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Surety bonds are assumed to carry zero risk for the surety company, but this is ensured through an indemnity agreement. This agreement transfers risk from the indemnitor, or principal, to the indemnity, or surety company. The bond outlines the terms of the agreement between the principal, surety company, and obligee, but typically does not include language about the principal's reimbursement to the surety. The indemnity agreement is crucial for the surety company to confidently issue surety bonds while assuming zero loss.
