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.