke them down into the different types of guarantees we underwrite (fidelity, judicial and administrative). He focused mainly on the Guatemalan market, but he also included two Central American countries, El Salvador and Nicaragua. Mr. Ignacio Gómez Urquiza also addressed this subject by presenting a comparative study on the systems and principles that govern rates in different countries such as Mexico, Argentina, Bolivia, Brazil, Chile, Ecuador, Paraguay and Peru.

Finally, our good friend Curtis B. Roberts, from Highlands Insurance Co., based in Houston, Texas, made a detailed analysis of fronting agreements. In a way, we became aware of the agreements we would soon have to enter into to cover our contractors' operations in different countries (where they would not have any guarantees) as well as of the need for a local surety to issue bonds relying on another surety's support, or bonds in different countries. He pointed out that whereas contractors had overcome the problem of international associations by means of joint ventures, we had not yet developed a legal tool to allow the issuance of bonds with combined counterguarantees. As a first step, he recommended reviewing issuance procedures, wordings, periods, payment systems, taxes, and claim communication agreements.

At the beginning of this article l pointed out the significance this General Assembly had for our Association. It was back then that we became conscious of subjects that are nowadays of utmost importance, and it was thanks to each of these people who had that vision that general or specific procedures have been implemented to develop surety bonds worldwide.

Sharing further memories of PASA's II General Assembly, held in Venezuela in 1974.

Our stay in Caraballeda was coming to an end. The time from Saturday to Wednesday had flown past, meeting new colleagues, visiting Caracas (either by cable car or by a smooth road through an impressive tunnel), walking along the pebbly beach, playing golf in the "great" small golf club; well, short days and long nights at places I don't know how Ignacio Gómez Urquiza had discovered. So this time I'll refer to some familiar figures rather than to the academic activities and social events. Each of them left his imprints on the Association.

At this Assembly, the term of office of Engineer Pascual Gutierrez Roldán expired. The Nomination Committee proposed the election of Mr. Richard A. Hubbard to succeed him as president. Dick, as we warmly called him, was in charge of the Insurance Company of North America, lived in Philadelphia and had been an excellent surety for a long time. He said that it was Dr. Agustín de Vedia who had the brilliant idea of setting up the Association and that Jack B. Fitzgerald‑a high officer in the same company as Dick's‑promptly accepted this proposal.

In his inauguration speech, Dick said he was highly honored to take on this position and responsibility, and that he expected this newly born institution would soon consolidate. He actually met his commitment. During his presidency, as we'll see later in future chapters, he incorporated important members, raised the number of Committee studies, and traveled to different countries to know how local business was evolving and get in touch with the authorities. He also carried out a full program of activities that led to the Third Assembly in Tarpon Spring, Florida. He was a baseball fan; Philadelphia was, of course, his team. So if on some occasion we had a meeting and there was a baseball game, Dick just left to see it. This happened a year later: we were concluding the Third Assembly in October (when the baseball season ends) and the World Series was being played. An early dinner would be served, and just before it, two persons left unnoticed, one was Dick and the other was me. What a game it was!

Dr. Arturo Brillembourg, President of La Venezolana de Seguros, was proposed as Vice President. As I've already said, he was the President of the Organization Committee for this second event. Arturo, who had also attended the Assembly in Jamaica, where the Association was formed, was a proactive man. He led a versatile and intense life: he was a well-known politician, a distinguished professional, a successful businessman, and passed on his experience to anyone who worked with him. On that occasion he and Clarita, his wife, saw that everyone was comfortable. Everything at the Assembly was perfectly organized. As a result, this event was a great success and therefore a new drive for, in Dick's words, "the newly-born association."

We can tell countless anecdotes about Arturo. He was always on time for all his activities and his reactions were unpredictable: at a meeting we could be discussing an unimportant subject but he would turn it into a key issue and have the subject dealt with for an indefinite time. However, his reflections were extremely useful and always showed his broad experience. He led an active life. He was always traveling, not only because of his bank or insurance businesses, but also because of his talent as an expert hunter. His range of subjects was eclectic: he spoke about his adventures in Africa, Asia or America, about what he did on his ranch or in his Board meetings, or about the "Ron Pampero" (rum of the Pampas) he used to make. He was generous and at the same time very careful about small expenses in every organization. He always noted and indicated what wasn't strictly necessary.

At that time, the Association's Secretariat was in charge of the man who first thought of PASA, the driving force behind its formation, and who liked to see how this little tree started to grow, Dr. Agustín de Vedia, Jr. Those of us who had the pleasure of knowing him value him not only as the architect who planned the Association's setup, but also as a master in every sense of the word. Accurate in his speech, unbiased in his reflections, sure about the conclusions, Dr. de Vedia has led a successful professional life since he's known worldwide in the insurance and surety bond industry. At that time he provided the required know-how so that the newly born Association could start to operate. He, together with the persons I've mentioned before, was the driving force that made PASA known worldwide in the small and big world of surety bonds. I'd also like to mention Inés, whom I met in our First Assembly in Acapulco and immediately proved indispensable at the meetings.

This second meeting was also attended by special guests, who had shown their interest to participate. It is worth mentioning that although the Association was originally thought as "Pan-American," company representatives from Belgium, Spain (which presented the first paper on Credit Insurance), England, Italy, Japan, Sweden and Switzerland also attended this meeting. New companies from the American continent also joined.

I'll finish this new chapter of the series "Let's Talk History" by remembering young Dr. Carlos Dupont, a special character who attended as representative of Aseguradora de Créditos y Garantías from Argentina.

On this occasion, I will leave aside the following Assembly (in the USA) to focus on the Association's Executive Committee Meeting (as far as I remember, the first meeting that was held separately from those carried out within the framework of Assemblies or Seminars).

When we left from Venezuela, the Association had taken shape: PASA had been formally organized and the working plans of the Permanent Committees (Juridical, Technical, Finance, Claims and Arbitration, and Public Relations) had been defined. Thanks to the constant communication among its members, an effective and permanent relation had been cemented. The admission of companies who had attended previous events as observers was promoted in every country. The benefits and success of the first meetings were commented to other countries, and this resulted in the incorporation of new members. The newly-born Association was beginning to bear fruit. That is why farewell to Caraballeda was in fact "see you soon."

A few months later, our President, Dr. Arturo Brillembourg (La Venezolana de Seguros) called an Executive Committee meeting to be held at the place selected by the Organizing Committee to hold the III Assembly: Tarpon Springs, Florida. The meeting was scheduled for the third week of January, 1975. Even though I was not an Executive Committee member, I was invited to join the meeting because, in addition to being responsible for the Technical Committee, I had been selected to present‑together with Robert Schmitt (Continental Insurance Co.)‑a paper on fidelity which I will refer to in a future chapter.

Tarpon Springs is a very small place, very close to Tampa, on the west Florida coast, in the Gulf of Mexico. This community offers splendid places for retired people and, of course, fantastic golf courses. The resort's name was Innsbruck and had opened recently. It had a central building with restaurants and conference rooms with excellent facilities. Rooms overlooked the golf course. Although the previous sites (Acapulco and Caraballeda) had been a perfect choice, this one was not far behind, since we had the possibility to combine work and sports. We had found out that many of our delegates were frequent golf players (some of them very good ones, others only enthusiastic, not to say "bad"). As from this event, we have never missed the chance of playing golf during our meetings, as I will recount in due time.

The full Executive Committee, presided over by Dr. Brillembourg, was present. The First Vice President was Luciano Herrera (Colombiana de Seguros), and the Second Vice President, William J. French (American Insurance Co.), who also presided over the Organizing Committee. Ignacio Gómez Urquiza (La Guardiana) was the Treasurer, and Agustín de Vedia (Jr.) (Aseguradores de Cauciones) was the Secretary General. There were also sixteen Executive Committee members and, as invited guests, the Presidents of the Permanent Committees.

The meeting took two full working days: in the morning we discussed the subjects and, if there was any time left, in the afternoon we walked along the fairways. The members had noticed that some issues related to surety bonds/guarantees (as the contract was known in different parts of the world) aroused interest. However, one of the main purposes of the Association was precisely to review the valuable experience acquired in different regions of the world, foster awareness of this old accessory contract and update it through specialization.

That is why we focused on reviewing all the operation, based on that of guarantees, from the moment of issuance and the follow-up of the fulfillment of the obligation, and on defining the different types of surety bonds (fidelity, judicial, administrative, credit). Credit insurance was also discussed. It took us a good time to analyze fronting operations and their peculiar contracting features. The Organization Committee submitted the provisional program of the III Assembly. Subjects and seminars were reviewed as well as the social program, and the opening date was defined: Sunday, October 12, 1975. The Executive Committee declared the meeting closed after approving the admission of members and discussing the financial subjects.

Several meetings of this type have been held in between Seminars and Assemblies, and they have undoubtedly contributed significantly to our Association.

III General Assembly - Tarpon Springs, Florida, October 1975

The day came. Most delegates arrived in the afternoon of Saturday, October 11, because several meetings would be held on Sunday: the Executive Committee's where the Nomination Committee would be appointed, the Organization Committee's and Permanent Committees'. The Juridical Committee would focus on amending the statutes; the Technical Committee, on preparing the report on the activities; the Finance Committee, on preparing the budget; and the Claims and Arbitration Committee as well as the Public Relations Committee, on reviewing their working plans. We finally had a meeting with the seminar leaders. The seminars would be held in small groups at different times, so the leaders would have to repeat their presentations on three occasions. Taking into account that we would be finishing at 01:00 p.m. and the welcome dinner would be at 07:00 p.m., there was enough time to play our first golf round. Innsbruck was a superb resort, with three 9-hole golf courses. In addition, the proximity of the rooms, which were along the golf course, allowed us to be in time for all the events.

The organization of this Assembly was presided over by Mr. William J. French (American Insurance Co.) and obviously supported by all the group of US companies: General Reinsurance Corp., Insurance Company of North America, North American Reinsurance Corp., Safeco Insurance Co., St. Paul Fire & Marine, Seaboard Surety Co, Skandia Insurance Co. and The Continental Insurance Companies. The program was highly attractive as it would allow us to be in knowledge of the financial position of the companies that, due to several reasons, had had a poor performance in 1974, and went on that path in 1975. At the same time, the aspects of the incipient inflation in specific regions and the underwriting process under those circumstances were subjects we were interested in. I should say that the accompanying persons' program was limited only to social aspects and that all events were held exclusively inside the resort; this was quite positive as I will tell you later.

On Monday 13, at 09:00 a.m., the General Assembly was formally opened after the welcome speeches of the President of the Organization Committee, William J. French, and the President of the Association, Dr. Arturo Brillembourg, and after the report submitted by the Secretary General, Dr. Agustín de Vedia, Jr. There followed a remarkable presentation by Mr. Richard E. Bangert, President of the Pacific National Bank, who had first been a banker, then an acknowledged surety and by that time was the top officer of his bank. He started his presentation by explaining the similarities between both financial businesses (credit and suretyship), as well as the dissimilarities of insurance and suretyship (risk and responsibility). The core part of his presentation focused on the policies he had established to request the surety officer to be closer to the principal, so as to know him and visit him together with the agent in order to follow up the development of the surety contract. This would allow the identification of any problem that may arise from a possible default well in advance; he told us that this simple procedure had allowed a noticeable reduction of claims and that his company had obtained better results. As I have told you before, during 1974 and 1975 the financial operating results plunged, so he made a short review of the procedures that, in his opinion, had contributed to such poor results, which are summarized below.

More than thirty-three years have passed from Mr. Bangert's presentation and after analyzing the items he mentioned, it can be seen that we still have the same stumbling blocks. He said that losses do not appear when contracts are defaulted; rather, they arise from an inadequately assessed underwriting process or from the lack of full data about the principal and his guarantors. The lack of technical skill becomes evident when credits or responsibilities that are above payment capacity are approved.

On the other hand, the income factor ranks higher than sensible criteria in the underwriting analysis or credit granting. Also, sureties tend to believe that another competitor will grab the business. There is a growing need not to offend the "client" or the agent by saying "no." There is no follow-up of the credits granted or the underwriting taken. Currently, we see new companies in trouble, not only in a country, in a region, in a continent. The effects of negative globalization have reached and affected everyone in different ways. For some players they will be reflected only in valuations which will be eventually recovered; for others, they will be losses. Nevertheless, it is still early to count these effects.

Mr. Bangert's conclusion seemed quite correct to me. For the company to avoid all these troubles it is important to hire personnel who have the know-how and who work responsibly and skillfully, with a view to the future. This can be achieved if we are always updated and alert to the environment, and anticipate the difficulties that may lie ahead.

That morning we had many more presentations. I think that Mr. Bangert's concepts deserve some further thought and, if we deem them convenient, it would be good to incorporate them into our daily work as a set purpose for this new year.

III General Assembly - Tarpon Springs, Florida, October 1975

Let's go back to Tarpon Springs, Monday, 13 October 1975. I finished my previous article describing the lecture given by the prestigious banker Richard E. Bangert, a former officer of a large surety company. Back then he told us about the similarities between surety bond issuance and consumer loans portfolio operations (at that time banks had committed USD 9 billion to this type of risk). He told us about the experience they had recently had when they deviated from the principles that should govern the underwriting of obligations or the granting of loans. He talked about incomplete prior information, underwriter or analyst's incompetence, eagerness for profits, competition, lack of guarantees, over-lending or issuing guarantees beyond capacity, poor risk selection, among other causes. Thirty-five years have gone by since that talk, and in these years we have gone through critical periods. It is worth reflecting now on whether these cyclical causes can be avoided by adopting very simple and basic preventive policies.

At that time, the Association had five permanent committees‑Juridical, Technical, Finance, Claims and Arbitration, and Public Relations. One of them, the Claims and Arbitration Committee, submitted an interesting paper based on a survey on the handling of claims arising from nonperformance of construction contracts. Donald E. Spickard and Rogelio Garza Barrera presented this paper that was and is still useful in listing the factors that should be considered when the event occurs. The information was supplied by each company indicating the percentage that the surety bond amount represented in respect of the value of the works contract, which determined the way of handling claims, including subrogation of insurer. Their presentation was very dynamic, and this encouraged participation and raised new topics for discussion in future lectures and panels.

Our first working day ended at about 5 p.m., so some of us had time for a 9-hole golf game before attending the social events of that evening. The good thing was that the meeting was held at that wonderful resort where one of its courses has been selected to hold the annual event of the Professional Golfers' Association of America. That evening the barbecue was excellent, thanks to the weather and the beautiful setting. And this is how a day of intense activity concluded. The program for the following Tuesday and Wednesday prevented us from staying up late.
Three seminars had been scheduled for Tuesday, and we had to choose which one to attend. In my case I had no choice as I was a co-speaker in one of them. The seminars were held in three separate rooms. The first one, on indemnity agreements and fronting systems, was given by Ronald A. Koseluk and Mario Granai. The second, on guarantee underwriting practice, was delivered by John B. Fitzgerald and Luciano Herrera. The third, on fidelity and related dishonest acts, was given by Robert W. Schmitt and myself. I cannot give a detailed account of the first two, so I will only mention the summary made by the panelists at the closing session.

Robert and I also based our presentation on a survey which had been sent to all members some months before. We included this information in our presentation and valuable participations from a good number of attendees ensued. Unfortunately the time allocated was not enough, but gave us the opportunity to schedule further presentations that would have to be analyzed first by the Technical Committee.

Fidelity bonds are a kind of "preventive medicine," as Bob said, a thought shared by beneficiary companies that used them to avoid possible losses caused by dishonest acts by their employees. And once the dishonest act has been proved, the surety covers property damage while trying to recover the sum paid. It should be noted that before issuing a fidelity bond, the control systems are analyzed by the surety in order to assess the risk. From the information supplied by one of the countries we learned that they had a list of convictions for this type of crime so that employers could check criminal records for the names of the employees they wanted to be bonded.