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Insurance of guarantees (Product Z)

Insurance of guarantees (Product Z)

Insurance of guarantees serves for minimizing risks associated with the provision of a guarantee by your financing bank, which in this case takes on the role of insured.

Insurance of guarantee is used in the case that a foreign buyer requires a bank guarantee in association with an export contract. This is mainly about:

  • bid bond
  • advance payment bond
  • performance bond
  • other types of bonds, e.g. (retention money bond) and others

The insurance in this case protects you against financial losses in the case of drawing of the buyer from a guarantee, namely:

  • authorised – drawing for reason that the exporter does not satisfy the conditions of the export contract, or tenders,
  • unauthorised – drawing as a consequence of some unexpected political or other non-commercial even, thus without a breaching of the obligation by the exporter.

Advantages for the exporter

  • A bond increases your trustworthiness at home and abroad, thanks to which you can obtain more suitable payment conditions when concluding contracts.
  • Bond insurance offers your company protection against losses in the case of drawing from the guarantee.
  • Our experienced team will accompany you from the first contact during the entire duration of the contract. We offer you our long years of expertise in the field of export financing (risk analysis of the country, buyer, bank, impact on the environment, and others).

Frequently asked questions

When is such insurance most advantageous?
The insurance is suitable with requests of a bank guarantee from the side of the foreign buyer.

What is the period of the insurance?
The period of the insurance is derived from the length of the guarantee. This is usually for a period of 2 years.

What are the basic conditions of the insurance?
• The clear obligation of the exporter to provide the buyer a guarantee following from the conditions of an export contract or tender.
• The value of the issued guarantee does not exceed the usual percentage share of the purchase priced respected by international practices for the individual types of guarantees and is not in conflict with commercial practices and rules issued by the International Chamber of Commerce.
• The financing bank shares in the risk on non-payment of a loan usually in the amount of:
o 5% in the case of unauthorised drawing on the guarantee;
o 10% in the case of authorised drawing on the guarantee for an offer, payment in advance or another type of guarantee, so long as it does not have the character of a performance bond;
o 20% with a performance bond of the contract.
• Our mission is, among others, to support employment and the development of production capacities in Slovakia. For this reason the Slovak share in the export is an important criterion when assessing your project.

What kind of risks does the insurance cover?
The insurance is intended for non-marketable risks, i.e. those which commercial banks and insurance companies are not willing or not able to insure. The insurance covers:
• unauthorised drawing from a guarantee – without breaching obligations following from a contract or tender conditions. Political and non-commercial risks are also included here – risk of non-payment of a receivable for political and administrative accidental or hard to foresee events in the country of the buyer, such as, e.g. war or other armed conflict, terrorism, unrest, strikes, revolutions, nationalization, embargo, the impossibility of transfer and others. Natural disasters, such as floods or earthquakes, are also included here.
• authorised drawing from a guarantee – for reason that the exporter did not fulfil the conditions of the contract or tender. Insurance for this risk is optional. Excluded from the insurance is, for example, drawing from the guarantee without objective economic reasons on the basis of a voluntary decision or the cancellation of an export contract.

How much will it cost?
The amount of the premium rate depends on evaluation of the risk of the country of the foreign buyer and on the total assessment of risk of the business case.

How is the insurance paid for?
The insured (the bank) pays the premium on an annual basis. By payment of the premium the insurance policy acquires force.

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