AFSB 151 Practice Exam Questions with 100% Correct Answers | Verified | Latest Update, Exams of Advanced Education

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AFSB 151 Practice Exam Questions with

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Which one of the following characteristics is unique under American personal suretyship compared with corporate suretyship? - Correct Answer-Sureties were protected by laws that were favorable to them Except in the case of a forfeiture bond, if the principal defaults the surety will pay - Correct Answer-Up to the bond penalty, but no more than the obligee's actual loss amount CB Construction entered into a construction contract with Lee Properties. The contract required that CB Construction obtain a performance bond, with Lee Properties named as the obligee. Performance bonds guarantee that the obligee will be indemnified for any loss resulting from the principal's failure to perform the work - Correct Answer- According to the contract, plans, and specifications; at the agreed price; and within the time allowed Which of the following groups, for the most part, serves the market for fidelity and surety bonds in the United States? - Correct Answer-Multiline property-casualty insurers Which one of the following is an example of a third-party beneficiary on a given bond? - Correct Answer-An heir on a fiduciary executory bond Bonds under this classification guarantee that the principal will properly account for and remit government funds collected as required. Which license and permit bond classification is described? - Correct Answer-Tax or fee bonds The two basic types of surety bonds that are written today are - Correct Answer- Contract surety bonds and commercial surety bonds A basic type of bond that involves all situations in which sureties guarantee performance of obligations that generally do not arise from contract is - Correct Answer- Commercial surety bonds When evaluating a surety claim, claims representatives are often assisted by outside legal counsel. Which one of the following other professionals often assist claims representatives? - Correct Answer-Engineers

The surety bond three-party relationship, the party who guarantees fulfillment of the obligation and who will either perform the obligation or pay the costs for its fulfillment is the - Correct Answer-Surety Paul has the legal responsibility for the care for his brother, who is a legally incompetent person, and for his brother's property. Paul is required to obtain a bond that guarantees he will exercise his duties faithfully and account for all property received. This bond is called - Correct Answer-A fiduciary bond A person who commences an action against another to obtain an equitable remedy may be required to post a bond before the court will proceed with the action. This bond is called - Correct Answer-A plaintiff bond Bonds for which the laws specify the bond conditions and for which all three parties are dictated by the applicable law rather than the bond provisions are - Correct Answer- Statutory bonds A surety bond is a written document in which one party guarantees a second party's - Correct Answer-Performance to a third party for the second party's failure to fulfill an obligation Unless the cosureties limit their respective liabilities in a bond, when two or more cosureties execute a bond with the same principal, their liability to the obligee is - Correct Answer-Joint and several A group that educates the general public, legislative bodies, contractor associations, and others about the benefits of surety bonds is - Correct Answer-The National Association of Surety Bond Producers (NASBP) A surety's liability for a surety bond can only cease to exist when the underlying obligation/agreement has - Correct Answer-Been performed as specified in the contract or when the bond has been canceled Because most bonds are "joint and several liability" documents, the obligee can recover losses from - Correct Answer-The principal or the surety, or from both The Miller Act was passed to require principals, in addition to furnishing a performance bond, to furnish a separate payment bond guaranteeing payment of all bills incurred by the contractor - Correct Answer-For labor and materials at the project completion for all federal jobs Judicial bonds - Correct Answer-Are a category of court bonds that arise out of litigation and are posted by persons seeking or appealing a remedy in court

Bond losses occur when a fiduciary and its surety are held accountable because the fiduciary did not exercise reasonable care in notifying all heirs of an impending probate proceeding. This fiduciary is called - Correct Answer-An administrator In accordance with a contract to build a county shed for the Village of Malcolm, Raymone Construction purchases a contract surety bond from SureRite Insurance. Identify the principal, obligee, and surety in this suretyship. - Correct Answer-Principal- Raymone Construction; obligee- Village of Malcolm; Surety- SureRite Insurance In an unlimited cosurety arrangement, the obligee can collect - Correct Answer-The full loss from any of the cosureties up to the penal sum of the bond WP Hospitality hired Green Builders to build a new hotel. As part of the contract, WP Hospitality required that Green Builders obtain a surety bond to guarantee that it would pay all subcontractors for their labor and materials. The payment bond was obtained from Blue Surety. Which one of the following is a potential third-party beneficiary in this surety relationship? - Correct Answer-Subcontractors Under a bid bond, if the bid is accepted and the principal refuses to enter into the contract or fails to provide the additional required bonds, subject to the penal amount of the bond, the obligee is generally entitled to be paid - Correct Answer-The difference between the amount of the principal's bid and the next lowest bid the obligee finally accepts Public official bonds are written for principals who have administrative duties but do not handle money and who - Correct Answer-Include commissioners, assessors, judges, coroners, town clerks, engineers, and auditors Ellen was planning a large family reunion at a local park. She wanted to reserve the picnic tables, and have use of the restrooms at the park. As a prerequisite to using the park, the township required that Ellen obtain a commercial surety bond. Which one of the following types of surety bonds would Ellen be required to obtain? - Correct Answer- Permit bond Jennifer is a producer for Goshen Insurance Agency. She is also the person at the agency responsible for selling and servicing surety bonds. Which of the following written documents do sureties use to authorize a producer to act as the surety's agent in bond production? - Correct Answer-A power of attorney Following the Civil War, the growing number of complexity of financial/commercial relationships led to the need for - Correct Answer-Corporate suretyship In the surety bond three-party relationship who is primarily responsible for fulfilling the obligation and who typically has control of the obligation is the - Correct Answer- Principal

A bond that guarantees that faulty work will be corrected and defective materials will be replaced for a period of one year or less that is usually provided with a performance bond at no additional cost is a - Correct Answer-Maintenance bond In bonds under this classification, the surety pays the entire bond penalty if the principal fails to complete the obligations. Which one of the following bond classifications is described? - Correct Answer-Forfeiture bonds Which one of the following developed in the United States to guarantee the large amounts of money involved in the country's industrial and commercial growth? - Correct Answer-Corporate suretyship An organization that uses its collected data to calculate loss costs that member company underwriters use to determine premiums for risks is - Correct Answer-The Surety and Fidelity Association of America (SFAA) Under a public official bond guaranteeing honestly of a treasurer - Correct Answer-He or she must account for the cash that he or she holds while in office Which one of the following statements provides an accurate description of license and permit bonds or their use? - Correct Answer-Licenses help regulate license holders through statutes, regulations, or ordinances, and they are backed by license and permit bonds The establishment of the formal contract between the surety, principal, and obligee that is offered to the principal is called - Correct Answer-Execution of a bond A pre-set surety bond credit limit - Correct Answer-Eliminates the need to reevaluate the contractor's need for every bond To reach a reasonable rate of return for their bond risks - Correct Answer-Sureties pay competent underwriters and agents competitive salaries and commissions A contractor's percentage-of-completion estimates - Correct Answer-Are based on the contractor's ability to estimate the cost to complete the project and recognize income and profit as they accrue during the project. Which one of these statements is true regarding the surety producer's role in a bonding relationship? - Correct Answer-The producer assists the contractor and the underwriter in the bond application and analyses; when the bond or credit line is approved by the underwriter, the producer assists with communication and continues as an integral part of the contractor's management team. Johnson Construction was approved for a $5 million/$20 million annual contract surety credit. A $5 million/$20 million contract surety credit line means that the surety is willing

to - Correct Answer-Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does not exceed $20 million Which one of the following statements regarding a surety's capacity is true? - Correct Answer-If a contractor appears to be outgrowing the surety's capacity, the producer should arrange a backup surety with adequate capacity to replace the first surety before reaching capacity The most effective and credible form of promotion for surety producers is - Correct Answer-Word-of-mouth advertising and referrals from the producer's satisfied clients Which one of the following statements is true regarding surety producer's promotion? - Correct Answer-Participating in professional seminars and construction industry associations is an excellent way to communicate to a target audience Jay is a surety bond producer. After receiving a standard letter of authority from a surety, he is allowed to approve which one of the following types of bonds without the surety's approval? - Correct Answer-Bankruptcy bonds Sureties compete for commercial surety bonds in this category on the basis of service to the agent and to the client and they usually offer substantial price discounts for accounts with larger clients. Which one of these categories of bonds is described? - Correct Answer-License and permit and miscellaneous bonds In the next step of the bond prequalification process, once the producer has compiled the contractor's financial documents showing significant liquidity, - Correct Answer-The producer may facilitate underwriter interviews to help determine the contractor's experience in meeting past contractual obligations A surety bond credit line covers the contractor's normal, anticipated bond needs. If a special situation develops that would cause a contractor to exceed the credit line, then - Correct Answer-The contractor and the producer should discuss the merits of the case with the underwriter to determine the desirability of an increased credit line Which one of the following is a factor of marketing that requires the surety producer to have education, training, knowledge, skill, and organization to provide professional service that clients need? - Correct Answer-Product Each of the following steps is performed toward the beginning of the development of a contract surety business plan EXCEPT: - Correct Answer-Change goals and action steps as the agency's strengths and market conditions change Which one of these categories of court bonds is underwritten on the basis of the principal's financial capacity? - Correct Answer-Judicial bonds

According to the law, companies that write credit enhancement financial guarantees - Correct Answer-Cannot write any other type of insurance within that company Alex is a contract surety bond underwriter. He expects that a surety producer will perform certain prequalification tasks before submitting a contractor as a prospective bond principal. Which one of the following prequalification responsibilities would include a clear and concise review of the contractor's company history, management, type of work, bidding history, trade and bank credit relationships, and five-year financial trend? - Correct Answer-Performing a credit analysis A pre-set credit line has which one of the following benefits? - Correct Answer-The limit enables the surety producer to service the contractor's normal bond needs more effectively and within the terms and conditions of the credit line A surety producer has developed a favorable percentage of the local bond market and has earned a reputation among local contractors for professional quality service. She has established which one of the following? - Correct Answer-Position Which one of the following categories of court bonds is written primarily on the basis of an attorney's character and reputation for trustworthiness? - Correct Answer-Fiduciary bonds When selecting a surety company for a bonding relationship with a contractor, - Correct Answer-The producer should consider the surety's suitability factors to the contractor's needs, including the sureties philosophies, financial capacity, stability, and comfort with the projects Field underwriting activities generally include which one of the following? - Correct Answer-Providing service to producers and policy holders As a loss control practice concerning large public official bonds, a surety may ask for which of the following to confirm that the governmental body has established an approved list of banks? - Correct Answer-Designation of depsitory Which one of the following is the only entity or individual that can make a claim against a public official bond? - Correct Answer-The government body that requires the bond Sally is the plaintiff in a court case. After losing her case in a lower court, she is appealing the judgement to a higher court. As the plaintiff, she is required to obtain an appeal bond. An appeal bond for the plaintiff's case guarantees the payment of which of the following? - Correct Answer-Costs of the appeal Which one of the following types of bonds are the most hazardous license and permit bonds that sureties write? - Correct Answer-Reclamation and environmental protection bonds

Which one of the following special characteristics of fidelity bonds is described by the following statement: The nature of the employment relationship provides the employees an opportunity to learn the firm's routines; schedules; and the existence, absence, or relative effectiveness of management controls. - Correct Answer-Property exposed to loss is accessible Which one of the following explains why a surety does not impose its own limitations on a public official bond? - Correct Answer-Because the law prescribes conditions for claims The fidelity loss control measure of divided responsibilities, under which employees who regularly handle cash do not also handle merchandise, is impractical for some small businesses. To address this situation, which of the following practices should the employer perform? - Correct Answer-Make frequent spot checks Financial reports are important in bond underwriting not only because they reveal an applicant's financial condition, but also because they reflect which one of the following about the applicant? - Correct Answer-Overall management ability An indemnity agreement does what to a surety's rights arising from common law? - Correct Answer-Extends them Keith claimed that his brother Charlie had unlawfully taken possession of his car. Keith was required to secure a bond in order to take the car back until the court rendered a decision. The bond guarantees that the car will remain in the same condition and will not be sold or otherwise disposed of. Which one of the following types of bonds was Keith required to obtain? - Correct Answer-Replevin bond Thomas is underwriting a fidelity bond application for a new firm that is not profitable due to high capitalization expenses. At the very least, Thomas should verify which one of the following? - Correct Answer-That the firm's founders have meaningful, sufficient experience in related work Deborah recently accepted a position as a home office underwriter for Jackson Insurance Company. Home office underwriting activities generally include which one of the following? - Correct Answer-Formulating underwriting policy Gina is a surety bond underwriter for Southern Surety. When evaluating an applicant/principal for a surety bond, she considers both subjective and objective factors. Which one of the following is an important subjective factor for Gina to consider? - Correct Answer-Character The contract surety indemnity agreement is - Correct Answer-The form most surety professionals think of when they hear the term "GAI" (general agreement of indemnity)

Generally, which one of the following types of individuals cause most public official bond losses? - Correct Answer-Dishonest individuals Courts often order attachment bonds to secure property when which one of the following individuals is within the court's jurisdiction? - Correct Answer-A nonresident defendant An example of a litigation bond used by a plaintiff or defendant in a lawsuit is a - Correct Answer-Replevin bond Compliance bonds with third-party liability allow a direct right of action against which party for damages a third party may suffer because of the principal's acts? - Correct Answer-Surety As a fidelity loss control measure, Stanton Industries should require that all employees take an annual vacation of at least how many consecutive days? - Correct Answer-Five A feature differentiating surety from insurance is that surety involves three parties, which include - Correct Answer-Obligee, principal, and surety Owners of most small businesses provide sureties with financial reports that - Correct Answer-Contain the same data they give to their banks to apply for loans Jonathan served as the Parks and Recreation Commissioner for his township for many years. After he retires, it was discovered that the accounts had not been kept up to date over the last 18 months and could not be reconciled. Jonathan's public official bond paid for the discrepancy in funds. This is an example of which one of the following types of performance problems that a public official bond would cover? - Correct Answer- Nonfeasance A fiduciary bond form has no cancellation provision. Therefore, the term of the bond continues until which one of the following events occurs? - Correct Answer-The court has relieved the fiduciary of all responsibilities AC Surety provided a forfeiture bond for Nolan Mining Company. Forfeiture bonds require the surety to pay what percentage of the bond penalty if the principal fails to complete the obligation? - Correct Answer- Thomas is a field underwriter for Stanton Insurance. Field underwriting activities generally include which one of the following? - Correct Answer-Selecting insureds Compliance-only or privilege bond penalties are usually - Correct Answer-Nominal Which one of the following in a bond applicant's personal and employment history provides the surety underwriter with evidence of good character? - Correct Answer- Timely trade payment record

In evaluating capacity for continuity planning, the underwriter considers what two factors? - Correct Answer-Continuity of management and continuity of ownership Working capital is the conventional measure of a firm's liquidity. By accounting standards, working capital is calculated as - Correct Answer-Current assets minus current liabilities As the new risk manager for Stanton Construction, Julie is trying to establish a successful contractor-producer-underwriter relationship. She realizes that it is in the contractor's best interest to ensure that the underwriter and producer remain fully informed. All of the following is necessary information that Julie should provide to the underwriter and producer EXCEPT: - Correct Answer-Her education and work history Kevin is a surety bond underwriter, who specializes in contract bonds. When evaluating a contractor's capacity, he likes to review the performance records for jobs completed in the past 5 years, and the contractor's work program for current and future jobs. Which one of the following would most likely cause Kevin to conduct a more careful underwriting evaluation? - Correct Answer-Multi-year future jobs in new geographical areas As a contract bond underwriter, Julian strives to maintain a successful contractor- producer-underwriter relationship. He is in frequent contact with the producer and contractor, and visits project sites with them. The contractor may also allow Julian to be in contact with the contractor's accountant, banker, and commercial insurance producer. Which one of the following attributes of a successful contractor-producer-underwriter relationship does this illustrate? - Correct Answer-Ongoing dialogue Which one of the following attributes of the contractor-producer-underwriter relationship requires periodic visits to the contractor's office, visits with the contractor, and meetings with the contractor's key people concerns? - Correct Answer-Ongoing dialogue Depending on the size and type of contract, either the plant or the equipment, or both, can be a crucial measure of a contractor's - Correct Answer-Capacity J&J Construction has applied for a contract bond with Goshen Surety. Jeremy, the bond underwriter is reviewing the contractor's financial statements and schedule of contracts in progress. When looking at the schedule of contracts in progress, he compares the job estimates with profit margins on past jobs that were similar in size, type, and duration. Jeremy notes that the profit margins on the previous jobs are significantly lower than the estimates shown in the current job schedule. This is an indication of which of the following? - Correct Answer-The contracts in progress schedule may reflect an optimistic forecast

Working capital is calculated as current assets minus current liabilities. All of the following would be considered current assets on a contractor's balance sheet, EXCEPT:

• Correct Answer-Accounts payable The underwriter must address the contract provisions for completing the work on time. Which one of the following is one of the standard solutions if the contractor does not complete the work on time? - Correct Answer-Liquidated damages Extending a line of credit to bond a contractor's future project is particularly useful for which one of the following situations? - Correct Answer-A larger contractor with frequent bond requests Which one of the following is the producer's ultimate objective in the contractor- producer-underwriter relationship? - Correct Answer-To be as responsive as possible to the contractor's needs while presenting business that is reasonably consistent with the surety's underwriting standards As part of the underwriting process, providing the surety with reliable and timely financial information and informing the surety of the business plan is the responsibility of which of the following? - Correct Answer-Contractor Which of these is one of the three factors that are focused on the contractor and are considered when underwriting contract bonds for construction? - Correct Answer- Capacity MAB Construction's balance sheet showed that it had current assets of $7 million and current liabilities of $5 million. What is MAB Construction's working capital? - Correct Answer-$2 million Hank is a contract surety bond underwriter. When monitoring the underwriting information of a contractor, an explanation is generally needed if the underwriter notices the contractor's bid reflects a difference from the next highest bid in excess of what percent? - Correct Answer-10% William is the surety producer and Jack is the surety underwriter for Stanton Construction. Stanton Construction is a large contractor that makes frequent bond requests. William and Jack have worked with Stanton Construction for a couple of years, and have an understanding of the contractor's projects and capabilities. Which one of the following could the surety do to strengthen its relationship with Stanton Construction? - Correct Answer-Extend a line of credit for future jobs. Julie is a bond underwriter. She is reviewing the balance sheet of a contractor applying for a contract bond. Which one of the following figures would give her an indication of the contractor's ability to pay debts on a timely basis? - Correct Answer-Working capital

Suzanne, a contract bond underwriter, is reviewing an applicant's financial statements. She wants to evaluate the degree of variability in contract volume, gross profits, overhead, and net profit over a period of time. Which one of the following financial statements should Suzanne review? - Correct Answer-Income statement The information that the surety underwriter organizes for the background investigation of a principal includes - Correct Answer-Public information, including the principal's legal filings, such as lawsuits, judgements, tax liens, bankruptcies, reorganizations, and Uniform Commercial Code filings As a surety underwriter, Peter must evaluate documents and information that is provided by the principal. Which one of the following documents could alert Peter of questionable assets or cash flow problems - Correct Answer-Age of accounts reports Which one of the following is a true statement regarding the North American Industry Classification System (NAICS)? - Correct Answer-The NAICS provide business classification codes along with trade line classifications, which indicate business products or services Johnny started baking and selling bread out of his home on weekends. His business was doing well, so he decided to buy a truck and expand the business to include deliveries to a few local restaurants. After two years, Johnny was struggling to stay on top of his bills and needed to reorganize. Which one of the following chapters of the Bankruptcy Reform Act allows small business owners to repay creditors over a period of time and retain possession of their assets? - Correct Answer-Chapter 13 Which one of the following includes sections of the Consumer Credit Protection Act that apply directly to the surety industry? - Correct Answer-Titles VI and VII Which one of the following identifies the government entity that has added specific requirement to meet the guidelines set out under Regulation B and provides explanations and clarifications? - Correct Answer-The Federal Reserve Board Which one of the following statement is true regarding the surety underwriter's evaluation of a surety principal? - Correct Answer-The underwriter needs to obtain current information quickly or risk making a bad decision on broad-based or outdated information Which one of the following statements is true regarding the principal as a source of underwriting information for bonding? - Correct Answer-The principal is the primary source of direct information, including identification, historical, management, financial, bank, and performance information Respectively, the credit terms ROI, slow 60, CIA, and COD mean - Correct Answer- Remit on receipt of invoice, payment was received 60 days after the due date, cash payment is required in advance, and cash is required on delivery

Which one of the following names a chapter of bankruptcy that contains provisions for corporate reorganizations- a means of preserving the going-concern value of a business enterprise to the benefit of all creditors through the elimination of the factors that created the distress? - Correct Answer-Chapter 11 Which one of the following statements is true regarding sureties and credit acts and laws? - Correct Answer-Sureties must be aware of continuous modifications by amendment, Federal Reserve Board staff commentaries, and the Federal Trade Commission Under the Fair Credit Reporting Act, which one of the following indicates circumstances under which a consumer reporting agency can legally furnish a consumer credit report?

• Correct Answer-As a response to a court order or a written request of the consumer who is the subject of the report Regina's Rugs has a special credit arrangement. It purchases goods for resale to third parties, and a bank finances the purchase price. The bank secures the loan with a lien on the goods and, when each item is sold, Regina's Rugs pays the lender the full amount due on that item. This arrangement is called - Correct Answer-A floor plan loan Government contracting officers were monitoring C&C Surety's fees with regard to minority and small business set-aside procurement programs. Which one of the following sections of the Consumer Credit Protection Act could be used to prosecute C&C Surety if the fees are found to be in violation of the act? - Correct Answer-Title II Which one of the following identifies a section of the Consumer Credit Protection Act that applies to all credit transactions, commercial and personal, without regard to the nature or type of credit or the creditor? - Correct Answer-Title VII, the Equal Credit Opportunity Act, which prevents creditors from discriminating against applicants on the basis of sex, marital status, race, color, religion, national origin, age, or receipt of public assistance income Reinsurers may transfer part of the liability that they have accepted in reinsurance agreement to other reinsurers, known as - Correct Answer-Retrocessionaires Smith Enterprises is a national plastics distributor with property values in excess of $ million spread throughout the country. Smith Enterprises want to insure all of its property exposures with the same insurer. Which function of reinsurance would be the most beneficial to Smith's primary insurer? - Correct Answer-Increase large-line capacity States Insurer has a $1,200,000 xs $200,000 per policy excess of loss treaty with Coastal Reinsurer. States sustains the following losses: Policy 1: $180, Policy 2: $400,

Policy 3: $1,500, How much will States Insurer retain for the loss under Policy 1? - Correct Answer- $180, Which one of the following statements is correct regarding the use of treaty and facultative reinsurance - Correct Answer-Most treaties require that all loss exposures within the treaty's terms be reinsured Reinsurers help primary insurers increase their large-line capacity by - Correct Answer- Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposure is called a - Correct Answer-Line Under a per occurrence excess of loss treaty, the attachment point and the reinsurance limit apply to - Correct Answer-The total losses arising from a single event affecting one or more policies. Which one of the following statements is correct regarding treaty reinsurance? - Correct Answer-A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them Crimson Casualty Company began insurance operations last year. The company experience phenomenal success and wrote far more premiums than expected. A representative from the state insurance department contacted Crimson Casualty and warned the company that it was growing too fast and risking insolvency. The insurance regulator added, "Of course you can use reinsurance to help remedy your situation." The regulator was referring to which one of the following functions of reinsurance? - Correct Answer-Using reinsurance to provide surplus relief Per risk excess of loss reinsurance covers - Correct Answer-Property insurance and applies separately to each loss occurring to each risk States Insurer has a $1,200,000 xs $200,000 per policy excess of loss treaty with Coastal Reinsurer. States sustains the following losses: Policy 1: $180, Policy 2: $400, Policy 3: $1,500, How much will States Insurer retain for the loss under Policy 2? - Correct Answer- $200, The ceding commission is paid by - Correct Answer-The reinsurer to the ceding company

Under a per policy excess of loss treaty, the attachment point and the reinsurance limit apply - Correct Answer-Separately to each insurance policy regardless of the number of losses occurring under each policy An insurer's ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide is - Correct Answer-Large-line capacity The two major types of pro rata reinsurance are - Correct Answer-Quota share and surplus share reinsurance Which one of the following statements is true with regard to excess of loss reinsurance?

• Correct Answer-Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance Allied Insurer has a $450,000 xs $150,000 per risk excess of loss reinsurance treaty with Omega Reinsurer. An insured with a limit of $1,000,000 sustains the following losses: Loss 1: $125, Loss 2: $500, Loss 3: $850, How much will Omega Reinsurer pay for Loss 1? - Correct Answer-$ ABS Insurance Company (ABS) has entered into a 60% quota share treaty with XYZ Reinsurance Company (XYZ). An $80,000 loss occurs that is subject to the reinsurance treaty. Under the terms of the treaty, how much would XYZ indemnify ABC for the loss?
• Correct Answer-$48, ABS Insurance Company has a 20% quota share treaty with XYZ Reinsurer. One of ABC's policies has a $1 million limit, a premium of $8,000, and a loss of $50,000. How much of the loss will XYZ Reinsurer pay? - Correct Answer-$10, The losses listed below arose from three policies and one occurrence: Policy Loss Amount 1 $300, 2 $600, 3 $800, Given the above losses, what is the difference between the amount of loss a primary insurer would recover under a $750,000 xs $250,000 per policy excess of loss reinsurance treaty versus a $1,000,000 xs $1,000,000 per occurrence excess of loss reinsurance treaty? - Correct Answer-$250, Boca Insurance Company enters a quota share reinsurance treaty with Beetle Reinsurance Company (Beetle Re). Boca retains 60% of each loss exposure subject to the treaty while reinsuring the remaining amount to Beetle Re. Assuming a $100,

loss occurs that is subject to this reinsurance agreement, Beetle Re's portion of the loss is - Correct Answer-$40, Which one of the following statements is correct with regard to reinsurance agreements and their functions? - Correct Answer-The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement. Which one of the following statements best describes the various types of excess of loss reinsurance? - Correct Answer-Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance. Reinsurance is - Correct Answer-An agreement under which the reinsurer indemnifies the primary insurer for losses sustained A type of reinsurance transaction that involves an agreement between the primary insurer and the reinsurer specifying how to transfer risks, that defines the eligible risks in terms of lines and classes of business, that specified the parties' obligations, and for which eligible risks are automatically reinsured, is - Correct Answer-Treaty reinsurance Treaty reinsurance - Correct Answer-Obligates the reinsurer to assume those loss exposures that fall within the treaty Which one of the following is correct with regard to an insurer's line and a large-line capacity? - Correct Answer-An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations Which one of the following statements is true regarding excess of loss reinsurance? - Correct Answer-Losses covered by an aggregate excess of loss treaty occur over a stated period, usually one year Blue Sky Enterprises wants to join with a small group of other organization to create an entirely new type of medical device for heart transplant patients. ABC Insurer is interested in working with the group to meet their insurance needs. However, ABC has no experience in the biotechnology field. Which function of reinsurance would be most beneficial to ABC Insurer? - Correct Answer-Provide underwriting guidance One reason that primary insurers purchase reinsurance for catastrophes is to - Correct Answer-Stabilize insurer earnings Plastics Manufacturing Company (PMC) operates globally with property values approaching $100 million. Liability exposures are considerable particularly for products liability. Because of its size, PMC decides to form a captive insurer. PMC's board of directors is unwilling to risk huge losses as the captive begins operations. Which function of reinsurance would be most beneficial to PMC and its captive insurer? - Correct Answer-Stabilize loss experience

A primary insurer uses reinsurance to - Correct Answer-Indemnify it for some or all of the financial consequences of certain loss exposures covered by the insurer's policies Fidelity bond claims - Correct Answer-Can expose an insurer to waiver of a condition precedent of bond contracts and defamation actions, if they are not handled properly Contract bond claims - Correct Answer-Can raise questions as to fault in the loss, whether the bonded principal or the obligee is responsible Which one of the following statements regarding legal research and unfair claims practices acts is true? - Correct Answer-Unfair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or policy provisions relating to coverages at issue Which one of the following statements regarding gathering information for surety claims is true? - Correct Answer-Claims personnel can gather most of the needed information for a surety claim by applying the questions of who, what, when, where, why, and how to the claim Surety claims against principals who appear to have resources to pay the claims can be referred to the principals and indemnitors who can respond before the surety must pay and before the surety seeks indemnification from them. This practice is called - Correct Answer-The vouching-in procedure When a claim is pending on a cosurety bond - Correct Answer-Each cosurety may establish a reserve for its cosurety share of the loss In proper handling of a fidelity loss, when can an insurer begin the loss investigation and when can claims personnel confront the insured? - Correct Answer-The insurer can begin the investigation, but claims personnel should not confront the insured before the insured has provided an executed proof of loss Which one of the following statement regarding fidelity bond claims is true? - Correct Answer-By promptly investigating a bond loss, an insurer may discover that it has recourse against persons or entities whose conduct caused or contributed to the loss, but it is not relevant to the proof of loss Which one of the following statements regarding surety compliance with statutes and regulations is true? - Correct Answer-Surety and fidelity contract are often prescribed by statute or regulation, including requirements for many license and permit bonds, fidelity coverages, and public official bonds Which one of the following statements is true regarding subrogation when a contract default has occurred and when the principal has admitted to it? - Correct Answer-The surety's most important right acquired through subrogation is the right of the obligee to use the contract consideration to complete the contract

Cosureties on a bond - Correct Answer-Often appoint one cosurety as the controlling cosurety to investigate, negotiate, and resolve the same claim and seek recover of the same losses and expenses Which one of the following is true regarding contract bond claims? - Correct Answer- Issues in a contract bond claim include payment to subcontractors and suppliers as well as the ultimate completion of the construction project Which one of the following statements is true regarding options available to surety claims personnel after a contract default occurs and the principal admits to it? - Correct Answer-The surety can demand that the principal and indemnitors execute mortgages and securities in the surety's favor and place them in a trust for any losses or expenses it sustains Which one of the following statements is true regarding financial reporting to reinsurers?

• Correct Answer-When a primary surety establishes reserves, it determines a reinsurance recoverable reserve and notes in the records that reinsurance reserves have reduced posted reserves Westmoreland Surety, as a contract surety, has loss reserves that are - Correct Answer-Intended to incur the loss on the surety's balance sheet in the year in which the loss is discovered Reinsurers and cosureties - Correct Answer-Require reports from the primary surety that a claim has arisen and that reserves, if any, have been established Which one of the following statements is true regarding the surety producers' marketing? - Correct Answer-By dividing a target market into more specific trade groups, an agency can tailor services, expertise, and promotional material to that group's needs. Springfield Dance Studio has been in business for 15 years, and most of the employees have worked there for over 10 years. In addition to the owner Theresa, there are 10 part-time dance instructors, 2 receptionists, and a bookkeeper. Because it is a small business, the bookkeeper makes daily deposits, handles payroll, and manages all other aspects of the checking account. Theresa recently discovered that over the last 18 months, the book keeper had been taking up to $2,500 in funds from the business on a monthly basis. Which one of the following loss control practices would have been most effective in preventing or mitigating this fidelity loss? - Correct Answer-Monthly account reconciliations Anita is a surety producer. She is compiling a contractor's financial documents to present to the surety underwriter. Which one of the following contractor's assets would encourage a surety to underwrite contract bonds for the contractor or to extend a line of credit for bonding? - Correct Answer-Quality stocks and bonds and accounts receivable

Ellen is a contract bond underwriter trying to assess a contractor's capacity in terms of management control. Which one of the following is the first step in the construction process that the contractor must demonstrate the ability to control? - Correct Answer- Estimating As a fidelity bond underwriter, Millie learned that many employers will not sign complaints or testify at criminal proceedings against their employees. They often wish to avoid damaging publicity; accept employees' "hard luck" stories; and wish to resolve matters quickly, especially when employees accused of theft promise restitution or are valuable employees. Millie's experience describes which one of the following unique characteristics of fidelity bonds? - Correct Answer-Management might be reluctant to prosecute employee thefts Porter Company's creditor offered the company a cash discount. The creditor's terms appear as "2/10 N 30" on a credit report. This means that - Correct Answer-The creditor offers a 2 percent (2/10) discount if the balance due is paid within ten days; otherwise payment is due in full within thirty days (N 30) Which one of these accurately reflects a characteristic of license and permit bonds? - Correct Answer-A license or permit bond frequently must be furnished to the appropriate public entity by those who need licenses or permits Which one of the following statements regarding the goals of the fidelity and surety claims process is true? - Correct Answer-Once the claims personnel have determined that the surety is probably liable to the obligee under the bond, they begin the information gathering process After many years of paying high premiums for workers compensation insurance, Shelton Manufacturing decided to file for self-insurance. Shelton Manufacturing was required to provide a bond which guarantees that the company will pay workers compensation benefits to their employees as required by law. Which one of the following types of bond does the company need to provide? - Correct Answer- Commercial surety bond When evaluating a contractor's capital, a contract bond underwriter will review the contractor's balance sheet. Which one of the following relationships between equity capital and debt capital would normally be most desirable for a bond underwriter? - Correct Answer-A bond underwriter would normally prefer to see a split of 70% equity capital and 30% debt capital Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin bonds - Correct Answer-More quickly and for smaller amounts

Which one of the following is true regarding commercial bond claims? - Correct Answer- Commercial bond claims can take time to establish the exact amount of the loss, as in the case of a guardian's bond Under a cosurety agreement for which a principal defaults on the bond, how is the cosurety's share of the risk determined and how are losses paid? - Correct Answer-The cosurety agreement defines each cosurety's share of the loss that is paid by the designated controlling cosurety, which then collects the agreed-upon portion of loss and expense amounts from each cosurety When a corporation has a number of subsidiaries that will all require bonds, what type of agreement can be used that would allow the parent to provide indemnity for its current subsidiaries and affiliates, as well as for companies it might acquire or form in the future. - Correct Answer-Omnibus agreement Joann is a contract surety bond underwriter. In addition to the information that she receives directly from the principal and financial institutions, she also likes to contract the bond obligee. The obligee of a contract bond can provide Joann with information on all of the following, EXCEPT: - Correct Answer-The amount of credit available Stanton Surety Agency has two producers with special bonding expertise for abatement and remediation contractors. The producers attend the annual convention for abatement and remediation contractors, and participate in industry seminars. The agency also advertises in trade publications. Which one of the following factors of marketing do these activities illustrate? - Correct Answer-Promotion Anthony is the surety producer for Coyle Construction (CC). CC has a pre-set annual surety credit line of $5 million/$30 million. About 3 months into the fiscal year, the contractor is bidding on a $8 million job and needs a bid bond. Which one of the following correctly describes Anthony's responsibility as the surety producer? - Correct Answer-Anthony should seek underwriting approval before executing the bid bond because it falls outside the $5 million job contract limit The City of Boston hired Shay Construction to perform a road paving contract that would last two years. The city required that Shay Construction obtain a surety bond to guarantee that the contractor fulfill its obligations under the contract. The surety bond was provided by CH Surety. Which one of the following is the obligee in this relationship? - Correct Answer-The City of Boston Quota share reinsurance is a type of pro rata reinsurance in which the primary insurer and the reinsurer - Correct Answer-Share the amounts of insurance using a fixed percentage As a surety underwriter, Andrew's objectives include writing a high percentage of public official bonds. Despite the potential legal and political issues, most sureties are eager to

write public official bonds because - Correct Answer-These bonds have proven to be profitable Shin Company is a large, strong company with a number of subsidiaries. The company has infrequent and relatively benign commercial bond needs. Which one of the following types of general agreement of indemnity (GAI) would the surety most likely use for Shin Company? - Correct Answer-Short form general agreement of indemnity Karen is a surety bond underwriter. She is working on contract bonds for a large heating, ventilation, and air-conditioning (HAVAC) job for James HVAC Services. In order to properly evaluate the contractor's capacity, she is asking questions about their fabrication facilities, and the methods used to obtain materials and equipment. Which one of the following attributes of James HVAC Services is Karen evaluating? - Correct Answer-Plant and equipment Which one of the following attributes of the contractor-producer-underwriter relationship requires underwriters and producers to follow their own underwriting convictions? - Correct Answer-Common goal After a contractor, Sam Eastbrook, admits that a contract default has occurred, surety claims specialist Haley considers a number of questions that help determine the next course of action. Which one of the following is a question Haley will use to evaluate this claim? - Correct Answer-What is the percentage of completion of each of the contractor's projects that are in progress? Large accounts should be monitored to ensure that when companies and subsidiaries or affiliates or are acquired by new owners, the new parties sign a new indemnity agreement. Otherwise, if a claim arises, the surety might have only which one of the following to fall back on? - Correct Answer-Its common-law rights A comparison of how surety operates with how insurance operates shows that underwriting must contrast the nature of insurance policies with bond forms. Which one of the following is a feature that is unique to insurance policies? - Correct Answer-They are typically filed with and approved by insurance departments in each state in which they are to be used Allison was underwriting a new account that another surety previously bonded. She was concerned that the contractor might have problems not readily apparent that might cause a potentially large loss. Which one of the following facts might indicate that such a loss is a particularly relevant concern? - Correct Answer-The contractor's prior surety refused to write a bond the contractor wanted Justin found a house that he wanted to buy, and applied for a mortgage. After being declined by several mortgage lenders, he learned that the consumers reports that the mortgage companies were using contained inaccurate information. Which one of the following sections of the Consumer Protection Act protects individuals like Justin from

inaccurate information in consumer reports that can affect eligibility for a mortgage? - Correct Answer-Title VI- Fair Credit Reporting Act Which one of the following statements regarding commercial transactions law is true? - Correct Answer-Under the UCC, a creditor receives a security interest in goods in return for granting credit to a buyer Producers of public official bonds serve themselves and their prospective principals by - Correct Answer-Offering their services in September after primary elections are over and the candidates are known The Barker Group hired Meyer Construction to build a new high-rise office building. As part of the construction contract, Meyer Construction was required to secure a number of contract bonds naming The Barker Group as the obligee. Which one of the following types of bond guarantees that bills incurred by the contractor for labor and materials will be fully paid at the completion of the project? - Correct Answer-Payment bond Which one of the following statements is true regarding the surety underwriter's use of information received from financial institutions? - Correct Answer-If the principal is highly dependent on a financial institution as determined from the information, then the conditions of the credit line are increasingly important to the surety Which one of the following statements is true regarding a surety producer's role in its performance of credit analyses? - Correct Answer-The producer's credit analysis includes a recommendation of a "responsible" line of surety credit and an appropriate work program to encourage the contractor's responsible growth Which one of the following types of bond would make a surety liable for the difference between what should have been collected and the amount that can be accounted for, even though a public official might not have been dishonest? - Correct Answer-Faithful performance bond Robert is the job estimator for Haley Brothers Construction (HBC). He was putting together a proposal for a large job, that would require HBC to hire a number of subcontractors. As part of the process. Robert required each subcontractor to provide a contract bond naming HBC as the obligee. The bond would guarantee that the subcontractor would enter into the contract to perform the work if the proposal was accepted. Which type of contract bond guarantees that the principal will enter into a contract and will provide the required bonds if the bid is accepted? - Correct Answer-Bid bond Bonds that are required by business entities and individuals to protect them from loss, and for which the obligation is dictated by the contract between the principal and the obligee and by the bond provisions, are - Correct Answer-Nonstatutory bonds

Douglas is reviewing the contract bond application for Gates General Contractors (GGC). After reviewing the schedule of contracts in progress, he decided that GGC required a more careful evaluation. Which one of teh following in GGC's schedule of contracts in progress would raise a reason for concern? - Correct Answer-The profit margins on previous jobs were significantly lower than the contractor's estimates for the current work in progress Which one of the following statements regarding bids is true? - Correct Answer-Usually, at least thirty days elapse from bid opening to contract award The state of Texas requires that Dallas Livestock obtain a bond to guarantee that it will pay the livestock farmers. Which one of the following types of bonds guarantee that buyers will pay farmers or other sellers of goods? - Correct Answer-Merchandising and dealer bonds Chester is a surety underwriter for LI Surety. In addition to determining the feasibility of the surety's undertaking a particular risk, the premium for the risk, and the conditions that the applicant should meet, the underwriter determines - Correct Answer-The necessity for the principal to file collateral In general, the Equal Credit Opportunity Act (ECOA) and Regulation B affect or preempt

• Correct Answer-Only state laws that are inconsistent with federal laws and only to the extent that they are inconsistent Which one of the following statements regarding recovery rights of the surety is true? - Correct Answer-Successful salvage procedures benefit the insurance-buying public in the same way that good management of insurance affairs generally benefits the public Typically businesses using compliance-only and permit bonds are which of the following? - Correct Answer-Construction related Anna is a commercial surety bond producer. The rates and premiums for the bonds that she provides do not vary greatly from one surety to another. In most cases, the bond principal must post cash or equivalent collateral with the surety. Anna generates business by providing convenient and superior service to local attorneys. Anna is a producer of which one of the following types of bonds? - Correct Answer-Court bonds Southern Insurance Company is concerned about its state's regulation limiting Southern's retention on any one exposure as well as several potential policyholders who are in the construction and blasting business. Southern realizes such businesses could be highly lucrative but also present higher loss exposures than the insurer has previously undertaken. Halley Reinsurance can help Southern increase its large-line capacity by - Correct Answer-Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain

Lisa is a contract surety bond underwriter. After reviewing the work-on-hand report for one of the contracting principals, she is concerned that the contractor has too much backlog relative to its financial position. Lisa will likely do which one of the following until the contractor demonstrates that the job programs as practically and financially feasible? - Correct Answer-Restrict future bidding for the contractor Aaron is a contract surety bond underwriter. When competitive bid results for a project become available, he likes to compare the bid of his principal contractor with those provided by other contractors. Which one of the following might cause Aaron to restrict performance, payment, maintenance bonds until the principal proves the adequacy of the bid price and profitability of the job? - Correct Answer-If his principal's bid differs from the next higher bid by more than 15% Which one of the following statements is true regarding financial reporting to reinsurers?

• Correct Answer-The primary surety should determine the reinsurance recoverable for losses and expenses paid and should regularly bill each reinsurer