LETTERS OF GUARANTEE2021-01-26T16:39:24+02:00

Project Description


The issuance of letters of guarantee by insurance companies is a common practice internationally, since they issue 25% of the total, while in England and Italy it reaches 50%. Guaranteed funds approach 1 trillion euros.

The submission of letters of guarantee is a basic condition for a company to participate in tenders and the ability to undertake projects and provide services on its part. The purpose of the letter of guarantee is to ensure the fulfillment of the obligations of the company arising from the project contract, in case οf inadequacy.

Banking institutions issue letters of guarantee after assigning assets as collateral for security. However, in today’s era of reduced liquidity, the provision of a letter of guarantee by an insurance company through a guarantee insurance program, provides greater flexibility and benefits for the business. This is because there is no binding with the bank’s lending ability and many times it is not necessary to mortgage its fixed or current assets contrary to what is customary until today. Thus, reliable and competitive companies acquire an alternative source of guarantee which creates scope for increasing their liquidity.



An excellent news for the entrepreneurs of our country comes in the middle of the economic crisis in order to facilitate the companies in the most effective use of their comparative advantages. The issuance of letters of guarantee is no longer a monopoly of the banking institutions with all that entails since the insurance companies also enter the field, offering clearly better terms and costs, as well as simplified procedures.

There are 2 main types of warranty insurance:

  • Contract Surety Bonds
    They are mainly used in building and construction projects, ensuring their execution and the fulfillment of the company’s obligations to certain subcontractors, workers and suppliers of materials.

  • Commercial Surety Bonds
    They ensure the normal operations of commercial enterprises and the fulfillment of their obligations or commitments.

This insurance program is extremely interesting for:

  • The construction industry
  • The tourism industry
  • The food and beverage industry
  • The trade of electrical appliances
  • The electronics trade
  • The pharmaceutical industry
  • The clothing trade


With collateral insurance, the company is insured for a certain period, for a certain amount, which the insurance company undertakes to pay to the beneficiary, if the insured company cannot fulfill obligations that have been undertaken.

The most basic and common types of guarantee insurance policies are:

  • Participation: Ensures that the offer is submitted in good faith and that the contractor (insured) will conclude the contract at the offer price and will provide the required guarantees of good execution and payment.
  • Advance payment: Ensures that the advance paid to the contractor undertaking the implementation of a project will be returned to the project owner in case of non-completion of the project and non implementation of the contract.
  • Good execution: Ensures to the owner of a project that the contractor is competent and has all the qualifications to execute the contract. Protects the owner from financial loss in case the contractor does not comply with the terms and conditions of the contract.
  • Maintenance – good operation: Ensures the project owner that the contractor who has performed a project is able to execute the maintenance contract and protects him from financial loss in case the contractor does not comply with the terms of the maintenance contract.
  • Good Payment: Ensures that the contractor will cover specific subcontractors, workers and suppliers of materials related to the project insured. In independent of construction projects cases, it covers the possible damage that a supplier of the insured may suffer from failure to comply with the obligations of the insured.
  • Tax & Customs Duties: Covers the claims of the Authorities for payment of duties and tax charges that may be certified to the insured.

The advantages of Guarantee Insurance:

  • In most cases the company does not have to mortgage its assets to issue a letter of guarantee in its favor.
  • The final cost can be much lower than a bank guarantee.
  • The company maintains the existing bank lending limit.
  • The process of issuing letters of guarantee is very simple without bureaucratic procedures.
  • Credit terms are being improved and businesses are being facilitated.
  • It is a modern practice with great acceptability internationally.
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