Surety bonds are either written by individual surety companies or subsidiaries or divisions of larger insurance companies engaged in the business of acting as a surety. These companies are authorized to do business by the state they operate in and the jurisdiction that requires the bond written. Colonial Surety, for example, is licensed in all 50 states and U.S. territories.
Writing a surety bond is an entirely different animal than typical insurance. Larger insurance companies housing surety divisions or subsidiaries have to become accustomed to the different relationship, a three party agreement, designed to prevent a loss to the surety company. Regular insurance is a risk transfer mechanism, like surety, but it is only a two party agreement designed to compensate the insured against losses from the funds of the insurance company. Surety operates within three party agreements where the obligee is compensated through the policy by the surety company, but the surety company then seeks indemnity from the principal. The surety is, therefore, only ultimately secondarily liable for a principal default.
In contract surety, surety underwriting results in a line of credit for the potential principal, similar to a lending arrangement. Sureties look at information ranging from credit history to financial strength to works currently in progress to character to determine whether to extend this line of credit to the principal. Sureties, by looking at these factors, don’t expect to incur any losses because the surety expects the principal to satisfactorily carry out its obligations.
Even if the principal defaults, however, the indemnity agreement with the principal protects the surety from any losses. The indemnity agreement is a contract between the surety company and the principal wherein the named indemnitors have to protect the surety from any loss or expense suffered as a result of the bonds being issued to the principal. In order to protect themselves, sureties generally require the principal to sign the indemnity agreement before issuing a surety bond.
Colonial Surety Company offers the direct and digital way to instantly obtain surety bonds, including license & permit bonds and court & fiduciary bonds. We are the insurance company — which means no agent, no broker, and no middleman. We make it easy to instantly obtain your bond. The steps are easy — get a quote online, fill out your information, satisfy underwriting requirements, and enter your payment method. Print your bond from your office. It’s that simple!