Surety Bonds
What is a Surety Bond
Surety Bonds are an innovative financial instrument that allows the issuance of Guarantee Letters through an insurance company. This insurance solution enables businesses to guarantee the fulfillment of various obligations through a third party.
Surety Bond is a written unconditional undertaking issued by the Insurer (Guarantor) on behalf of a client (Principal) in favour of a third party (Beneficiary) to pay on first demand under certain events. These events could be the non-performance according to the agreed terms, the non delivery of goods, the failure to fulfil any of a tender’s conditions or otherwise.
Almost any sale, service or agreement can be secured through the issuance of a Surety Bond.
EXAMPLE
A construction company (the Insured) undertakes the execution of a contract – the construction of a project – assigned by the Project Owner (the Beneficiary). The Insurer (the Guarantor) signs the insurance contract with the Insured and issues the guarantee letter, under which it assumes, for a specified period and up to a clearly defined amount, the security of the Beneficiary for any damages arising from the improper execution of the Insured’s obligations outlined in the project contract.
WHY SHOULD I CHOOSE SURETY BONDS OVER BANK GUARANTEES?
01
High and stable ratings from international rating agencies
02
No fixed or other current assets as collaterals required
03
Alternative product for liquidity support/release
04
Charges applicable only for the duration of the Surety Bond
05
Flexibility and speed
06
Ability of the beneficiary to diversify his portfolio
07
Greater risk tolerance through optional co-insurance
FORMS OF SURETY BONDS
CONTRACT
SURETY BONDS
They provide financial security and assurance that contractual obligations will be met, principally in building and construction projects.
COMMERCIAL
SURETY BONDS
They ensure the usual operating activities of Commercial Businesses, as well as the fulfillment of obligations or commitments.
MAIN TYPES OF SURETY BONDS
01
BID BOND
Secures that the bid has been submitted in good faith and that the contractor intends to enter the contract at the bid price and provide the required bond (e.g. Performance bond, Advance Payment Bond) if awarded the contract (e.g. Public or Private Sector tenders).
02
PERFORMANCE BOND
Protects the project owner (Beneficiary) from financial loss if the contractor fails to comply with the terms and conditions of the contract.
03
ADVANCE PAYMENT BOND
Ensures that the advance payment given to the contractor undertaking a project will be returned to the project owner in case of non-completion and implementation of the contract.
04
MAINTENANCE
BOND
It assures the project owner (Beneficiary) that the contractor (Principal) who has carried out a project can execute the maintenance contract. At the same time, it protects him from the financial loss he will suffer in case the contractor fails to comply with the terms of the maintenance contract (e.g. Maintenance – Good Operation of Photovoltaic Parks).
05
CUSTOMS &
TAX BOND
Assures the Beneficiary (customs & tax authorities) regarding the coverage of specific Obligations of the Principal, i.e. customs duties and other charges provided for by EU and/or international legislation related to the import or export of goods.
06
PAYMENT BOND
Ensures sub – contractors, workers and suppliers are compensated as outlined in the contract. This bond is also used for other projects. In commercial agreements it guarantees that Beneficiaries will be paid by the Principals in accordance with the terms of their contract
Why do you need Surety Bonds
Providing a guarantee letter from an insurance company offers flexibility and creates conditions for growth, even in times of crisis. Businesses with a Greek Tax Indetification Number and double entry books can apply for surety bond issuance.
With duration ranging from one month to eight years, several sectors can benefit from surety bonds, such as: Energy, Construction, Food & Beverages, Pharmaceuticals, Tourism, Electrical Appliance Trade, and more.
Surety Bonds have many advantages over bank guarantees. First and foremost, Surety Bonds provide the necessary liquidity immediately and they are a low-risk option, since insurance companies generally have better credit ratings than banks.
Regarding the cost, charges apply only for the duration of the Surety Bond, while in bank guarantees charges apply per quarter. Additionally, unlike banks, insurance companies do not require fixed or other current assets as collaterals.
SURETY BONDS: FAQ
Surety Bonds and Trade Credit Insurance. Are they the same policy?
They are two different insurance solutions. Surety Bonds allow businesses to guarantee through a third party the fulfillment of a variety of obligations, while Trade Credit Insurance protects businesses from losses coming from the insolvency or protracted default of their customers.
Do Surety Bonds cover my business internationally?
Of course, surety bonds can provide coverage locally and internationally.
Why choose Gkiolekas Insurance Solutions
Gkiolekas Insurance Solutions is a part of NAK Group, which reintroduced Surety Bonds in Greece. In 2017 Surety Bonds returned to the Greek market after many years of absence, via the strategic partnership of NAK Katsiberis and INTERAMERICAN, a member of the ACHMEA Group. Due to its experience and expertise, NAK Katsiberis is the market leader in Surety Bonds in Greece and a partner of all the insurance companies that specialize in this field.