Underwriting Property Preservation Security Insurance for Cross Border Claims
Property preservation security insurance requires onshore Chinese guarantees backed by enforceable offshore bank collateral to mitigate cross-border subrogation risks.
URDG 758
Meaning
International standard for demand guarantees developed by the International Chamber of Commerce provides a uniform set of rules for the global banking community. These urdg 758 rules apply when they are specifically incorporated into the text of a guarantee or counter-guarantee. They clarify the rights and obligations of the parties involved in independent payment obligations.
The framework is designed to balance the interests of the applicant and the beneficiary while protecting the role of the bank.
Rule Adoption
Financial institutions in China and abroad have widely accepted this version of the rules as the most modern and effective. The urdg 758 replaced the older 458 version to address common problems in the demand guarantee market. It provides clear definitions for terms such as complying presentation and demand.
By using these rules, banks can reduce the risk of disputes over the interpretation of guarantee language.
Document Compliance
The bank’s responsibility is limited to the examination of documents on their face to determine if they meet the requirements of the guarantee. Under urdg 758, the bank has five business days to examine a demand and decide whether to pay. They are not concerned with the performance of the underlying contract.
This separation of the guarantee from the underlying deal is the core principle that ensures the reliability of the payment.
Demand Validity
A request for payment must be made in writing and must state that the applicant is in breach of their obligations. This urdg 758 requires that the demand be supported by any other documents specified in the guarantee, such as a surveyor’s report. If the demand is valid, the bank must pay without delay.
The rules also provide a mechanism for the extension of the guarantee if the parties are in the middle of negotiations.