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Surety bonds are assumed to have zero risk for the surety company. The bond outlines the agreement between the principal, surety company, and obligee. However, it typically does not mention the principal's reimbursement to the surety. This is where an indemnity agreement comes in. This contract transfers risk from the indemnitor (principal) to the indemnity (surety company). It allows the surety company to confidently issue bonds without incurring losses.
