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Surety Bonds Insurance

  • Surety Bonds Insurance is a tripartite agreement where the Guarantor undertakes to cover the loss that may arise from the Insured’s failure to fulfill the terms and conditions of the contract between them, as stated to the contract.

    In a period of reduced liquidity and with the legislative change (Law 4541/2018) regarding the issuance of  Letters of Guarantee , such bonds issued by insurance companies are now acceptable (besides of the banks’), even in the context of public sector competitions and contracts.
  • Providing a Letter of Guarantee by an insurance company offers great flexibility, as companies gain alternative sources of bonding capacity for their necessary goals of business activities, increasing their creditworthiness without being constrained by their banking borrowing limit. Many times, there is no need to mortgage fixed assets or other properties, unlike what is required by banks. We note here that Bank Guarantees are usually issued after the company assigns elements of its assets as collateral to secure the Bank.

Surety bonds ensure the fulfillment of various obligations arising from construction or service contracts, up to the usual operations of commercial and other businesses. Almost any sale, service, or agreement can be secured through the issuance of a Surety Bonds Insurance Contract.

In the international business space, the issuance of guarantees by insurance companies is a widely practiced alternative. While in Greece, guarantees were almost entirely issued by banks, globally, 30-40% of guarantees are issued by insurance companies. In countries like England and Italy, guarantees from insurance companies and banks share the market equally.

All businesses of any legal form can apply for Surety Bonds insurance and have a Letter of Guarantee issued on their behalf after the signing of the insurance contract.

Indicative business sectors:

– Construction industry
– Tourism sector
– Food and beverage industry
– Pharmaceutical industry
– Energy

Energy sector

  • Especially for the energy sector, there has been significant investment interest in Greece in recent years for the development of Renewable Energy Sources (RES) projects, supported by the EU.
  • The legal framework for the issuance of Final Connection Offers (FCOs) for Renewable Energy Sources (RES) projects recently changed with the publication of the relevant Ministerial Decision in the Government Gazette B 4333 / 12.8.2022. The issuance of FCOs by the network operator and system operator to the entities involved in RES projects is the most significant challenge for the development of this market, given the saturated networks and their limited capacity.
  • Under the new framework, different priorities have been established for projects classified as strategic investments, taking into account their position and the conclusion of bilateral agreements, among other criteria. 
  • The goal is for our country to become an energy hub, with the fastest possible construction of networks, aiming to achieve energy self-sufficiency.
  • In this context, the alternative issuance of Letters of Guarantee  by insurance companies has assisted and continues to assist companies in issuing the necessary Letters of Guarantee, providing flexibility and immediacy that sometimes the banking system cannot offer.

Key types of Letters of Guarantee:

  • Good Performance Bond
    Ensures the project owner (Beneficiary) that the contractor (Insurance Receiver) is capable and possesses all the qualifications to execute the contract successfully. At the same time, it protects the project owner from the financial damage they might incur in case the contractor fails to meet the terms and conditions of the contract.
  • Participation
    Ensures that the bid is submitted in good faith and that the contractor will enter into the contract at the offered price, providing the necessary performance and payment guarantees.
  • Maintenance  (Good Operation)
    Ensures the owner of a project (Beneficiary) that the contractor (Insurance Receiver) who has executed a project is capable of performing the maintenance contract, while protecting the owner from financial damage in case the contractor fails to meet the terms of the maintenance contract.
  • Advance Payment 
    Ensures that the advance payment given to the contractor undertaking a project will be returned to the owner of the project in case of non-completion of the project and contract implementation.
  • Good Payment 
    Ensures that the contractor will cover, for example, subcontractors, workers, and material suppliers related to the insured project. It also covers potential damage that the supplier to the Insurance Receiver may incur due to the second party’s failure to meet obligations, even in cases unrelated to construction projects.
  • Customs and Taxes
    Covers the claims of authorities for the payment of customs duties and taxes that may be imposed on the Insurance Receiver.