When it comes to backing your financial institution in the event of default, fraud, crime and other mishaps, there is no shortage of measures you can take to guarantee your interests. Though the role of financial guarantee insurance remains relatively undervalued, it is a product that benefits not just the financial institutions, but that also benefit consumers as well. A financial guarantee is an insurance policy, indemnity contract or surety bond under which loss is payable in the event of (and provided there is proof of) financial loss to do any one of the following:
- Failure of an obligor to pay their debt obligation
- The financial default or insolvency of a debtor or debt issuer
- A change in exchange rates
- A change in interest rates
- A change in the value of lands, building, securities or commodities
Banks rely heavily on investors to support their endeavors; without investors, most financial institutions would be forced to close their doors. Financial guarantee insurance is used to attract investors as it provides investors with an additional level of comfort that their investment will be repaid, on time, no matter what. Additionally, a financial security bond typically earns a security a higher credit rating, thereby lowering interest rates, which means lower costs for issuers and more money for investors.