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Guarantee insurance

Your customers may ask your company for collateral or guarantees to ensure that you meet your obligations under the contract. The most commonly used collateral is bank guarantees. Typical users of guarantees are construction companies and various manufacturers of capital goods.

One viable alternative to bank guarantees is guarantee insurance. It is a financial instrument in which an insurance company guarantees to a third party (subscriber, beneficiary), on behalf of its customer, the performance of the contract between them. It is a written commitment that guarantees the other party of the original contract financial compensation from the insurance company if the obligations under the contract are not performed in accordance with the contract. In practice, guarantee insurance is equivalent to a bank guarantee, but in this case the guarantee is not provided by the bank but by the insurance company. Other term that is also used when talking about guarantee insurance is surety bonds.

 

Why and when should I consider guarantee insurance instead of bank guarantees?

The first condition is that the beneficiary does not require a bank guarantee in the contract. Already during the negotiations, it is worthwhile to ensure that the guarantee insurance can be taken. If a company takes out a bank guarantee limit or replaces an insurance company guarantee limit, the bank limit is released for other (better) purposes, such as financing growth investments. In some cases, insurance can also cover letters of credit. Today, the pricing of insurance companies is very competitive. In general, insurers do not require counter-collateral either, they can be saved on other needs.

Guarantee insurers usually act in the same way as banks, ie grant a guarantee limit to their clients, from which individual guarantees can be written quickly and flexibly. The granting of the limit is based on an analysis of the company's financial position and future prospects. The guarantee needs impact also on pricing.

 

Typical guarantees provided by insurance companies include:

  • Construction and maintenance bonds
  • Performance bonds
  • Advance payment bonds
  • Payment bonds
  • Customs bonds
  • Compliance bonds

In Söderberg & Partners, we can help our customers by arranging guarantee limits in the domestic or international markets. We can also handle the competitive bidding to secure the best terms on the market.