AFSB 151 FINAL EXAM FREQUENTLY TESTED ACTUAL
QUESTIONS WITH CORRECT ANSWERS
Question 1.
Which one of these statements is true regarding financial guaranty bonds?
ANSWER
When in place, the entire issue of these bonds would have a higher investment grade, allowing
municipalities to sell their bonds at a lower interest rate.
Question 2.
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
ANSWER
The necessity for the principal to file collateral.
Question 3.
Under a public official bond guaranteeing the honesty of a treasurer,
ANSWER
He or she must account for the cash that he or she holds while in office.
Question 4.
The surety's most important right acquired through subrogation is the right of the obligee to use the
contract consideration to complete the contract.
ANSWER
Which one of the following statements is true regarding subrogation when a contract default
has occurred and when the principal has admitted to it?
,Question 5.
With new accounts that another surety previously bonded, underwriters will be concerned that the
contractor might have problems not readily apparent that might cause a potentially large loss. What
facts might indicate that such a loss is a particularly relevant concern?
ANSWER
The contractor's prior surety refused to write a bond the contractor wanted.
Question 6.
A surety that is not satisfied with the principal's financial capacity, past experience, and resources
other than money will probably
ANSWER
Provide the bond subject to additional considerations and bond requirements.
Question 7.
The legally mandated hazardous waste facilities performance bond
ANSWER
Can be posted only for hazardous waste facilities with permits, and it requires an underwriting
review of the closure plan.
Question 8.
One reason that primary insurers purchase reinsurance for catastrophes is to
ANSWER
Stabilize insurer earnings.
Question 9.
A contractor's percentage-of-completion estimates
ANSWER
Are based on the contractor's ability to estimate the cost to complete the project and recognize
income and profit as they accrue during the project.
,Question 10.
Which one of these is an accurate comparison of suretyship and banking?
ANSWER
Both suretyship and banking are financial relationships and deal with losses that are generally
defined in monetary terms; however, a surety guarantees more than just an extension of credit.
Question 11.
Each one of the following steps is performed toward the beginning of the development of a contract
surety business plan EXCEPT:
ANSWER
Change goals and action steps as the agency's strengths and market conditions change
Question 12.
Which one of the following statements is correct with regard to the use of facultative reinsurance?
ANSWER
The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss
exposures from the treaty by using facultative reinsurance.
Question 13.
A standard letter of authority from a surety usually allows the producer to approve which one of the
following types of bonds without the surety's approval?
ANSWER
Bankruptcy bonds
Question 14.
Which one of the following statements regarding gathering information for surety claims is true?
ANSWER
Claims personnel can gather most of the needed information for a surety claim by applying the
questions of who, what, when, where, why, and how to the claim.
, Question 15.
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.
ANSWER
Management might be reluctant to prosecute employee thefts.
Question 16.
Which one of the following statements is true regarding the principal as a source of underwriting
information for bonding?
ANSWER
The principal is the primary source of direct information, including identification, historical,
management, financial, bank, and performance information.
Question 17.
Producers of public official bonds serve themselves and their prospective principals by
ANSWER
Offering their services in September after primary elections are over and the candidates are
known.
Question 18.
Staff underwriting activities generally include which one of the following?
ANSWER
Formulating underwriting policy
Question 19.
Which one of the following statements regarding legal research and unfair claims practices acts is
true?
ANSWER
Fair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or
policy provisions relating to coverages at issue.
QUESTIONS WITH CORRECT ANSWERS
Question 1.
Which one of these statements is true regarding financial guaranty bonds?
ANSWER
When in place, the entire issue of these bonds would have a higher investment grade, allowing
municipalities to sell their bonds at a lower interest rate.
Question 2.
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
ANSWER
The necessity for the principal to file collateral.
Question 3.
Under a public official bond guaranteeing the honesty of a treasurer,
ANSWER
He or she must account for the cash that he or she holds while in office.
Question 4.
The surety's most important right acquired through subrogation is the right of the obligee to use the
contract consideration to complete the contract.
ANSWER
Which one of the following statements is true regarding subrogation when a contract default
has occurred and when the principal has admitted to it?
,Question 5.
With new accounts that another surety previously bonded, underwriters will be concerned that the
contractor might have problems not readily apparent that might cause a potentially large loss. What
facts might indicate that such a loss is a particularly relevant concern?
ANSWER
The contractor's prior surety refused to write a bond the contractor wanted.
Question 6.
A surety that is not satisfied with the principal's financial capacity, past experience, and resources
other than money will probably
ANSWER
Provide the bond subject to additional considerations and bond requirements.
Question 7.
The legally mandated hazardous waste facilities performance bond
ANSWER
Can be posted only for hazardous waste facilities with permits, and it requires an underwriting
review of the closure plan.
Question 8.
One reason that primary insurers purchase reinsurance for catastrophes is to
ANSWER
Stabilize insurer earnings.
Question 9.
A contractor's percentage-of-completion estimates
ANSWER
Are based on the contractor's ability to estimate the cost to complete the project and recognize
income and profit as they accrue during the project.
,Question 10.
Which one of these is an accurate comparison of suretyship and banking?
ANSWER
Both suretyship and banking are financial relationships and deal with losses that are generally
defined in monetary terms; however, a surety guarantees more than just an extension of credit.
Question 11.
Each one of the following steps is performed toward the beginning of the development of a contract
surety business plan EXCEPT:
ANSWER
Change goals and action steps as the agency's strengths and market conditions change
Question 12.
Which one of the following statements is correct with regard to the use of facultative reinsurance?
ANSWER
The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss
exposures from the treaty by using facultative reinsurance.
Question 13.
A standard letter of authority from a surety usually allows the producer to approve which one of the
following types of bonds without the surety's approval?
ANSWER
Bankruptcy bonds
Question 14.
Which one of the following statements regarding gathering information for surety claims is true?
ANSWER
Claims personnel can gather most of the needed information for a surety claim by applying the
questions of who, what, when, where, why, and how to the claim.
, Question 15.
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.
ANSWER
Management might be reluctant to prosecute employee thefts.
Question 16.
Which one of the following statements is true regarding the principal as a source of underwriting
information for bonding?
ANSWER
The principal is the primary source of direct information, including identification, historical,
management, financial, bank, and performance information.
Question 17.
Producers of public official bonds serve themselves and their prospective principals by
ANSWER
Offering their services in September after primary elections are over and the candidates are
known.
Question 18.
Staff underwriting activities generally include which one of the following?
ANSWER
Formulating underwriting policy
Question 19.
Which one of the following statements regarding legal research and unfair claims practices acts is
true?
ANSWER
Fair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or
policy provisions relating to coverages at issue.
