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Surety bonds are assumed to have zero risk for the surety company issuing them. The bond outlines the agreement between the principal, the surety company, and the obligee. However, it typically does not include language about the principal's reimbursement to the surety. To confidently issue a surety bond, the surety company uses an indemnity agreement to transfer risk from the principal to the surety company. The indemnity agreement is a two-party contract where the indemnitor assumes the risk while the indemnity, or surety company, is absolved of liability.
