What is surety insurance?
Surety insurance is a form of collateral and a possible alternative of bank guarantees. Until recent times the issuance and use of these surety bonds was not widespread in Hungary. However, this special collateral, which basically differs from the general insurance services is known worldwide and used depending on the standards of the financial culture of the particular country.
What is special about surety insurance?
Besides their fee payment obligations, clients have to provide a certain collateral to the insurer as a security of the undertaken payment obligation. Furthermore, the insurer is entitled to claim back the total amount, which is paid to the beneficiary with respect to the bond. In this respect, the legal nature of the surety bonds is similar to bank guarantees and absolutely differs from standard insurance contracts.
What is a surety bond?
A contract of suretyship, commonly known as a surety bond, is like a policy of insurance which provides indemnity to the beneficiary– as a policy of insurance provides indemnity to the insured – against loss up to a specified amount resulting from breach of contract or other obligations/undertakings of the client as the principal. Quite simply a bond is a guarantee given to one party to a contract that the obligations of the other party under the bonded contract will be completed and, if not, that payment of loss will be made by the surety up to the bond limit.
Does the beneficiary accept the surety bond?
From the perspective of the beneficiary, surety bonds are absolutely equal to bank guarantees, and provide the beneficiary the same safety. These bonds are issued by officially registered insurance companies, which operate as public limited companies, and whose activity is supervised by the competent Authority of Hungary. In many occasions the terms of the commitment or the text of the bonds itself are also the same as in the guarantees. By now the Hungarian legislation has approved this form of collateral.
How can I obtain such a bond?
Our expert team examines your request within a short timeframe. We customise the conditions of the contract based on our risk analysis. Our proposal consists of two parts: on the one hand, it defines the necessary collaterals to be provided and, on the other hand, it defines the fee of the issuance of the bonds.
Which are the most common collaterals?
Bank guarantee, cash, government stock, or personal surety of the owner.
The insurer carefully examines the financial status of the client. The aim is to minimise the collaterals to be provided in order to help the business operation of the client. (Many occasions the clients only have to provide part of their already existing bank guarantees to the insurer as collateral.)
How much does a surety bond cost?
The cost of the surety bond depends on the following circumstances: the length of validity, the amount and type of the bond, and the financial status and business operation of the client. The exact fees can only be estimated after the careful overview of the client’s business activity.
How much time does it take to receive a bond?
It takes two or three weeks to assess a request, provided that we have received all the necessary documentation to make the decision.