What is the definition of "subrogation" in the context of surety bonds?

Subrogation in the context of surety bonds refers to the right of the surety to step into the shoes of the principal (the entity that purchased the bond) after the surety has fulfilled its obligation by paying a claim. This means that once the surety pays a claim due to the principal’s default, it can then pursue recovery from the principal to recover the amount paid. This process helps ensure that the financial burden does not rest entirely on the surety company and allows them to mitigate their losses.

The other options describe different aspects of surety bonds but do not relate to the concept of subrogation. Compliance with regulatory requirements addresses the legal standards that must be met in the surety industry, employee dishonesty bonds cover losses from fraudulent acts of employees, and contractor payment guarantees focus on ensuring that contractors are paid for their work, none of which involve the ability of a surety to claim back payments after covering a loss.