What should theoretically happen in suretyship?

In the context of suretyship, the principle that it should not sustain any losses is rooted in the purpose and structure of surety bonds. Surety bonds are agreements where one party (the surety) assures the performance or obligations of another party (the principal) to a third party (the obligee). The surety provides a financial guarantee that the principal will fulfill its obligations, whether those are related to contracts, construction projects, or other duties.

Theoretically, if the system operates as intended, the surety should be able to manage risks effectively through careful underwriting and risk assessment. If due diligence is performed, the surety should not have to pay out claims, as the principal would fulfill their obligations. Hence, a successful surety relationship means that losses are avoided, and the surety can maintain financial stability.

Additionally, when the surety does not incur losses, it indicates a healthy risk management process, where the obligations are met, and claims against the bond are minimal. This focus on preventing losses ensures the sustainability of the surety business model and supports its function in the broader financial and contractual landscape.