AFSB 151 EXAM 2024/2025 WITH 100%

ACCURATE SOLUTIONS

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 an $8 million job
and needs a bid bond. Which one of the following correctly describes Anthony's responsibility as the
surety producer?

Select one:

A. Anthony should arrange a back-up surety with adequate capacity because CC appears to be
outgrowing the capacity of the current surety.

B. Anthony should execute the bid bond because it is within the $30 million annual line of credit.

C. Anthony should seek underwriting approval before executing the bid bond because it falls outside the
$5 million job contract limit.

D. Anthony should execute the bid bond, but will need to seek approval if CC is awarded the job. -
Precise Answer ✔✔C. Anthony should seek underwriting approval before executing the bid bond
because it falls outside the $5 million job contract limit.

Contract bond claims

Select one:

A. Require that, once the claim is made, the construction project and all affiliated activity, such as
materials and other resource delivery, must be halted until the loss is determined and paid.

B. Generally require that the surety consult fewer sources to determine the bond loss than are required
when investigating commercial surety and fidelity claims.

C. That are not handled promptly are not affected by variables such as the construction project,
materials, and weather conditions.

D. Can raise questions as to fault in the loss, whether the bonded principal or the obligee was
responsible. - Precise Answer ✔✔D. Can raise questions as to fault in the loss, whether the bonded
principal or the obligee was responsible.

Which one of the following statements regarding fidelity bond claims is true?

Select one:
A. There are no time limits for bringing claims under a fidelity bond, so an insurer does not need to be
concerned about whether the loss was discovered during the policy term.

B. The insured's prompt notice of loss and the fidelity's prompt investigation has no impact on the
insurer's liability, the cause of loss, or the insured's minimization of damages.

C. Mishandling of funds by people or entities not employed by the insured, such as auditors, lawyers, or
financial institutions, cannot be pursued by the insurer as a source of recovery.

D. 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 is not relevant to the proof of loss. -
Precise Answer ✔✔D. 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 is not relevant
to the proof of loss.

Which one of the following statements regarding legal research and unfair claims practices acts is true?

Select one:

A. Even when fidelity and surety businesses are not affected by unfair claims practices laws that
originate from individual consumers' concerns, state lawmakers require that they adhere to these laws.

B. Unfair claims practices acts can prevent sureties from adequately investigating fidelity and surety
claims so that standards for prompt settlement or denial can be met.

C. Because sureties can retain attorneys experienced in the fidelity and surety legal matters, claims
personnel do not require knowledge of legal rules and theories that govern such coverage and liability.

D. Unfair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or
policy provisions relating to coverages at issue. - Precise Answer ✔✔D. 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 surety compliance with statutes and regulations is
true?

Select one:

A. Courts may interpret any bond or fidelity policy provision to the insured's benefit whether or not it
prejudices an insurer's ability to investigate the claim.

B. Surety and fidelity contracts are often prescribed by statute or regulation, including requirements for
many license and permit bonds, fidelity coverages, and public official bonds.

C. Insurance policy forms are often subject to regulatory approval; however, laws cannot affect the
enforcement of rights and remedies under the policies.
D. When an obligee drafts a surety bond with provisions that are onerous to the surety, if the surety
executes the bond without objections, courts will interpret any dispute in the surety's favor. - Precise
Answer ✔✔B. Surety and fidelity contracts are often prescribed by statute or regulation, including
requirements for many license and permit bonds, fidelity coverages, and public official bonds.

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

Select one:

A. Exoneration.

B. Look-see money distribution.

C. Quia timet.

D. The vouching-in procedure. - Precise Answer ✔✔D. The vouching-in procedure.

When a claim is pending on a cosurety bond,

Select one:

A. Each cosurety may establish a reserve for its cosurety share of the loss.

B. The controlling cosurety is normally obligated to pay the full loss and request reimbursement from
the cosureties.

C. Each cosurety is allowed to take credit for the reinsurer's share of the reserve that the cosurety
establishes.

D. The controlling cosurety is not allowed to establish a reserve for any part of the loss. - Precise Answer
✔✔A. Each cosurety may establish a reserve for its cosurety share of the loss.

Fidelity bond claims

Select one:

A. Can expose an insurer to waiver of a condition precedent of bond contracts and defamation actions, if
they are not handled properly.

B. Have variable circumstances; therefore, the fidelity insurer's ultimate loss is rarely fixed when the
insured gives notice of the loss.

C. Offer protections to the fidelity insurer when a late notice of loss occurs, as late notice is typically a
valid defense for the insurer.
D. Require a proof of loss filed by the insured before an investigation begins, the claim is verified, and
the insured can be confronted. - Precise Answer ✔✔A. Can expose an insurer to waiver of a condition
precedent of bond contracts and defamation actions, if they are not handled properly

In proper handling of a fidelity loss, when can an insurer begin the loss investigation and when can
claims personnel confront the insured?

Select one:

A. The insurer can begin the investigation, but claims personnel should not confront the insured before
the insured has provided an executed proof of loss.

B. The insurer cannot begin the investigation until the insured has provided an executed proof of loss;
but claims personnel can confront the insured without the proof of loss.

C. The insurer can begin the investigation and claims personnel can confront the insured at any time
before the insured has provided an executed proof of loss.

D. The insurer cannot begin the investigation and claims personnel cannot confront the insured until the
insured has provided an executed proof of loss. - Precise Answer ✔✔A. 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 statements regarding gathering information for surety claims is true?

Select one:

A. Principals and obligees are usually more cooperative after the claim has been paid than during the
information-gathering process.

B. Separate information gathering sessions—to help resolve questions of liability and to determine the
possibility of enforcing rights the surety acquired—is more efficient and productive than one session.

C. When gathering claims information, the producer is the best source of evidence for recovery from
others.

D. 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. - Precise Answer ✔✔D. 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.

Which one of the following statements is true regarding subrogation when a contract default has
occurred and when the principal has admitted to it?

Select one:
A. Obligees cannot refuse to pay the principal's creditors and instead claim offsets for debts owed to
them by the principal, including damages allegedly due on the project.

B. The surety's most important right acquired through subrogation is the right of the obligee to use the
contract consideration to complete the contract.

C. The unpaid and unearned contract money is part of the contractor's property and may be used to
satisfy the principal's debts.

D. If the surety directly or indirectly remedies the contract defaults, it has no claim to any of the
obligee's rights. - Precise Answer ✔✔B. 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

Select one:

A. Have no right to individually investigate, negotiate, and resolve claims against the bond or to seek
recovery of their individual losses and expenses.

B. Often appoint one cosurety as the controlling cosurety to investigate, negotiate, and resolve the same
claim and seek recovery of the same losses and expenses.

C. Each establish their own reserve for the total estimated loss covered by the cosurety bond, taking
credit for the other cosureties' losses.

D. Are subject to the same accounting rules for reserves that relate to reinsurers when a claim is
pending on a cosurety bond. - Precise Answer ✔✔B. Often appoint one cosurety as the controlling
cosurety to investigate, negotiate, and resolve the same claim and seek recovery of the same losses and
expenses.

Which one of the following is true regarding contract bond claims?

Select one:

A. Issues in a contract bond claim include payment to subcontractors and suppliers as well as the
ultimate completion of the construction project.

B. The contract bond obligee must prove its right to recover from the surety by producing relevant data
about the circumstances that produced the loss.

C. Once the surety has appraised the status of the construction contract, changes in the contractor's
situation and the contract have no influence on the loss amount.

D. A construction contract bond loss is generally fixed at a certain point in time, so the loss amount can
be determined quickly and easily. - Precise Answer ✔✔A. Issues in a contract bond claim include
payment to subcontractors and suppliers as well as the ultimate completion of the construction project.
Westmoreland Surety, as a contract surety, has loss reserves that are

Select one:

A. Increased to account for the percentage of reinsurance collectible on the bond.

B. Established on both gross and net bases and include an expense reserve.

C. Based on the principal's estimated costs to complete the project and are usually relatively accurate.

D. Intended to incur the loss on the surety's balance sheet in the year in which the loss is discovered. -
Precise Answer ✔✔D. Intended to incur the loss on the surety's balance sheet in the year in which the
loss is discovered.

Reinsurers and cosureties

Select one:

A. Are both allocated a certain amount as their share of the reserves, and they may expect recoveries up
to that extent.

B. Perform their reporting function based on their arrangements with the primary surety with respect to
risks on which claims are pending.

C. Must be aware of the provisions of the primary surety's excess of loss treaties to determine whether
they apply to each case.

D. Require reports from the primary surety that a claim has arisen and that reserves, if any, have been
established. - Precise Answer ✔✔D. 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 options available to surety claims personnel
after a contract default occurs and the principal admits to it?

Select one:

A. 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.

B. The surety may permit obligees to complete their projects with alternate contractors selected by the
defaulting principal.

C. The surety must choose one option from among four basic options available to it.

D. Surety claims personnel are only concerned about completion of or payment for the defaulted
contract. - Precise Answer ✔✔
Which one of the following statements is true regarding financial reporting to reinsurers?

Select one:

A. When the primary surety establishes a reserve, it advises each reinsurer involved in the reserve that it
is established and discloses the net reserve amount.

B. When a primary surety establishes reserves, it determines a reinsurance recoverable reserve and
notes in the records that reinsurance reserves have reduced posted reserves.

C. State insurance laws and regulations do not permit primary sureties to take credit for the reinsurer's
share of the reserves.

D. Primary sureties may reduce losses and expenses paid by an account receivable only when the final
loss payment is made and all receivables have been billed to the reinsurer. - Precise Answer ✔✔B.
When a primary surety establishes reserves, it determines a reinsurance recoverable reserve and notes
in the records that reinsurance reserves have reduced posted reserves.

A basic type of bond that involves all situations in which sureties guarantee performance of obligations
that generally do not arise from contracts is

Select one:

A. Nonstatutory bonds.

B. Fidelity surety bonds.

C. Commercial surety bonds

D. Contract surety bonds. - Precise Answer ✔✔C. Commercial surety bonds

A surety bond is a written document in which one party guarantees a second party's

Select one:

A. Payment to a third party for the second party's failure to earn enough funds to repay the third party.

B. Answer to a third party for the second party's failure to resolve the third party's deficiency.

C. Satisfaction to a third party for the second party's failure to provide the requested collateral.

D. Performance to a third party for the second party's failure to fulfill an obligation. - Precise Answer
✔✔D. Performance to a third party for the second party's failure to fulfill an obligation.

group that educates the general public, legislative bodies, contractor associations, and others about the
benefits of surety bonds is

Select one:
A. The Surety and Fidelity Association of America (SFAA).

B. The National Association of Surety Bond Producers (NASBP).

C. The association of producers and underwriters.

D. The National Association of Independent Sureties (NAIS). - Precise Answer ✔✔B. The National
Association of Surety Bond Producers (NASBP).

Which one of the following characteristics is unique under American personal suretyship compared with
corporate suretyship?

Select one:

A. This form of suretyship was subject to common law.

B. This form of suretyship was subject to statutory law.

C. Surety bonds were required to be in writing.

D. Sureties were protected by laws that were favorable to them. - Precise Answer ✔✔D. Sureties were
protected by laws that were favorable to them.

Because most bonds are "joint and several liability" documents, the obligee can recover losses from

Select one:

A. Either the principal or the surety.

B. The principal or the surety, or from both.

C. Only the surety.

D. Only the principal. - Precise Answer ✔✔B. The principal or the surety, or from both.

Except in the case of a forfeiture bond, if the principal defaults, the surety will pay

Select one:

A. The amount of the obligee's actual loss, or the bond penalty, whichever is more.

B. The bond penalty, regardless of the obligee's actual loss amount.

C. Up to the bond penalty, but no more than the obligee's actual loss amount

D. The amount of the obligee's actual loss, minus the bond penalty. - Precise Answer ✔✔C. Up to the
bond penalty, but no more than the obligee's actual loss amount
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 thebond, the obligee is generally
entitled to be paid

Select one:

A. The revised amount of the principal's bid after additions for miscalculations that resulted in the bond
default.

B. The difference between the amount of the principal's bid and the next lowest bid the obligee finally
accepts.

C. The amount of the bid for the next lowest bidder, which the obligee finally accepts.

D. The amount of the principal's bid, as accepted by the obligee, with no additions or subtractions. -
Precise Answer ✔✔B. 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

Select one:

A. Frequently default on their obligations so their sureties demand collateral to counter losses.

B. Are seen as insurers of public funds and held liable for loss by any cause, including by an act of God.

C. Include commissioners, assessors, judges, coroners, town clerks, engineers, and auditors.

D. Are held liable for loss by burglary, robbery, or any cause except an act of God. - Precise Answer
✔✔C. Include commissioners, assessors, judges, coroners, town clerks, engineers, and auditors.

Under a public official bond guaranteeing the honesty of a treasurer,

Select one:

A. He or she could be held liable for depositing collections in a non-interest-bearing account.

B. He or she must furnish a bond that guarantees the faithful performance of duties.

C. He or she must account for the cash that he or she holds while in office.

D. He or she could be held liable for investing collections in an interest-bearing account. - Precise
Answer ✔✔C. He or she must account for the cash that he or she holds while in office.

A contractor's percentage-of-completion estimates

Select one:
A. Run the risk of declining over time, thereby reducing a contractor's ultimate profits.

B. Are disregarded by sureties because they are based on calculations of the contractor and are subject
to manipulations that make the contractor's financial status appear favorable.

C. 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.

D. Are determined by an accounting method devised to estimate profits on construction projects that
have been completed. - Precise Answer ✔✔C. 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 the following statements regarding a surety's capacity is true?

Select one:

A. The surety producer should not introduce a backup surety to the contractor until the original surety's
capacity is exceeded and action is required.

B. A surety's capacity grows with the contractor's job size and complexity, so a surety producer should
not need to arrange a backup surety.

C. A surety producer seeks to place a contractor with a surety that has a backup surety on retainer so
that the contractor does not outgrow the original surety's capacity.

D. 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. - Precise Answer
✔✔D. 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.

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

Select one:

A. The contractor is forced to decline the project. Taking on that project would cause the contractor to
overextend its resources and default on its bond.

B. The contractor and the producer should discuss the merits of the case with the underwriter to
determine the desirability of an increased credit line.

C. The contractor can seek approval from the producer to extend the credit line to accommodate the
project on a one-time basis.

D. The contractor can accept this project and exceed the credit line without prior approval after
supplying appropriate documentation to the surety underwriter. - Precise Answer ✔✔B. The contractor
and the producer should discuss the merits of the case with the underwriter to determine the
desirability of an increased credit line.
To reach a reasonable rate of return for their bond risks,

Select one:

A. Agents often reduce their own commissions to reduce the price of the surety bonds.

B. Sureties deny as many claims as possible without attracting the attention of state insurance
departments.

C. Sureties commonly target at least a 30 percent underwriting profit.

D. Sureties pay competent underwriters and agents competitive salaries and commissions. - Precise
Answer ✔✔D. Sureties pay competent underwriters and agents competitive salaries and commissions.

Each one of the following steps is performed toward the beginning of the development of a contract
surety business plan EXCEPT:

Select one:

A. Identify market threats and opportunities

B. Use the company's mission statement to guide plans and decisions

C. Identify primary competitors' strengths and weaknesses

D. Change goals and action steps as the agency's strengths and market conditions change - Precise
Answer ✔✔D. Change goals and action steps as the agency's strengths and market conditions change

Which one of the following categories of court bonds is written primarily on the basis of an attorney's
character and reputation for trustworthiness?

Select one:

A. Public official bonds

B. Municipal bond guarantees

C. Fiduciary bonds

D. Judicial bonds - Precise Answer ✔✔C. Fiduciary bonds

Which one of these categories of court bonds is underwritten on the basis of the principal's financial
capacity?

Select one:

A. Public official bonds

B. Reclamation bonds

C. Fiduciary bonds

D. Judicial bonds - Precise Answer ✔✔D. Judicial bonds

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?

Select one:

A. Formulating underwriting policy

B. Determining proper coverage

C. Classifying risks

D. Determining the appropriate rate or price - Precise Answer ✔✔A. Formulating underwriting policy

An indemnity agreement does what to a surety's rights arising from common law?

Select one:

A. Extends them

B. Eliminates them

C. Limits them

D. Duplicates them - Precise Answer ✔✔A. Extends them

The contract surety indemnity agreement is

Select one:

A. Used for large, strong companies with infrequent or relatively benign bond needs.

B. Used to incorporate a parental omnibus agreement.

C. The form most surety professionals think of when they hear the term "GAI" (general agreement of
indemnity).

D. Used for admiralty bonds. - Precise Answer ✔✔C. The form most surety professionals think of when
they hear the term "GAI" (general agreement of indemnity).

As a loss control practice concerning large public official bonds, a surety may ask for which one of the
following to confirm that the governmental body has established an approved list of banks?
Select one:

A. Declaration of designation

B. Depository of funds and securities

C. Declaration of funds and securities

D. Designation of depository - Precise Answer ✔✔D. Designation of depository

Which one of the following explains why a surety does not impose its own limitations on a public official
bond?

Select one:

A. Because not enough of these bonds are sold to have a sufficient confidence level to be actuarially
sound

B. Because the bond form is standardized

C. Because the law prescribes conditions for claims

D. Because the bonds are sold in a highly competitive market - Precise Answer ✔✔C. Because the law
prescribes conditions for claims

Courts often order attachment bonds to secure property when which one of the following individuals is
within the court's jurisdiction?

Select one:

A. A resident defendant

B. A resident plaintiff

C. A nonresident defendant

D. A nonresident plaintiff - Precise Answer ✔✔C. A nonresident defendant

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 bond was Keith required to obtain?

Select one:

A. Mechanic's lien bond

B. Injunction bond
C. Replevin bond

D. Attachment bond - Precise Answer ✔✔C. Replevin bond

Which one of the following types of bonds are the most hazardous license and permit bonds that
sureties write?

Select one:

A. Reclamation and environmental protection bonds

B. Compliance bonds with third-party liability

C. Forfeiture bonds

D. Merchandising and dealer bonds - Precise Answer ✔✔A. Reclamation and environmental protection
bonds

As a fidelity loss control measure, Stanton Industries should require that all employees take an annual
vacation of at least how many consecutive days?

Select one:

A. None

B. Five

C. Seven

D. Fourteen - Precise Answer ✔✔B. Five

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?

Select one:

A. Insist on annual vacations

B. Reconcile bank accounts monthly

C. Make frequent spot checks

D. Conduct periodic audits - Precise Answer ✔✔C. Make frequent spot checks

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:

Select one:

A. Reliable financial information

B. Work in progress and future projects

C. Her education and work history

D. Contractor's business plan - Precise Answer ✔✔C. Her education and work history

Which one of the following is the producer's ultimate objective in the contractor-producer-underwriter
relationship?

Select one:

A. To be as responsive as possible to the contractor's needs

B. To be as responsive as possible to the contractor's needs while presenting business that considers the
surety's underwriting standards to be advisory only

C. To be as responsive as possible to the contractor's needs while presenting business that is exactly
compliant with the surety's underwriting standards

D. To be as responsive as possible to the contractor's needs while presenting business that is reasonably
consistent with the surety's underwriting standards - Precise Answer ✔✔D. To be as responsive as
possible to the contractor's needs while presenting business that is reasonably consistent with the
surety's underwriting standards

In evaluating capacity for continuity planning, the underwriter considers what two factors?

Select one:

A. Continuity of workforce and continuity of operations

B. Continuity of management and continuity of ownership

C. Continuity of management and continuity of operations

D. Continuity of workforce and continuity of ownership - Precise Answer ✔✔B. Continuity of

management and continuity of ownership

Which of these is one of the three factors that are focused on the contractor and are considered when
underwriting contract bonds for construction?

Select one:
A. Creativity

B. Confidence

C. Consideration

D. Capacity - Precise Answer ✔✔D. Capacity

Working capital is the conventional measure of a firm's liquidity. By accounting standards, working
capital is calculated as

Select one:

A. Current assets plus current liabilities

B. Current assets divided by current liabilities

C. Current assets minus current liabilities

D. Current liabilities less current assets - Precise Answer ✔✔C. Current assets minus current liabilities

J & J Construction has applied for a contract bond with Goshen Surety. Jeremy, the bond underwriter, is
the 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 one of the following?

Select one:

A. The contractor's accountant is trying to deceive the bond underwriter.

B. The contracts in progress schedule may reflect an optimistic forecast.

C. J & J Construction has more jobs in the current year, than in prior years.

D. J & J Construction is requiring its customers pay larger deposits. - Precise Answer ✔✔B. The contracts
in progress schedule may reflect an optimistic forecast.

Extending a line of credit to bond a contractor's future projects is particularly useful for which one of the
following situations?

Select one:

A. A larger contractor with frequent bond requests

B. A larger contractor with infrequent bond requests

C. A smaller contractor with infrequent bond requests

D. A smaller contractor with frequent bond requests - Precise Answer ✔✔A. A larger contractor with
frequent bond requests

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?

Select one:

A. Liquidated penalty

B. Penalty damages

C. Liquidated clause

D. Liquidated damages - Precise Answer ✔✔D. Liquidated damages

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?

Select one:

A. Asset appraisals

B. Age of accounts reports

C. SEC 10K and 10Q reports

D. Commercial insurance policies - Precise Answer ✔✔B. Age of accounts reports

Which one of the following statements is true regarding the principal as a source of underwriting
information for bonding?

Select one:

A. Principals usually overstate their positive attributes and diminish the negative aspects of their
operations, which the underwriter perceives as a sign of confidence and success.

B. A compilation or another statement that the principal personally develops for the underwriter rarely
contains questionable or inaccurate information and requires no confirmation.

C. The principal is the primary source of direct information, including identification, historical,
management, financial, bank, and performance information.

D. Principals usually hide negative operation and credit information in the application process, so the
underwriter must dig into many resources to locate accurate information. - Precise Answer ✔✔C. The
principal is the primary source of direct information, including identification, historical, management,
financial, bank, and performance information.
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?

Select one:

A. Chapter 7

B. Chapter 11

C. Chapter 12

D. Chapter 13 - Precise Answer ✔✔B. Chapter 11

Which one of the following is a true statement regarding the North American Industry Classification
System (NAICS)?

Select one:

A. The NAICS provides business classification codes along with trade line classifications, which indicate
business products or services.

B. The NAICS classifies businesses based on each type of activity in which a business engages.

C. NAICS codes allow for consistent evaluation of business activities and their risks to protect consumers
and investor's interests.

D. The United States Bureau of Labor Statistics developed the NAICS in cooperation with Brazil and
Argentina. - Precise Answer ✔✔A. The NAICS provides business classification codes along with trade line
classifications, which indicate business products or services.

Which one of the following identifies the government entity that has added specific requirements to
meet the guidelines set out under Regulation B and provides explanations and clarifications?

Select one:

A. The United States House of Representatives

B. The United States Congress

C. The Federal Reserve Board

D. The Federal Trade Commission - Precise Answer ✔✔C. The Federal Reserve Board

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?
Select one:

A. As a response to a request from an individual who seeks the information for personal (nonbusiness)
reasons, such as the parents of a consumer's fiancée

B. As a response to a potential creditor seeking all bankruptcy information as part of an application for
credit that is less than $150,000

C. As a response to a written request from the spouse of a consumer who is the subject of the report

D. As a response to a court order or a written request of the consumer who is the subject of the report -
Precise Answer ✔✔D. As a response to a court order or a written request of the consumer who is the
subject of the report

Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other
reinsurers, known as

Select one:

A. Cedents.

B. Retrocessionaires..

C. Ceding reinsurers.

D. Direct insurers. - Precise Answer ✔✔B. Retrocessionaires..

Smith Enterprises is a national plastics distributor with property values in excess of $20 million spread
throughout the country. Smith Enterprises wants to insure all of its property exposures with the same
insurer. Which function of reinsurance would be most beneficial to Smith's primary insurer?

Select one:

A. Provide catastrophe protection.

B. Stabilize loss experience

C. Increase large-line capacity

D. Provide underwriting guidance - Precise Answer ✔✔C. Increase large-line capacity

A type of reinsurance in which the reinsurer evaluates the submission and can accept or reject it, and
which is often called "nonobligatory reinsurance," is

Select one:

A. Excess of loss reinsurance.

B. Facultative reinsurance.
C. Treaty reinsurance.

D. Pro rata reinsurance. - Precise Answer ✔✔B. Facultative reinsurance.

Under a per occurrence excess of loss treaty, the attachment point and the reinsurance limit apply to

Select one:

A. Each loss arising from a single event affecting one or more policies.

C. All losses from a single event affecting liability and property insurance within the same policy.

D. The total losses arising from a single event affecting one or more policies. - Precise Answer ✔✔D. The
total losses arising from a single event affecting one or more policies.

Which one of the following is true regarding contract bond claims?

Select one:

A. A construction contract bond loss is generally fixed at a certain point in time, so the loss amount can
be determined quickly and easily.

B. Once the surety has appraised the status of the construction contract, changes in the contractor's
situation and the contract have no influence on the loss amount.

C. The contract bond obligee must prove its right to recover from the surety by producing relevant data
about the circumstances that produced the loss.

D. Issues in a contract bond claim include payment to subcontractors and suppliers as well as the
ultimate completion of the construction project. - Precise Answer ✔✔D. Issues in a contract bond claim
include payment to subcontractors and suppliers as well as the ultimate completion of the construction
project.

In an unlimited cosurety arrangement, the obligee can collect

Select one:

A. The full loss from any of the cosureties up to the penal sum of the bond.

B. A proportionate share of the loss, up to the penal sum of the bond, from each cosurety.

C. Each cosurety's predefined share of the loss up to the penal sum of the bond.

D. The full loss from any of the cosureties without regard for the penal sum of the bond. - Precise
Answer ✔✔A. 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?

Select one:

A. WP Hospitality

B. Blue Surety

C. Green Builders

D. Subcontractors - Precise Answer ✔✔D. Subcontractors

he 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

Select one:

A. Principal.

B. Obligee.

C. Surety.

D. Third-party beneficiary. - Precise Answer ✔✔C. Surety.

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 bond would Ellen be
required to obtain?

Select one:

A. Fiduciary bond

B. Public official bond

C. License bond

D. Permit bond - Precise Answer ✔✔D. Permit 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?

Select one:
A. Compliance bonds

B. Compliance bonds with third-party liability.

C. Tax or fee bonds

D. Forfeiture bonds - Precise Answer ✔✔D. Forfeiture bonds

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?

Select one:

A. Performing a credit analysis

B. Selecting a surety

C. Compiling financial documents

D. Conducting a background investigation - Precise Answer ✔✔A. Performing a credit analysis

A pre-set credit line has which one of the following benefits?

Select one:

A. The surety underwriter must approve any contract that falls within the established credit line, limits,
terms, or conditions before execution of a bid bond.

B. The surety's regional offices have authority to approve bonds that exceed the pre-set credit line and
can avoid referring the applications to their home office.

C. The credit line is contingent on no material change occurring to the contractor's financial status and
management, and it is extended to all types of jobs throughout the United States.

D. 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. - Precise Answer ✔✔D. 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.

As a surety producer, Beth 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?

Select one:
A. Position

B. Price

C. Product

D. Promotion - Precise Answer ✔✔A. Position

The most effective and credible form of promotion for surety producers is

Select one:

A. Word-of-mouth advertising and referrals from the producer's satisfied clients.

B. Free publicity by writing articles for publication or offering quotes.

C. Active involvement in construction industry associations.

D. Prospecting through unsolicited calls or other informal contact. - Precise Answer ✔✔A. Word-of-
mouth advertising and referrals from the producer's satisfied clients.

According to the law, companies that write credit enhancement financial guarantees

Select one:

A. Follow stringent underwriting policies and rarely experience loss.

B. Receive leads from government departments that require credit enhancement guarantees.

C. Cannot write any other type of insurance within that company.

D. Must specialize in municipal bond guarantees. - Precise Answer ✔✔C. Cannot write any other type of
insurance within that company.

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?

Select one:

A. Public official bonds

B. License and permit and miscellaneous bonds.

C. Court bonds in civil proceedings

D. Financial guarantee bonds - Precise Answer ✔✔B. License and permit and miscellaneous bonds.
Owners of most small businesses provide sureties with financial reports that

Select one:

A. Are audited (but limited by the auditor).

B. Are fully audited (and unqualified).

C. Are audited (but qualified by the auditor).

D. Contain the same data they give to their banks to apply for loans. - Precise Answer ✔✔D. Contain the
same data they give to their banks to apply for loans.

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?

Select one:

A. Credit history

B. Financial reports

C. Character.

D. Bank letter of credit - Precise Answer ✔✔C. Character.

Jonathan served as the Parks and Recreation Commissioner for his township for many years. After he
retired, 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?

Select one:

A. Embezzlement

B. Misfeasance

C. Nonfeasance

D. Malfeasance - Precise Answer ✔✔C. Nonfeasance

Which one of the following is the only entity or individual that can make a claim against a public official
bond?

Select one:

A. The government body that requires the bond

B. The bonded individual

C. Members of the general public

D. The bonded individual's subordinate - Precise Answer ✔✔A. 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 judgment
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 one of the following?

Select one:

A. Judgment

B. Interest

C. Court costs

D. Costs of the appeal - Precise Answer ✔✔D. Costs of the appeal

A fiduciary bond form has no cancellation provision. Therefore, the term of the bond continues until
which one of the following events occurs?

Select one:

A. The fiduciary completes the nonclerical critical tasks.

B. The court has relieved the fiduciary of all responsibilities.

C. After a reasonable time period, regardless of whether the fiduciary has completed the nonclerical
critical tasks.

D. The court has relieved the fiduciary of the responsibility of completing the nonclerical critical tasks. -
Precise Answer ✔✔B. The court has relieved the fiduciary of all responsibilities.

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?

Select one:

A. Surety

B. Producer

C. Principal

D. Bond underwriter - Precise Answer ✔✔A. Surety

Which one of the following special characteristics of fidelity bonds is described by the following
statement: The nature of the employment relationship provides the employee an opportunity to learn
the firm's routines; schedules; and the existence, absence, or relative effectiveness of management
controls.

Select one:

A. Losses can be hidden.

B. Property exposed to loss is accessible.

C. The probability of severe loss greatly exceeds that in other kinds of crime.

D. Management control systems are the primary loss control devices. - Precise Answer ✔✔B. Property
exposed to loss is accessible.

Which one of the following attributes of the contractor-producer-underwriter relationship requires

periodic visits to the contractor's office, visits to project sites with the contractor, and meetings with the
contractor's key people concerns?

Select one:

A. Mutual understanding and trust

B. Communication

C. Common interests

D. Ongoing dialogue - Precise Answer ✔✔D. Ongoing dialogue

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?

Select one:

A. Strong convictions

B. Common goal

C. Open communication

D. Ongoing dialogue - Precise Answer ✔✔D. Ongoing dialogue

Kevin is 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?

Select one:

A. Future jobs of similar size and complexity to completed jobs

B. Completed jobs lasting 6-12 months

C. Completed jobs coming in close to the initial estimate

D. Multi-year future jobs in new geographical areas - Precise Answer ✔✔D. Multi-year future jobs in
new geographical areas

Which one of the following in a bond applicant's personal and employment history provides the surety
underwriter with evidence of good character?

Select one:

A. Numerous occupations

B. Timely trade payment record

C. Contractor's organization

D. Work in progress - Precise Answer ✔✔B. Timely trade payment record

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:

Select one:

A. Accounts receivable

B. Accounts payable

C. Inventory

D. Cash - Precise Answer ✔✔B. Accounts payable

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?

Select one:

A. Statement of retained earnings

B. Income statement

C. Schedule of contracts in progress

D. Balance sheet - Precise Answer ✔✔B. Income statement

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?

Select one:

A. 5%

B. 10%

C. 15%

D. 20% - Precise Answer ✔✔B. 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?

Select one:

A. Restrict performance, payment, and maintenance bonds

B. Extend a line of credit for future jobs

C. Eliminate complete on-time clauses in contracts

D. Eliminate the need for periodic work in progress reports - Precise Answer ✔✔B. Extend a line of
credit for future jobs

The information that the surety underwriter organizes for the background investigation of a principal
includes

Select one:

A. Data about all of the principal's employees, such as their names, ages, race, responsibilities,
experience, employment histories, education, credit histories, and business affiliations.

B. Identification information, including the principal's name; age; race; religion; address; phone number;
tax identification number; marital status; and spouse's employer, race, and religion.
C. Performance information on the largest contract the contractor was awarded, the contract amount,
whether it was completed as agreed, and whether the contractor defaulted on its bonds.

D. Public information, including the principal's legal filings, such as lawsuits, judgments, tax liens,
bankruptcies, reorganizations, and Uniform Commercial Code filings. - Precise Answer ✔✔D. Public
information, including the principal's legal filings, such as lawsuits, judgments, tax liens, bankruptcies,
reorganizations, and Uniform Commercial Code filings.

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

Select one:

A. A floor plan loan.

B. A consignment.

C. A special term.

D. A bulk transfer. - Precise Answer ✔✔A. A floor plan loan.

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?

Select one:

A. 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.

B. Title I, the Truth in Lending Act, which ensures a meaningful disclosure of credit terms to consumers

C. Title V, the Credit Card Issuance Act, amended by the Credit Card Accountability Responsibility and
Disclosure Act of 2009, which controls issuance and misuse of credit cards

D. Title II, which prevents organized crime relating to credit extensions - Precise Answer ✔✔A. 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.

Which one of the following includes sections of the Consumer Credit Protection Act that apply directly
to the surety industry?

Select one:
A. Titles VI and VII

B. Titles II, IV, and VI

C. Titles I, II, and VI

D. Titles I through V - Precise Answer ✔✔A. Titles VI and VII

Reinsurers help primary insurers increase their large-line capacity by

Select one:

A. Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain

B. Supplementing primary insurers' earnings.

C. Influencing regulations related to the maximum amount of insurance allowed.

D. Providing high layers of insurance above the underlying limits. - Precise Answer ✔✔A. Accepting
liability for loss exposures that the primary insurer is unwilling or unable to retain

he maximum amount of insurance or limit of liability that an insurer will accept on a single loss
exposures is called a

Select one:

A. Loss limit.

B. Line.

C. Novation.

D. Retrocession. - Precise Answer ✔✔B. Line.

A replenishment of policyholders' surplus provided by the ceding commission paid to the primary
insurer by the reinsurer is

Select one:

A. The capacity ratio.

B. Large-line capacity.

C. Surplus relief.

D. A portfolio. - Precise Answer ✔✔C. Surplus relief.

Per risk excess of loss reinsurance covers

Select one:

A. Property insurance and applies separately to each loss occurring to each risk.

B. Liability insurance and applies to each loss occurring from each occurrence.

C. Property insurance and applies to the total of all losses occurring from one risk.

D. Workers compensation insurance and applies to the total of all losses occurring from one risk. -
Precise Answer ✔✔A. Property insurance and applies separately to each loss occurring to each risk.

Which one of the following statements regarding fidelity bond claims is true?

Select one:

A. Mishandling of funds by people or entities not employed by the insured, such as auditors, lawyers, or
financial institutions, cannot be pursued by the insurer as a source of recovery.

B. There are no time limits for bringing claims under a fidelity bond, so an insurer does not need to be
concerned about whether the loss was discovered during the policy term.

C. The insured's prompt notice of loss and the fidelity's prompt investigation has no impact on the
insurer's liability, the cause of loss, or the insured's minimization of damages.

D. 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 is not relevant to the proof of loss. -
Precise Answer ✔✔D. 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 is not relevant
to the proof of loss.

Which one of the following statements regarding legal research and unfair claims practices acts is true?

Select one:

A. Unfair claims practices acts can prevent sureties from adequately investigating fidelity and surety
claims so that standards for prompt settlement or denial can be met.

B. Even when fidelity and surety businesses are not affected by unfair claims practices laws that
originate from individual consumers' concerns, state lawmakers require that they adhere to these laws.

C. Unfair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or
policy provisions relating to coverages at issue.

D. Because sureties can retain attorneys experienced in the fidelity and surety legal matters, claims
personnel do not require knowledge of legal rules and theories that govern such coverage and liability. -
Precise Answer ✔✔C. Unfair claims practices acts prohibit sureties and insurers from misrepresenting
pertinent facts or policy provisions relating to coverages at issue.
Westmoreland Surety, as a contract surety, has loss reserves that are

Select one:

A. Intended to incur the loss on the surety's balance sheet in the year in which the loss is discovered.

B. Based on the principal's estimated costs to complete the project and are usually relatively accurate.

C. Increased to account for the percentage of reinsurance collectible on the bond.

D. Established on both gross and net bases and include an expense reserve. - Precise Answer ✔✔A.
Intended to incur the loss on the surety's balance sheet in the year in which the loss is discovered.

Which one of the following statements is true regarding financial reporting to reinsurers?

Select one:

A. State insurance laws and regulations do not permit primary sureties to take credit for the reinsurer's
share of the reserves.

B. When the primary surety establishes a reserve, it advises each reinsurer involved in the reserve that it
is established and discloses the net reserve amount.

C. When a primary surety establishes reserves, it determines a reinsurance recoverable reserve and
notes in the records that reinsurance reserves have reduced posted reserves

D. Primary sureties may reduce losses and expenses paid by an account receivable only when the final
loss payment is made and all receivables have been billed to the reinsurer. - Precise Answer ✔✔C. When
a primary surety establishes reserves, it determines a reinsurance recoverable reserve and notes in the
records that reinsurance reserves have reduced posted reserves

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 the following in GGC's schedule of contracts in progress would raise a reason for concern?

Select one:

A. The profit margins on previous jobs were significantly lower than the contractor's estimates for the
current work in progress

B. The profits earned to date on nearly completed jobs are slightly higher than the estimated profits for
those jobs.

C. The schedule shows current jobs are similar in size, type, location, and complexity to previously
completed jobs.

D. The schedule shows a job with an adjusted contract price due to change orders mid-project. - Precise
Answer ✔✔A. The profit margins on previous jobs were significantly lower than the contractor's
estimates for the current work in progress
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?

Select one:

A. Short form general agreement of indemnity

B. Parental general agreement of indemnity

C. Contract surety indemnity agreement

D. Individual surety indemnity agreement - Precise Answer ✔✔A. Short form general agreement of
indemnity

Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin bonds

Select one:

A. More quickly and for larger amounts.

B. More quickly and for smaller amounts.

C. More slowly and for smaller amounts.

D. More slowly and for larger amounts. - Precise Answer ✔✔B. More quickly and for smaller amounts.

Producers of public official bonds serve themselves and their prospective principals by

Select one:

A. Writing bonds from various categories to offset the less profitable public official bonds.

B. Recognizing that some government entities purchase qualifying bonds directly from their officials.

C. Offering their services in September after primary elections are over and the candidates are known.

D. Attending legislative committee meetings to learn about bond requirements presented in existing
laws. - Precise Answer ✔✔C. Offering their services in September after primary elections are over and
the candidates are known.

Which one of the following statements regarding recovery rights of the surety is true?

Select one:

A. Successful salvage collection procedures benefit the insurance-buying public in the same way that
good management of insurance affairs generally benefits the public.
B. The right of indemnification applies to suretyship and is extended to the surety within the bond
contract as a common-law obligation of the bond principal.

C. In a fidelity claim founded on employee dishonesty, the insurer will have no rights against a person,
other than the employee, including any person who collaborated with the employee.

D. In a claim founded on a forgery, the insurer will have no rights against parties who were innocent of
intent to do wrong, but who may have legal obligations to the insured. - Precise Answer ✔✔A.
Successful salvage collection procedures benefit the insurance-buying public in the same way that good
management of insurance affairs generally benefits the public.

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?

Select one:

A. Management controls are the primary loss control devices.

B. Management might be reluctant to believe that some employees are thieves

C. Management might be reluctant to prosecute employee thefts.

D. Losses can be hidden. - Precise Answer ✔✔C. Management might be reluctant to prosecute
employee thefts.

Which one of the following statements is true regarding the surety underwriter's use of information
received from financial institutions?

Select one:

A. The surety can obtain information from a financial institution without getting prior authorization from
the principal and is privy to any information the financial institution has.

B. A loan commitment letter from a bank showing a high rate of interest and collateral requirements
indicates the bank's strong degree of confidence in the principal.

C. 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.

D. The surety underwriter accepts all forms of collateral that a financial institution offers, and the surety
can demand a higher priority on jointly held collateral than a financial institution. - Precise Answer ✔✔C.
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.
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 bookkeeper 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?

Select one:

A. Monthly account reconciliations

B. Mandatory annual vacations

C. Annual inventories

D. New hire reference checks - Precise Answer ✔✔A. Monthly account reconciliations

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?

Select one:

A. Public official bonds

B. Court bonds

C. License bonds

D. Municipal bonds - Precise Answer ✔✔B. Court bonds

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?

Select one:

A. They are typically filed with and approved by insurance departments in each state in which they are
to be used

B. They incorporate statutes or other legal documents by reference, thereby extending the obligation
beyond the language of the policy itself

C. Special forms drafted for unique circumstances

D. Special forms drafted to exclude specific elements - Precise Answer ✔✔A. They are typically filed with
and approved by insurance departments in each state in which they are to be used
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?

Select one:

A. Maintenance bond

B. Performance bond

C. Payment bond

D. Bid bond - Precise Answer ✔✔D. Bid bond

Typical businesses using compliance-only and permit bonds are which one of the following?

Select one:

A. Oil and gas producers

B. Construction related

C. Dealers in agricultural products

D. Motor vehicle dealers - Precise Answer ✔✔B. Construction related

Which one of these accurately reflects a characteristic of license and permit bonds?

Select one:

A. A license or permit bond frequently must be furnished to the appropriate public entity by those who
need licenses or permits.

B. License and permit bonds are common types of contract surety bonds.

C. Because license and permit bonds are not statutory, they contain language reflecting the
requirements of the occupation or profession.

D. The obligee of license and permit bonds is usually an individual or organization. - Precise Answer
✔✔A. A license or permit bond frequently must be furnished to the appropriate public entity by those
who need licenses or permits.
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.

Select one:

A. Omnibus agreement

B. Parental indemnity agreement

C. Subsidiary indemnity agreement

D. Subsidiary omnibus agreement - Precise Answer ✔✔A. Omnibus agreement

Which one of the following statements is true regarding surety producers' marketing?

Select one:

A. For surety producers, general marketing efforts are often more productive than a targeted marketing
effort that focuses on specific business segments.

B. The four Ps of marketing, product, promotion, portability, and position, help surety producers
successfully market bonds.

C. By dividing a target market into more specific trade groups, an agency can tailor services, expertise,
and promotional material to that group's needs.

D. Developing a target market helps a surety producer develop a sphere of influence with surety
underwriters. - Precise Answer ✔✔C. By dividing a target market into more specific trade groups, an
agency can tailor services, expertise, and promotional material to that group's needs.

Which one of the following is true regarding commercial bond claims?

Select one:

A. Future events and behavior have a tremendous effect on the extent of the surety's liability.

B. Commercial bond claims can take time to establish the exact amount of the loss, as in the case of a
guardian's bond.

C. Under commercial bond claims, the dollar amount of a bond loss is usually a variable amount and is
not fixed.

D. Most commercial bond claims involve many varied circumstances that contribute to the extent of the
surety's liability. - Precise Answer ✔✔B. Commercial bond claims can take time to establish the exact
amount of the loss, as in the case of a guardian's bond.

Which one of the following statements regarding bids is true?

Select one:

A. Any spread greater than 30 percent between the contractor's low bid and the second bidder must be
communicated to the underwriter before the bonds are authorized.

B. Bid bonds and bid results can be furnished to the surety underwriter only upon submission the bond
or credit line application.

C. Usually, at least thirty days elapse from bid opening to contract award.

D. Any irregularities in the contractor's high bid must be communicated to the underwriter immediately.
- Precise Answer ✔✔C. Usually, at least thirty days elapse from bid opening to contract award.

Which one of the following attributes of the contractor-producer-underwriter relationship requires

underwriters and producers to follow their own underwriting convictions?

Select one:

A. Ongoing dialogue

B. Common goal

C. Communication

D. Mutual understanding and trust - Precise Answer ✔✔B. Common goal

Karen is a surety bond underwriter. She is working on contract bonds for a large heating, ventilation,
and air-conditioning (HVAC) 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?

Select one:

A. Credit reports

B. Plant and equipment

C. Management control

D. Continuity planning - Precise Answer ✔✔B. Plant and equipment

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?

Select one:
A. Education

B. Experience

C. Estimating

D. Funding - Precise Answer ✔✔C. Estimating

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?

Select one:

A. Forfeiture bonds

B. Tax or fee bonds

C. Merchandising and dealer bonds

D. Compliance bonds with third-party liability - Precise Answer ✔✔C. Merchandising and dealer bonds

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

Select one:

A. These bonds have proven to be profitable

B. They want to perform a needed public service.

C. They benefit from favorable tax treatment.

D. They are required by insurance regulations to offer these bonds. - Precise Answer ✔✔A. These bonds
have proven to be profitable

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

Select one:

A. Fiduciary bonds.

B. Nonstatutory bonds.

C. Commercial surety bonds.

D. Statutory bonds. - Precise Answer ✔✔B. Nonstatutory bonds.

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?

Select one:

A. Faithful performance bond.

B. Malfeasance bond

C. Fiduciary bond

D. Collection bond - Precise Answer ✔✔A. Faithful performance 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?

Select one:

A. A bond underwriter would normally prefer to see a 50/50 split between equity capital and debt
capital.

B. A bond underwriter would normally prefer to see a split of 70% equity capital and 30% debt capital.

C. A bond underwriter would normally prefer to see a split of 30% equity capital and 70% debt capital.

D. A bond underwriter would normally prefer to see 100% of the contractor's capital being debt capital.
- Precise Answer ✔✔B. A bond underwriter would normally prefer to see a split of 70% equity capital
and 30% debt capital.

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?

Select one:

A. Bid bond

B. Maintenance bond

C. Performance bond

D. Payment bond - Precise Answer ✔✔D. Payment bond

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 contact the bond obligee. The obligee of a
contract bond can provide Joann with information on all of the following, EXCEPT:

Select one:

A. The amount of credit available

B. The principal's progress in fulfilling obligations

C. The underlying contract obligations

D. The reason the bond is required - Precise Answer ✔✔A. The amount of credit available

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?

Select one:

A. 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.

B. The cosurety agreement specifies the designated controlling surety, which pays the entire loss and
then collects an equal portion of the loss and expense amounts from each cosurety.

C. The cosurety agreement defines each cosurety's share of the loss that is paid by the first named
cosurety in the agreement, which then collects the agreed-upon portion of loss and expense amounts
from each cosurety.

D. The cosurety agreement defines each surety that provides a specified type of bond for the principal;
the surety for the specified bond pays the loss an - Precise Answer ✔✔A. 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.

Which one of the following statements regarding the goals of the fidelity and surety claims process is
true?

Select one:

A. As part of determining the surety's liability under the bond, claims personnel should determine the
existence of the surety's obligation to the producer and the extent of liability, if any.

B. As part of determining the surety's liability under the bond, claims personnel should assume the
surety is fully liable for all claims that are presented to the surety.
C. Surety personnel do not begin considering the surety's options for recovering from the principal or
mitigating the loss until after the claim has been paid.

D. Once the claims personnel have determined that the surety is probably liable to the obligee under the
bond, they begin the information gathering process. - Precise Answer ✔✔D. Once the claims personnel
have determined that the surety is probably liable to the obligee under the bond, they begin the
information gathering process.

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

Select one:

A. The facts in a bond default case.

B. How the surety should settle a bond claim.

C. Whether to recommend the bond applicant.

D. The necessity for the principal to file collateral. - Precise Answer ✔✔D. The necessity for the principal
to file collateral.

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 $100,000 loss occurs that is subject to this reinsurance agreement,
Beetle Re's portion of the loss is

Select one:

A. $0.

B. $40,000.

C. $60,000.

D. $100,000. - Precise Answer ✔✔B. $40,000.

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?

Select one:

A. Contract surety bond

B. Fidelity surety bond.

C. Commercial surety bond

D. Performance surety bond - Precise Answer ✔✔C. Commercial surety bond

Which one of the following statements is true regarding a surety producer's role in its performance of
credit analyses?

Select one:

A. The producer's credit analysis should include a recommendation of a "responsible" line of surety
credit and an appropriate work program to encourage the contractor's responsible growth.

B. Producers assist contractors and sureties when they recommend a credit line for a contractor that is
smaller than the contractor's experience and finances support because it reduces the chance of bond
default.

C. Producers help contractors when they recommend a slightly larger credit line than the contractor's
experience and finances support, because it will enable the producer to grow its business.

D. The producer's credit analysis should be lengthy and contain full details on the contractor's history,
organization, management, performance, financial performance and condition, and related items. -
Precise Answer ✔✔A. The producer's credit analysis should include a recommendation of a
"responsible" line of surety credit and an appropriate work program to encourage the contractor's
responsible growth.

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?

Select one:

A. The contractor had an uncooperative certified public accountant or banker.

B. The contractor had a personality conflict with the prior surety.

C. The contractor had a personality conflict with the prior producer.

D. The contractor's prior surety refused to write a bond the contractor wanted. - Precise Answer ✔✔D.
The contractor's prior surety refused to write a bond the contractor wanted.

Large accounts should be monitored to ensure that when companies add 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?

Select one:
A. An obsolete indemnity agreement

B. Its common-law rights

C. The three-party surety agreement

D. The bond form - Precise Answer ✔✔B. Its common-law rights

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?

Select one:

A. Restrict future bidding for the contractor

B. Reduce the contractor's line of credit

C. Forfeit existing bonds for the contractor

D. Increase the contractor's line of credit - Precise Answer ✔✔A. Restrict future bidding for the
contractor

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 Credit
Protection Act protects individuals like Justin from inaccurate information in consumer reports that can
affect eligibility for a mortgage?

Select one:

A. Title I - Truth in Lending Act

B. Title IV - National Commission on Consumer Finance

C. Title VI - Fair Credit Reporting Act

D. Title VII- Equal Credit Opportunity Act - Precise Answer ✔✔C. Title VI - Fair Credit Reporting Act

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, and
maintenance bonds until the principal proves the adequacy of the bid price and profitability of the job?

Select one:

A. If his principal's bid differs from the next higher bid by more than 15%
B. If his principal's bid is within 5% of the other contractors

C. If his principal's bid differs from the next higher bid by more than 10%

D. If his principal's bid includes ca complete on-time clause - Precise Answer ✔✔A. If his principal's bid
differs from the next higher bid by more than 15%

In general, the Equal Credit Opportunity Act (ECOA) and Regulation B affect or preempt

Select one:

A. State laws that are more protective than ECOA and Regulation B requirements.

B. Only state laws that are inconsistent with federal laws and only to the extent that they are
inconsistent

C. All laws that deal with the race, color, religion, or national origin of an applicant.

D. All other legislation at the federal, state, and municipal levels that relates to background
examinations. - Precise Answer ✔✔B. Only state laws that are inconsistent with federal laws and only to
the extent that they are inconsistent

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?

Select one:

A. Product

B. Position

C. Price

D. Promotion - Precise Answer ✔✔D. Promotion

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?

Select one:

A. How much has the principal paid to its laborers, suppliers, and subcontractors?

B. What is the estimated cost to complete all of the contractor's outstanding projects?

C. What is the percentage of completion of each of the contractor's projects that are in progress?
D. On what new projects is the principal the high bidder with an outstanding bid bond? - Precise Answer
✔✔C. What is the percentage of completion of each of the contractor's projects that are in progress?

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?

Select one:

A. Significant value in owned construction equipment

B. Quality stocks and bonds and accounts receivable.

C. Contractor's home that is owned free and clear

D. Office buildings that are owned free and clear - Precise Answer ✔✔B. Quality stocks and bonds and
accounts receivable.

Quota share reinsurance is a type of pro rata reinsurance in which the primary insurer and the reinsurer

Select one:

A. Share the amounts of insurance using a fixed percentage.

B. Split policy premiums according to a negotiated sliding scale.

C. Split losses according to a sliding scale.

D. Divide the reinsurer's excess profits equally. - Precise Answer ✔✔A. Share the amounts of insurance
using a fixed percentage.

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

Select one:

A. The creditor will allow the customer to pay 1/5 (2/10) of the total amount due every thirty days (N 30)
until the obligation is paid in full.

B. 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).

C. Two times out of ten (2/10), the customer has paid the balance due in full within thirty days (N 30).

D. The creditor has received two out of ten payments (2/10) and each payment is due on the thirtieth
day of the month (N 30). - Precise Answer ✔✔B. 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).
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

Select one:

A. Providing high layers of insurance above the underlying limits.

B. Supplementing primary insurers' earnings.

C. Influencing regulations related to the maximum amount of insurance allowed.

D. Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain. - Precise
Answer ✔✔D. Accepting liability for loss exposures that the primary insurer is unwilling or unable to
retain.

Which one of the following statements regarding commercial transactions law is true?

Select one:

A. All states have adopted the entire Uniform Commercial Code (UCC).

B. Under the UCC, a creditor receives a security interest in goods in return for granting credit to a buyer.

C. Under the UCC, a security interest in goods means that, if a buyer defaults on a loan, the creditor can
seize all of the buyer's property, sell it, and keep all profits.

D. Under a UCC filing, the creditor having the first lien on security interests in property receives a pro
rata share of the proceeds from a sale before any other lien holders. - Precise Answer ✔✔B. Under the
UCC, a creditor receives a security interest in goods in return for granting credit to a buyer.

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?

Select one:

A. The residents of Boston

B. Shay Construction

C. The City of Boston

D. CH Surety - Precise Answer ✔✔C. The City of Boston

Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other
reinsurers, known as

Select one:

A. Retrocessionaires.

B. Direct insurers.

C. Cedents.

D. Ceding reinsurers. - Precise Answer ✔✔A. Retrocessionaires.

Which one of the following statements is true regarding financial reporting to reinsurers?

Select one:

A. A reinsurance agreement usually enables the primary surety to finance a contract bond principal
without the reinsurer's prior approval as long as it is reported in retrospect.

B. The primary surety's prolonged retention of reinsurers' shares of recoveries causes an overstatement
of losses and expenses paid.

C. The primary surety should determine the reinsurance recoverable for losses and expenses paid and
should regularly bill each reinsurer.

D. When the primary surety makes a salvage recovery of losses and expenses on which it has made
reinsurance recoveries, it is not required to share the salvage with the reinsurer. - Precise Answer ✔✔C.
The primary surety should determine the reinsurance recoverable for losses and expenses paid and
should regularly bill each reinsurer.