Bond Risk Insurance
Bond Risk (BRI) Insurance is an insurance coverage extended to a contractor (who is required to provide surety bond to its principal or contract awarder when undertaking a project overseas) who is concerned that such bond is unfairly called by the principal during the validity period of the surety bond. The coverage covers any fair calling made by the principal on the bond as a result of the occurrence of political events in the country where the project is located, that deters the contractor to continue performing its duty as outlined in the contract agreement.
Although the Bond Risk Insurance policy is issued to the contractor, it can also be assigned to the bank/insurance company (that issues the surety bond on behalf of the contractor), as part and parcel of collateral arrangement for issuance of such surety bond.
Detailed information can be referred to Product Disclosure Sheet
Bond Risk Insurance
Unfair Calling cover is available in respect to a bond that is issued to a principal that is classified as a government entity or body. By definition, the insured event is the calling of the surety bond by the government/public buyer, where the government/public buyer is not entitled to call the surety bond under the terms and conditions of the contract provided that the contractor is not in material default of its obligations under the said contract.
The coverage offered for unfair calling by the private buyer risks is similar to one offered under unfair calling cover by government/public buyer. Nonetheless, unfair calling by private buyer or “capricious call” cover is only available on selective basis, considering the risks are much higher as compared to unfair calling by government/public buyer.
Fair calls cover contractor against the risk of surety bond being “fairly” called by the principal as the result of the inability of the contractor to continue performing its duties under the contract agreement due to the occurrence of certain political risk events. The coverage is available to both contracts awarded by government entities or bodies and private companies. Amongst the political risk events covered under this programme are as follows:
Contractor is unable to fulfil its obligations under the contract caused by:
- the implementation of any law or of any order, decree or regulation having the force of law, which in circumstances outside the control of the contractor, prevents the import/rendering of the goods/services specified in the contract.
- the cancellation, in circumstances outside the control of the contractor, of a previously issued and currently valid authority to import/render the goods/services specied in the contract.
Contractor is unable to fulfil its obligations under the contract caused solely and directly by the frustration of the contract or termination due to the occurrence within the country of the principal, of war, civil war, insurrection, rebellion and/or revolution which directly prevents the due performance of the said contract in whole or in part.
Apart from the above coverage, Bond Risk Insurance is also to provide protection against arbitration default risk as a result of occurrence of unfair calling event that leads to the surety bond being crystallized. This coverage applies when the contractor has obtained a final and binding arbitration award in its favour in accordance with the terms and conditions of the contract agreement, and such award has not been honoured by a Buyer.
The policy is able to cover risks of up to 5 years.
The coverage provides indemnity of up to 90% of the amount of loss suffered by the policy holder.
Premium rates primarily depend on EXIM Bank’s grading of the market with which the business is done and terms of payment. In general, the premium is dependent on market risk and credit terms.
Processing Fee of one percent (1%)* on the insured amount subject to a minimum of RM1,000 and a maximum of RM20,000 and payable upon accepting the LO. Should the insured amount be in a foreign currency, the Processing Fee would be applied accordingly in the foreign currency, with the minimum payment in foreign currency be equivalent to RM1,000 and a maximum of RM20,000.
(*) subject to Terms and Conditions. Not applicable to SMEs.