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Surety bonds carry zero risk for the surety company; terms outlined in the bond for the principal, surety company, and obligee. The bond does not detail reimbursement to the surety by the principal, so how does the surety company issue bonds with zero loss assumption? This is where an indemnity agreement comes in. An indemnity agreement is a two-party contract used by surety companies to transfer risk from the principal (indemnitor) to the surety company (indemnity). It is crucial for surety bonds to have an indemnity agreement in place.
