Glossary of Surety Terms
The indemnity agreement is the formalisation of a right of recourse. Recourse to the obligor (principal / risk) for losses is a fundamental characteristic of any surety product. This right is typically established by law and can be formalized either in the surety contract or in a separate agreement. To strengthen its enforceability, the right of recourse can be modelled to allow immediate drawing without prior discussion and/or to protect against the obligor’s insolvency (by pledging of company assets or the right to require it under certain circumstances as well as by adding third party counter indemnities).
The indemnity agreement is an essential element of the “zero loss UW” approach, securing the right of recourse.