Surety / credit insurance

Surety/ credit insurance solutions facilitate trade by assuming credit and performance related risks. There are a number of solutions available, which range from insurance to guarantees:

Credit Insurance: Receivables are usually the most important asset of any business. Credit insurance protects these assets by indemnifying defaults or bad debts. Therefore if a major customer files for bankruptcy, the insured will not suffer a major loss. This solution is suitable for companies who have a willingness to improve their credit management style. Insurers are usually partners with the client and offer free access to their credit databases to facilitate new trading relationships between their clients and other parties. Insurers’ macro information on the market allows clients to detect companies likely to default really early in the process, hence this solution is particularly useful to companies with operations in a number of countries, businesses with thin margins and tight liquidity and companies that would like to consider a cheaper and more relaxed option to factoring. Therefore clients can use the certainty of an annual premium as opposed to retaining extra capital to manage credit risk.

Surety: Surety can take the form of insurance or bonds. In this case the insurance company guarantees the client for a specific purpose. Examples of bonds include:

  • Performance Bonds: The client signs a contract with a counterparty (e.g. the government) who requires a guarantee on the performance of the offered services. The insurance company guarantees such services in return for a premium. The advantage of obtaining such a bond from an insurer (as opposed to a bank) is that usually there is no need for collateral by the client.
  • Customs bonds: Companies operating bonded warehouses or keeping stock in bonded stores usually need to provide a guarantee to the government that they will perform their duties as required. The insurance company guarantees such duties in return for a premium. The advantage of obtaining such a bond from an insurer (as opposed to a bank) is that usually there is no need for collateral by the client.