AFSB 151 Final Exam Questions With Complete Solutions.

AFSB 151 Final Exam Questions With Complete Solutions. A surety bond is a written document in which one party guarantees a second party's Performance to a third party for the second party's failure to fulfill an obligation. Which one of the these groups, for the most part, serves the market for fidelity and surety bonds in the United States? Multiline property-casualty insurers Sureties use what written document to authorize a producer to act as the surety's agent in bond production? A power of attorney While suretyship and banking both use a prequalification process to extend credit to their customers, suretyship is different from bank credit in that Suretyship guarantees performance as well as monetary obligations. Because most bonds are "joint and several liability" documents, the obligee can recover losses from The principal or the surety, or from both. A financial guarantee differs from performance and fidelity guarantees because it requires honesty, the ability to perform the contract, and The ability to pay money to meet the contractual obligation. A legal remedy that a surety can use against a defaulting bond principal, in which the surety exercises its right to force the principal to perform by exhausting the principal's resources instead of its own, is Exoneration In an unlimited cosurety arrangement, the obligee can collect The full loss from any of the cosureties up to the penal sum of the bond. A bond that guarantees that faulty work will be corrected and defective materials will be replaced for a period of one year or less and that is usually provided with a performance bond at no additional cost is a Maintenance bond A contract bond that guarantees the local governmental authority that a principal will complete a development in accordance with approved proposals and at the principal's expense is a Subdivision bond This classification of license and permit bonds poses the least risk to the surety and guarantees that the principal will conform with laws that govern the business or activity it conducts. Which bond classification is described? Compliance-only bonds Under a public official bond guaranteeing the honesty of a treasurer, He or she must account for the cash that he or she holds while in office. Bond losses occur when a fiduciary and its surety are held accountable because the fiduciary did not exercise reasonable care in notifying all heirs of an impending probate proceeding. This fiduciary is called An administrator A person who commences an action against another to obtain an equitable remedy may be required to post a bond before the court will proceed with the action. This bond is called A plaintiff bond The legally mandated hazardous waste facilities performance bond Can be posted only for hazardous waste facilities with permits, and it requires an underwriting review of the closure plan. The principal on a hazardous waste bond Is an owner or operator of a hazardous waste facility and is responsible for closure and postclosure care of the facility. In the next step of the bond prequalification process, once the producer has compiled the contractor's financial documents showing significant liquidity, The producer may facilitate underwriter interviews to help determine the contractor's experience in meeting past contractual obligations. A contractor's percentage-of-completion estimates 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. A $5 million/$20 million contract surety credit line means that the surety is willing to Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does not exceed $20 million. Which one of the following statements is true regarding surety producers' promotion? Participating in professional seminars and construction industry associations is an excellent way to communicate to a target audience. When developing one aspect of the business plan, the planning group should consider their agency's philosophy and culture, management quality and commitment, team motivation and dedication, resources, and the continuity of ownership and management. Which one of the following describes this aspect of the planning process? Identify the agency's strengths and weaknesses Which one of these categories of court bonds is written primarily on the basis of an attorney's character and reputation for trustworthiness? Fiduciary bonds Producers of public official bonds serve themselves and their prospective principals by Offering their services in September after primary elections are over and the candidates are known. Staff underwriting activities generally include which one of the following? Formulating underwriting policy In the protective phase of the bond underwriting decision, indemnity is waived only for what type of bonds? The smallest and least hazardous bonds 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. Omnibus agreement An example of a common addendum that might address a principal's concern about the conditions of a general agreement of indemnity (GAI) is Spousal exemption Generally, what type of individuals cause most public official bond losses? Dishonest individuals Courts often order attachment bonds to secure property when who is within the court's jurisdiction? A nonresident defendant Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin bonds More quickly and for smaller amounts. Which of the following bonds guarantee that buyers will pay farmers or other sellers of goods? Merchandising and dealer bonds 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? Surety Which special characteristic related to fidelity bonds most directly concerns the following statement? 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. Management might be reluctant to prosecute employee thefts. What quality 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? Ongoing dialogue As part of the underwriting process, providing the surety with reliable and timely financial information and informing the surety of the business plan is whose responsibility? Contractor Which one of the following in a bond applicant's personal and employment history provides the surety underwriter with evidence of good character? Trade payment record Which of these is one of the three factors that are focused on the contractor and are considered when underwriting contract bonds for construction? Capacity In evaluating capacity for continuity planning, the underwriter considers what two factors? Continuity of management and continuity of ownership When monitoring the underwriting information of a contractor, an explanation is generally needed if the underwriter notices the contractor's bid reflects a difference in excess of what percent? 10% The underwriter must address the contract provisions for completing the work on time. If the contractor does not complete the work on time, one of the standard solutions is what? Liquidated damages 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? As a response to a court order or a written request of the consumer who is the subject of the report Which one of the following includes sections of the Consumer Credit Protection Act that apply directly to the surety industry? Titles VI and VII Respectively, the credit terms ROI, slow 60, CIA, and COD mean Remit on receipt of invoice, payment was received 60 days after the due date, cash payment is required in advance, and cash is required on delivery. Which one of the following statements is true regarding the surety underwriter's use of information received from financial institutions? If the principal is highly dependent on a financial institution as determined from the information, then the conditions of the credit line are increasingly important to the surety. Which one of the following statements is true regarding the principal as a source of underwriting information for bonding? The principal is the primary source of direct information, including identification, historical, management, financial, bank, and performance information. Under which heading of the Payment section of D&B's Business Information Report (BIR) is there a summary of the company's payment history, including each vendor's experience during the previous twelve months? Paying Record One of Dun & Bradstreet, Inc.'s (D&B) primary sources of information for its reporting database comes from which one of these sources? The surety principal Which one of the following controls the information that consumer credit report providers place in their files and how they place it? The Equal Credit Opportunity Act and the Fair Credit Reporting Act. Which one of the following statements is correct? From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth. Which one of the following statements regarding reinsurance is true?