Why is it worthwile to choose the surety insurance?
The advantages of the surety bond:
• In many cases, enterprises, by way of their connections in banks, can make banks to provide them with a credit limit. The significant advantage of the surety insurance is that it does not place a burden on the credit line of the enterprise, since the Bond facility leaves the client's bank credit lines available for working capital and other funding requirements and allows in general a more cost efficient management of corporate debt. It is an additional source of finance, complementary to bank finance.
• For the enterprises, it is important to make a diversification of the resources in order to be able to avoid the inconvenient situation of depending on a single financial institution. For reasons mentioned in the point above, the real advantage of the surety insurance is not the more favourable price - which could of course also be an important factor for enterprises - but the real advantage of the possibility provided by the supplementary and complementary financial resources.
• Using a professional insurance staff, the insurance company can assess distinct risks of the various activities and in a given situation, it can accept the property insurances as well as a decreasing factor in respect of the extent of the guarantee to be provided by the contracting party.
• The surety insurance could also be available for lower level of collateral provision and sometimes for more favourable prices, thus it is able to support the operation of the enterprises much more effectively. (Released cash flow, stronger liquidity).
It is important to note that the insurance company not only examines the financial situation of the given enterprise, but it also conducts a very serious analysis in respect of the professional background of the company. In many cases, this means more security for the beneficiary as well, since for him, the most important issue is not to access the amount of guarantee in case of the insolvency of the Principal, but it is much more important that the Principal is able to fulfil his contractual obligations. In case a company is able to provide not only bank guarantee but is able to obtain a surety bond as well, this means that the company in question has passed not only the financial test, but the professional test, as well.
The special nature of the surety insurance is revealed in the fact as well, that similarly to banking practice, the clients have the obligation of providing collateral besides the payment of premium; and contrary to the classical insurances, (at the same time in line with banking practice), the surety (insurance company) has the right of recourse at all times to the amount paid to the beneficiaries.