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Surety bonds are seen as carrying zero risk for the company issuing them, as outlined in the bond agreement between the principal, surety company, and obligee. However, the bond form typically lacks language about the principal reimbursing the surety. This is where the importance of an indemnity agreement comes in. An indemnity agreement is a contract transferring risk from one party to another, with the indemnitor (principal) assuming the risk, while the indemnity (surety company) is absolved of liability. This agreement allows surety companies to confidently issue bonds while minimizing potential losses.
