Surety Bonds 101 - Surety ~Versus~ Insurance

  • Insurance
    • Based on the theory of pooled risks
    • No indemnification – loss is paid out and no recovery from the principal is required
    • Premium is based upon an estimation of losses based on historical trend analysis for specific policy exposure.
  • Surety
    • Case by Case basis, no pooling of risk
    • Premium is based on the theory of “NO LOSS”
      • If underwriting is 100% efficient, premium is to cover cost of underwriting and execution of a bond, not to pay losses.