Will - Garantias Contratuais

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Top Questions

1. What is the SURETY BOND?
It is an insurance which guarantees the Insured Person (contractor of works, products and services) the faithful and integral compliance with a contract by the Policy Holder (contracted person), supplier of the works, products and services.

2. Who uses the SURETY BOND?
Public Institutions of the Direct and Indirect Administration (Federal, State and Municipal) which according to legal regulation must require guarantees of the offer upkeep (in case of competition) and the faithful compliance with their contracts - Law n.º 8.666/93 and consolidated by Law n. 8.883/94.

Private companies which in their contract relationships with third parties (suppliers, service rendering persons, building contractors), wish to rule out the risk of non-compliance.

3. What is the SURETY BOND Function?
The Insurance Company is obliged to guarantee the Insured Person, be it by compensating him/her in kind for the damages caused by a contract non-compliance, be it by substituting the person who supplies the works, products or services, so that the insured contract may be complied with integrally. In this case, the Insurance Company assumes eventual price differences applied by the new supplier, in agreement with the Insured Person.

4. What is the IRB - Brazil Reinsurances?
IRB - Brasil Re is a company of mixed economy, with corporate personality belonging to private law and enjoying the autonomy to regulate the co-insurance, the reinsurance and the retrocession, as well as promoting the development of the insurance operations of the Country, according to the regulations established by the National Council of Private Insurances - CNSP. Since its foundation, the IRB-Brasil Re stops the monopoly of the reinsurance activity in the country, but nowadays, it is in the process of privatization, simultaneous with the breakup of the reinsurance monopoly in the country.

5. What will happen after the privatization of the IRB and the breakup of Reinsurance monopoly
The breakup of the reinsurance monopoly in Brazil will make the legalization of various "Local Reinsurance Companies" possible, regardless of nationality, thus being defined those settled and with capital contribution in the country. For these a piece of 60% of the countrys reinsurance market should be reserved, among which the IRB-Brasil Re, hence privatized, in this new scenario, for a term of two years.

6. Which are the groups or companies interested in purchasing the IRB?
According to what the papers say, these are: Munich-Re (one of the largest reinsurance companies in the world, German); Swiss-Re (one of the largest reinsurance companies in the world, Swiss); Aliança do Brasil (one of the largest Brazilian insurance companies, belonging to the Banco do Brasil), the Bradesco Seguros (one of the largest Brazilian insurance companies, of the Grupo Bradesco) and the North American Transatlantic Holdings, of the Grupo AIG.

7. Is the Insurance Guarantee accepted abroad?
Yes. It is called 'Performance Bond' and is widely used in Europe and the United States, and its general conditions are similar to those of Brazilian policies.

8. How must the insured person proceed, if a supplier does not comply with a contract in question in the Insurance?
Based on the contract clauses, the Insured Person must employ all the friendly efforts so that the contracted person complies with his/her responsibilities envisaged in the contract. If the former does not succeed in it, the Insurance Company must come into action, in a formal way.

9.If the supplier asks for an arrangement or goes bankrupt, how must the insured person proceed?
Immediately inform the Insurance Company, so that it may take the due measures in view of the Insured Persons compensation and the return against the Policy Holder.

10.In which space of time does the insured person receive the compensation by the insurance company?
After the incident has been defined, the insurance company has up to 30 (thirty) days at its disposal to compensate the insured person or substitute the contracted person so that the contract execution may be concluded.

11. Will the insurance company compensate the accident alone?
This will depend on the warrantys value or the Insured Importance. If this value were the same or inferior to the insurance companys Technical Limit, the latter will assume the whole of it alone. If this is not the case, the compensation will be divided into instalments between the insurance, co-insurance and reinsurance companies which participated in the insurance, proportionally to the deduction of each of them.

12. What does the advance payment insurance guarantee?
It compensates the insured person, in case the policy holder does not comply with his contract obligation due to the advance received for a purpose defined in the contract.
In these cases the insurance value is equal to the advance value made by the insured person or the policy holder.

13. What does the supply insurance guarantee?
It compensates the insured person in case the policy holder stops supplying the product or service specified in the contract, as well as in the terms and prices which were agreed upon. It is the execution warranty or faithful compliance with the contract.

14. What does the perfect functioning insurance guarantee?
It compensates the insured person in case the policy holder supplies products or equipments which show some operation defect within the contract warranty period, without taking the due measures to correct the irregularities.

15. What is the policys life of the Insurance Guarantee?
It will be determined by the contract to be signed by the contracted part.

16. Must the insured person request the Insurance Guarantee in the period of purchase, service or contract?
Yes. It is necessary to admit the presentation of this type of warranty. Therefore, one of the contract clauses or request must state this requirement.

17. How is the supplier or service rendering person analyzed by the insurance company?
A registration is made, based on the companys documentation: registration files of the company and the partners, contract and corporate changes, the three last balances and certificates. The insurance company will carry out the analysis and will hand it to the IRB, suggesting a "Warranty Limit" for the policy holder. The latter will make a revaluation and will be able to accept the suggested limit. The Warranty Limit is valid for one year and the company holding the policy will have to update its registration on an annual basis, presenting a new balance, eventual contract changes and certificates so that it may be renovated and/or increased. This process takes approximately one week.

18. What is the difference between Insurance Guarantee and Bank Deposit?
According to the Basel Agreement, when the banks issue a deposit, this value is deducted from your property relative to the value of the bank deposit, thus limiting the possibilities of using this asset for other more interesting and profitable operations. The fees vary according to the client and may amount to more than 10% per year, and, depending on the client s/he must counterbalance this value in the banks financial applications, or present warranties, such as drafts and others.

19. Why is the Insurance Guarantee cheaper?
According to the Basel Agreement, when the banks issue a deposit, this value is deducted from your property relative to the value of the bank deposit, thus limiting the possibilities of using this asset for other more interesting and profitable operations. The fees vary according to the client and may amount to more than 10% per year, and, depending on the client s/he must counterbalance this value in the banks financial applications, or present warranties, such as drafts and others.

20. What are the insured persons advantages when opting for the Insurance Guarantee?
First the costs, since obviously the policy holder, will add these costs in his contribution. Currently, many good suppliers do not get a bank deposit, because they are unable to reach liquidity to apply it to the bank, the advances aim is to apply it to materials and labor it will use during the request period, at a lower cost than that of the market.

21. What happens when the supplier does not want the advance?
She / He will deprive him/herself of getting better price conditions for his service, since if s/he can get this money at a cost of maximum 3% a year and use it for the price deduction in the purchase of goods or equipments, or apply these resources to the financial market at an approximate fee of 14% a year. Thus, s/he will also be able to reduce his/her costs in order to Win a Tendering.

Will - Contractual Guarantees

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