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Surety bonds are assumed to have zero risk for the surety company, but how is this possible? The answer lies in the indemnity agreement, a two-party contract that transfers risk from the principal to the surety company. The indemnity agreement outlines terms of the bond agreement, including the surety's payout amount in case of a claim. This agreement shifts liability to the indemnitor (principal) while the surety company is absolved of liability. This is how surety companies confidently issue bonds without expecting losses.
