AFSB 153 Exam Questions With 100% Correct Answers 2023, Exams of Advanced Education

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AFSB 153 Exam Questions With 100%

Correct Answers 2023

The four categories or commercial surety bonds - Correct Answer-License and Permit bonds Public Official bonds Court bonds Miscellaneous surety bonds License and Permit bonds - Correct Answer-Surety bonds that provide payment to the obligee ( the state, city, or other public entity) for loss or damage resulting from violations of the duties and obligations imposed on the licensee or permit holder. protects the general public and govt from financial losses incurred if principal fails to fulfill obligations. Also helps enforce standards of conduct for businesspersons or professionals Explosives license and permit bond - Correct Answer-A contractor that uses explosives in a demolition project must obtain an explosives permit bond Public official bonds - Correct Answer-Guarantees that the public official will perform his or her duties faithfully and honestly. ie. receiving, collecting, and properly accounting for all public funds. Federal official bonds - Correct Answer-Federal officials must post this bond ie. people who operate post offices from within their businesses such as stores contain these bonds. Court bonds - Correct Answer-A classification of bonds guaranteeing that a person or an organization will faithfully perform certain duties as prescribed by law or by a court or will demonstrate financial responsibility for the benefit of another until the final outcome of a court's decision 3 categories: Judicial bonds Admiralty bonds Fiduciary bonds Judicial bonds - Correct Answer-enable participants in lawsuits to pursue remedies in the courts.

Admiralty bonds - Correct Answer-apply in legal matters related to the sea and waterways. Cases that fall within admiralty usually are tried in the United States Federal Courts. Federal law require shipowners require shipowners to post admiralty bonds. If the property of others(cargo) is damaged, the bond guarantee that the principal will pay for damages and enable vessels and their cargoes to continue in their course of transit. Fiduciary bonds - Correct Answer-Fiduciary refer to persons or legal entities , such as administrators, guardians, and trustees who court appoints to manage,control, or dispose of property of others Miscellaneous bonds - Correct Answer-a classification of bonds that do not clearly fall within the scope of other commercial surety bond classifications. ie. gov't requires Airlines Reporting Corporation bonds to protect the public. However, most miscellaneous bonds such as Ocean transpiration intermediary bond arise from private relationships and support business transactions. Indemnify and collateral provision - Correct Answer-provision in bond forms to protect the surety if the principle fails to live up to its obligations. Underwriting commercial surety bonds - Correct Answer--Three party relationship -Principle liable to surety -Surety expects no losses -Influence of laws -Bond Penalty -Coverage for additional parties Loss Instrument bonds - Correct Answer-usually indefinite in term, although rating and billing are based on the local statute of limitations. 4 types of bonds terms - Correct Answer-non cancelable (open) term - bond until principal fulfill obligations. i.e. Fiduciary bonds renewable term- can extend term of bond by attaching continuation certificate continuous term- A bond that remains in force until canceled by the surety. - Preferred by surety. Surety prefer to write continuous term with cancellation clauses. definite term (term.)- Bond that remains in force for a specified period or time and expires at end of term ( can present sureties with cumulative liability) Cumulative liability - Correct Answer-Aggregate amount that an obligee can recover under two or more bonds filed in succession, from the same principal. Sureties use loss caps to avoid unlimited exposure created by cumulative liabilities.

Adverse Selection - Correct Answer-When the applicants that are most likely to default on bond applications are required to post bonds. ie. sales tax bonds might be required if the principal has failed to remit taxes by the due date. Loss Costs - Correct Answer-the portion of the rate that covers projected claim payments and loss adjusting expenses. Loss costs are advisory rates based solely on loss experience expense load - Correct Answer-actuaries use factors i.e. commisions, taxes, allocated expenses, reinsurance costs, desired profit, contingency to calculate multipliers. The multiplier is applies to the loss cost to calculate bond premiums. 4 categories of rate regulation procedures - Correct Answer--Prior approval- Most states require that insurance regulators approve rate before surety uses which is expenses. SFAA Loss costs benefits sureties that would require approval from each licensing state. -File and use- Some states require surety only to file before use -Use and File- A few states permit use before file -No filing required- A minority of states have open competition, allowing any surety to use any rate as long as the regulator is satisfied that the rate is reasonable, adequate, and not unfairly discriminatory 2 categories of filing rating plans - Correct Answer-- Rating plans surety uses for various bond classes (general filings) , includes debits and credits -Rating plan surety develops for individual bonds. Special Rate filing - Correct Answer-The surety files a lower rate for a specific bond for group members. ie. often applies to a license and permit bond that all association members must file. Loss reserves - Correct Answer-in all surety claims, amount of the expected loss should be the basis of reserve estimate on some occasions the reserve includes interest rate and lawyer and expert fees salvage - Correct Answer-after surety has paid claim, it seeks to recover its loss through indemnification of the principal and other indemnitors subrogation - Correct Answer-When surety pays claim it fulfills the principals obligation so the surety is subrogated to the principals rights and remedies.

Bc surety fills the role as obligee, surety claim personal can make claims against third parties on the principals behalf. i.e.. collect subrogation from third parties. Exoneration - Correct Answer-the surety's right to require a principal to perform or post collateral when a loss is imminent. If loss has not yet been paid, the surety can sue for exoneration by bringing an equitable claim against surety called "quia timet" -- enables the surety to attempt to attach assets to prevent principal from disposing them. Three general guarantees that license and permit bonds can provide: - Correct Answer--Compliance only- guarantee that principal will comply with laws that govern that business/entity. Low Risk. -Compliance bonds with third party liability-similiar to compliance only but also guarantee a this party right to sue principal. Forfeiture- can guarantee compliance only / compliance with 3rd party liability, if default surety pays entire bond penalty. SFAA classifications of License and Permit bonds - Correct Answer-Agricultural Contracting Customs Finance Franchise and ordinance Motor vehicle Reclamation, mining, and removal Retail services and professional licenses Tax and fees Warehousing All other license and Permit bonds Common license and permit bonds with high cumulative liability include: - Correct Answer-Milk dealer bonds Packers and Stockyard Act bonds Commission Merchant bonds 2 classifications of agricultural bonds - Correct Answer--Federal bonds required by the Packers and Stockyard act -Bonds required by states for other dealers Packers and Stockyard Act of 1921 - Correct Answer-regulates practices of businesses that buy and sell livestock, met, and poultry in the U.S and abroad. Intended to preserve competition in livestock industry. Principal- the party who sells or buy livestock on a commission basis , buys livestock as a dealer, provides clearing services for dealers and livestock market agencies obligee- Federal govt

Bond makes these guarantees: -Principal will properly remit funds to seller -properly keep accounting records -Comply with federal and state laws under act -Submit accurate, timely reports to GIPSA ( grain, Inspection, Packers and Stockyard Administration) Principal must establish a trust for proceeds of all livestock sales for the benefit of all unpaid cash sellers of the livestock. Parties who sell to packers on cash basis can make a claim against trust if packer becomes bankrupt or cannot pay. State Agricultural bonds (l&p) - Correct Answer-guarantee that dealers properly remit produce payments to agricultural producers in compliance with state law. Types of state agricultural bonds: -Milk dealers -State livestock dealers bonds -Commission merchant and produce dealers bond Sureties prefer agricultural bonds to be audited on an annual basis. Generally require collateral from principal and spouse. Losses are generally inevitable and require full payment of bond penalty. State agricultural bond claims (l&p) - Correct Answer-Claims reps must be aware of extraterritorial limits on state agricultural bonds. These limits restrict bonds to the state in which the bond was written. ie. if dealer obtains bond in California and sells in Nevada, nevada producer makes a claim against bond and bond form does not mention sales outside of state boundaries, claims rep can deny loss payment on bond by asserting extraterritorial limits. Commission Merchants and Producer Dealers bond (l&p) - Correct Answer-Required by state for producers of fruit and vegetation Contracting bonds (l&p) - Correct Answer-help ensure that contractors in construction and repair trades comply with building codes and safety standards. Some sureties offer bundles of pre-executed bonds for authorized producers to sell to contractors. Pre-executed bonds expedite serve and reduce delays for contractors. Underwriters usually write compliance only bond without reservation but should still careful evaluate, contractor experience, qualifications, and financial strength.

Customs bonds(l&p) - Correct Answer-Guarantee that principal will pay import duties, comply with Customs Border Patrol regulation, redeliver any merchandise imported illegally. -Surety must be licenses by Treasury Department -Customers Brokers - Approved by Custom Border Patrol and must file special powers of attorney Obligee-U.S govt. Sureties can cancel continuous bond by giving written notice to the CBP and principal 30 days before cancellation. However, sureties liability can continue for years since CBP may take a long time to make a determination on a good. CBP can make a claim for liquidated damages but in no case can a claim exceed the amount of the bond on the CPB Form 301. Finance Bonds (l&p) - Correct Answer-guarantee that those who collect funds such as securities payments, delinquent accounts receivable, insurance premiums, and down payments, on behalf of their clients deliver them properly. principal- trustee who collects the funds Many finance bonds are hazardous. Type of finance bonds -Blue Sky- principal is dealer of securities, obligee-state. Blue sky are hazardous and are written only for financial stable principles, ie. principals who are members of the major stock exchanges are less risky. -Check Sellers bonds-Principal- party that issues checks,money orders, foreign currency. obligee-state -Collection Agency bonds - principal collection agency, obligee state -Debt consilidators- principal business that collects funds for clients, obligee- state -Bonds associated with insurance - obligee is state, principal; is the agent, broker, adjuster etc. -Real estate bonds- principal - agent or broker obligee is the state -Small loan company bonds- obligee is state, principal is the lender -Title Insurance Company and Escrow officer bonds, obligee- state, principal- agent/officer Franchise Ordinance bonds (l&p) - Correct Answer-are Compliance bonds.. Guarantees that franchise will comply with applicable laws and pay any required commission. obligee- state, county, municipality, principal is the franchise operator Sureties often advertise to producers that they provide franchise ordinance bonds.

Claims for franchise ordinance bonds are usually uncomplicated Reclamation, mining, and formation (l&p) - Correct Answer-guarantee that operators that disturb land through mining and drilling reclaim the land and restore the land to a condition as near as possible to the condition before the operation began or a prescribed condition. Also require owners/operators to remove hazardous waste from operations. extremely Hazardous- Long tail liability and evironmental concerns. A state or federal agency begin Forfeiture process when principal refuses or unable to complete reclamation process. Sureties have few defenses to avoid forfeiture of reclamation bonds unless they can prove the obligee materially misrepresented the bond risk and prove: -obligee knew risk was increased beyond surety intended to assume -obligee knew surety was unaware of increased risk -obligee had reasonable opportunity to communicate the relevant info to surety. SFAA introduced incremental and phased bonding to reduce some of the hazard for sureties while honoring the intent of the law. Incremental bond- bond that covers a specified piece of a larger area of land within a issued mining permit Phased bond- bond that guarantees completion of specified phases of reclamation in the permit area. Office of Surface Mining - Correct Answer-Applies to coal mining -revegetation -backfilling and grading -monitoring new vegetation Department of the Interior's Bureau of Land Management - Correct Answer-responsible for regulating the oild industry. Well drillers and oil explorers must apply for permit license and bond. Obligee- federal government Retail Services and Professional License bonds - Correct Answer--Amusement enterprise bonds-- obligee- state/municipality, principal-business owner/operator -Auctioneer bonds- obligee-state/municipality, principal-auctioneer -Employment agency bonds- principal-agency, obligee-state

-Health spa bonds- obligee- state/munipality, principal-spa owner -Professional License bonds-Compliance only and sureties write without reservation. Obligee-state, county, municipality -School bonds- obligee is state, principal-school owner -Blasting, explosives, and fireworks bond- obligee-state/municipality Tax and Fee bonds - Correct Answer-generally financial guarantee bonds. tax/fees that generate substantial revenue to gov't-alcohol tax bond, tobacco tax bond, fuel tax bond, mileage tax bond, sales use consumer tax bonds, obligee-federal govt', state, muncipality Fuel tax bonds - Correct Answer--Gasoline refiners, pipelines, railroads, airlines- obligee is federal govt. -- guarantees they will pay taxes on the fuel they handle Fuel wholesaler and distributor- obligee state, principal is the distributer, wholesaler, etc. Watch for adverse selection. Motor carriers- require trucking firms to pose use tax bonds on volume of fuel consummated ( they use fuel when transport products on public highways)-- obligee is federal govt. principal is trucking firm. Mileage tax bond- similar to motor carrier that uses federal roads above. States require trucks that use state/ local roads to post mileage tax bonds. Obligee- state/municipality Warehouse and Grain Elevator bonds - Correct Answer-U.S Warehouse Act passed to protect producers and others who store their property in public warehouses and to set and maintain standards for safe warehouse operations including safe facilities and adequate insurance. federal ware house bond obligee- federal govt. State warehouse bond- state grain dealer bonds- obligee federal or state guarantees principal will pay the producer for grain sold. motor vehicle dealer bonds - Correct Answer-guarantee the principal will deliver a clear title to the buyer and will not engage in fraudulent acts such as turning back the odometer on vehicles sold, remit taxes to state, and priced warranty service to customers as promises. Moderate level of risk obligee is state- principal is dealer. Defective Title

Self Insurers and Financial responsibility bonds - Correct Answer-obligee-state Public official bonds - Correct Answer-guarantee that elected or appointed govt officials will act honestly or perform their duties faithfully -public official with administrative duties- sureties write these without reservation bc they seldom default but losses can occur with mistakes, neglectful, etc. -public official that handles public funds -public official that deals directly with the public Some laws hold public officials responsible for the acts and omissions of their subordinate. malfeasance - Correct Answer-the intentional wrongful duty of performance misfeasance - Correct Answer-the mistaken wrongful performance of duty nonfeasance - Correct Answer-the failure to perform a required duty Principal of Administrative Official Bonds - Correct Answer--Officers of School Systems -Officers of charitable organizations -Officers of reformatory and penal institutions -Officers such as commissioners of roads, bridges, drainage and irrigation districts -State boards and banking departments -Municipal officials such as assessors, judges, coroners, engineers Public Officials who handle public funds - Correct Answer-officials held liable for public funds loss by robbery, burglary or any other cause except acts of god. Guarantee payment for all such losses, making these bonds relatively hazardous. Govt entities establish depository guidelines. -Town, city, county, school treasurer -Tax collectors -Court clerks -Public institution superintendent, public administrators, public guardians

Principals with Direct Involvement with the Public - Correct Answer-Sherriffs Notary Deputies Marshals Constables Other peace officers

Qualifying bond - Correct Answer-A bond that a public official must post before assuming office. Official must post to " qualify" for office discretionary bond - Correct Answer-a bond required by a controlling authority who decides whether bond is required prescribes the bond terms. common law bond - Correct Answer-A bond that bases coverage on customary practices rather than laws. Administrator - Correct Answer-The individual appointed by a probate court to administer a decedent's estate when the decedent has died without leaving a will (intestate) administrator bond- principal is administrator, obligee-probate court, officer of the court, state. Most administrator bonds are short term. Underwriters generally consider this a desirable class of business. Letters of administration - Correct Answer-a legal instrument that a court issues to appoint an administrator Administrator duties - Correct Answer--Give notice to creditors -Collect estate assets (probate courts authorize administrators to receive,retain, manage, insure,sell to borrow against estate assets, continue or liquidate any business, invest funds not needed to meet debts, etc) -Complete inventory of assets -Pay claims against estate -Account for all receipts and disbursements -Distribute estate assets -Apply to court for discharge of administrative duties Administrator de bonis non - Correct Answer-An individual appointed by a probate court to replace an original administrator who died, resigned, or was discharged before completing the estate administration Administator cum testamento annexo - Correct Answer-An individual appointed by probate court to administer the estate of a deceased person who left a will but failed to appoint an executor or whose appointed executor did not meet the court approval or declined to serve as executor. Administrator Pendente Lite - Correct Answer-an individual appointed by a probate court to temporarily preserve the assets of decedents estate when the will is contested

and the person named executor cannot qualify or when a regular or permanent admin cannot be appointed for some other reason. Admin pendente lite does not pay any debts or distributes any assets. Sole preserves the estate, and if need be to protect estate from depreciation can be authorized to convert to cash any asset that might perish to depreciate in value.Surety underwriter require no special information to write these short term low risk bonds Administrator for the sale of real estate bonds - Correct Answer-When real estate must be sold to distribute an estate Letters testamentary - Correct Answer-A legal instrument that a court issues to approve the appointment of an executor. testator - Correct Answer-an individual who has made a will personal representatives - Correct Answer-an individual named by a person who dies leaving a will, who distributes and settles the deceased estate, especially in states that have adopted the Uniform Probate Code ( UPC) Guardian bonds - Correct Answer-Usually seen as long term bonds because the bond stay in force until minor reaches age of majority. A guardian handles all the minors affairs while the administrator merely liquidates the assets. trustee under a deed - Correct Answer-a testator or court appointed fiduciary that manages the real estate included in an deceased estate trustee under a will - Correct Answer-an executor who liquidates an estate, invests the assets, and manages the investments