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When surety bonds are issued, they are assumed to carry zero risk for the surety company who writes them. The surety bond outlines the agreement between the principal, the surety company, and the obligee, including the amount the surety will pay out if a claim is filed. An indemnity agreement is crucial for the surety company to confidently issue bonds without risk. It is a two-party contract transferring risk from the indemnitor (principal) to the indemnity (surety company).
