Insurance of guarantee commitments

 

The insurance of guarantee commitments for banks was launched in January 2015. This policy is a new product offered by ODL to fill a gap in the market. Through insurance granted by ODL, it creates leverage for credit lines that banks grant to Luxembourg companies.

 

The Luxembourg exporter concludes a contract with a buyer abroad and needs to issue contract guarantees (advance payments bond, performance bond,…) in favor of the foreign buyer. The exporter gives order to its bank to issue the guarantee. Very often however the banks ask for additional securities as for example to block the money of the advance payment on a bank account. Indeed, if the foreign customer calls the guarantee, the bank must pay the guaranteed amount to the foreign buyer on first demand.

     

Funtionning
 

 

ODL covers the bank against the risk of default of the exporter. The exporter may apply for cover against unfair calling of the guarantees.    
     

Procedure

 

A framework policy is signed between the bank and ODL. This document sets out the terms and conditions between the insurer and the insured.

 

The exporter must be a company registered in Luxembourg and needs to be active internationally.

 

The bank together with the exporter submit to the ODL an application for approval. ODL's Committee decides on the acceptance of risk, the maximum insured outstanding amount and the percentage of cover. In general the percentage of cover is 50%.

 

 

 

Photo - Assurance-Crédit