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Surety bonds

Facts for Prelims (FFP)

Source: BS

 Context: The Insurance Regulatory and Development Authority of India (Irdai) has relaxed norms for ‘surety bonds’.


The changes introduced:

The solvency requirement for surety bonds has been reduced to 1.5 times from the previous 1.875 times, and the exposure limit of 30% applicable to each contract underwritten by an insurer has been removed.


Aim of the changes: The changes are aimed at expanding the surety insurance market and increasing the availability of such products.


What is Surety Bond?

A surety bond is a type of insurance policy that ensures parties involved in a contract are protected from financial losses if one party fails to fulfil its obligations.



If a construction company fails to complete a project as agreed, the surety bond compensates the client for the losses. It ensures financial protection and guarantees that the contract will be fulfilled.


About IRDAI:

The Insurance Regulatory and Development Authority of India (est. 1999; HQ: Hyderabad) is a statutory body under the jurisdiction of the Ministry of Finance. It is tasked with regulating and licensing the insurance and re-insurance industries in India.