AFSB 153 EVALUATION CORE QUESTIONS WITH
SOLUTIONS 2025 GRADED A+
✔✔Special Rate filing - ✔✔The surety files a lower rate for a specific bond for group
members.
ie. often applies to a license and permit bond that all association members must file.
✔✔Loss reserves - ✔✔in all surety claims, amount of the expected loss should be the
basis of reserve estimate
on some occasions the reserve includes interest rate and lawyer and expert fees
✔✔salvage - ✔✔after surety has paid claim, it seeks to recover its loss through
indemnification of the principal and other indemnitors
✔✔subrogation - ✔✔When surety pays claim it fulfills the principals obligation so the
surety is subrogated to the principals rights and remedies.
Bc surety fills the role as obligee, surety claim personal can make claims against third
parties on the principals behalf. i.e.. collect subrogation from third parties.
✔✔Exoneration - ✔✔the surety's right to require a principal to perform or post collateral
when a loss is imminent.
If loss has not yet been paid, the surety can sue for exoneration by bringing an
equitable claim against surety called "quia timet" -- enables the surety to attempt to
attach assets to prevent principal from disposing them.
✔✔Three general guarantees that license and permit bonds can provide: - ✔✔-
Compliance only- guarantee that principal will comply with laws that govern that
business/entity. Low Risk.
-Compliance bonds with third party liability-similiar to compliance only but also
guarantee a this party right to sue principal.
Forfeiture- can guarantee compliance only / compliance with 3rd party liability, if default
surety pays entire bond penalty.
✔✔SFAA classifications of License and Permit bonds - ✔✔Agricultural
Contracting
Customs
Finance
Franchise and ordinance
Motor vehicle
Reclamation, mining, and removal
Retail services and professional licenses
, Tax and fees
Warehousing
All other license and Permit bonds
✔✔Common license and permit bonds with high cumulative liability include: - ✔✔Milk
dealer bonds
Packers and Stockyard Act bonds
Commission Merchant bonds
✔✔2 classifications of agricultural bonds - ✔✔-Federal bonds required by the Packers
and Stockyard act
-Bonds required by states for other dealers
✔✔Packers and Stockyard Act of 1921 - ✔✔regulates practices of businesses that buy
and sell livestock, met, and poultry in the U.S and abroad. Intended to preserve
competition in livestock industry.
Principal- the party who sells or buy livestock on a commission basis , buys livestock as
a dealer, provides clearing services for dealers and livestock market agencies
obligee- Federal govt
Bond makes these guarantees:
-Principal will properly remit funds to seller
-properly keep accounting records
-Comply with federal and state laws under act
-Submit accurate, timely reports to GIPSA ( grain, Inspection, Packers and Stockyard
Administration)
Principal must establish a trust for proceeds of all livestock sales for the benefit of all
unpaid cash sellers of the livestock. Parties who sell to packers on cash basis can make
a claim against trust if packer becomes bankrupt or cannot pay.
✔✔State Agricultural bonds (l&p) - ✔✔guarantee that dealers properly remit produce
payments to agricultural producers in compliance with state law.
Types of state agricultural bonds:
-Milk dealers
-State livestock dealers bonds
-Commission merchant and produce dealers bond
Sureties prefer agricultural bonds to be audited on an annual basis.
Generally require collateral from principal and spouse. Losses are generally inevitable
and require full payment of bond penalty.
SOLUTIONS 2025 GRADED A+
✔✔Special Rate filing - ✔✔The surety files a lower rate for a specific bond for group
members.
ie. often applies to a license and permit bond that all association members must file.
✔✔Loss reserves - ✔✔in all surety claims, amount of the expected loss should be the
basis of reserve estimate
on some occasions the reserve includes interest rate and lawyer and expert fees
✔✔salvage - ✔✔after surety has paid claim, it seeks to recover its loss through
indemnification of the principal and other indemnitors
✔✔subrogation - ✔✔When surety pays claim it fulfills the principals obligation so the
surety is subrogated to the principals rights and remedies.
Bc surety fills the role as obligee, surety claim personal can make claims against third
parties on the principals behalf. i.e.. collect subrogation from third parties.
✔✔Exoneration - ✔✔the surety's right to require a principal to perform or post collateral
when a loss is imminent.
If loss has not yet been paid, the surety can sue for exoneration by bringing an
equitable claim against surety called "quia timet" -- enables the surety to attempt to
attach assets to prevent principal from disposing them.
✔✔Three general guarantees that license and permit bonds can provide: - ✔✔-
Compliance only- guarantee that principal will comply with laws that govern that
business/entity. Low Risk.
-Compliance bonds with third party liability-similiar to compliance only but also
guarantee a this party right to sue principal.
Forfeiture- can guarantee compliance only / compliance with 3rd party liability, if default
surety pays entire bond penalty.
✔✔SFAA classifications of License and Permit bonds - ✔✔Agricultural
Contracting
Customs
Finance
Franchise and ordinance
Motor vehicle
Reclamation, mining, and removal
Retail services and professional licenses
, Tax and fees
Warehousing
All other license and Permit bonds
✔✔Common license and permit bonds with high cumulative liability include: - ✔✔Milk
dealer bonds
Packers and Stockyard Act bonds
Commission Merchant bonds
✔✔2 classifications of agricultural bonds - ✔✔-Federal bonds required by the Packers
and Stockyard act
-Bonds required by states for other dealers
✔✔Packers and Stockyard Act of 1921 - ✔✔regulates practices of businesses that buy
and sell livestock, met, and poultry in the U.S and abroad. Intended to preserve
competition in livestock industry.
Principal- the party who sells or buy livestock on a commission basis , buys livestock as
a dealer, provides clearing services for dealers and livestock market agencies
obligee- Federal govt
Bond makes these guarantees:
-Principal will properly remit funds to seller
-properly keep accounting records
-Comply with federal and state laws under act
-Submit accurate, timely reports to GIPSA ( grain, Inspection, Packers and Stockyard
Administration)
Principal must establish a trust for proceeds of all livestock sales for the benefit of all
unpaid cash sellers of the livestock. Parties who sell to packers on cash basis can make
a claim against trust if packer becomes bankrupt or cannot pay.
✔✔State Agricultural bonds (l&p) - ✔✔guarantee that dealers properly remit produce
payments to agricultural producers in compliance with state law.
Types of state agricultural bonds:
-Milk dealers
-State livestock dealers bonds
-Commission merchant and produce dealers bond
Sureties prefer agricultural bonds to be audited on an annual basis.
Generally require collateral from principal and spouse. Losses are generally inevitable
and require full payment of bond penalty.
