CAIB 3 EXAM QUESTIONS AND ANSWERS
2026 COMPLETE STUDY GUIDE GRADED
A+
⩥ Briefly explain the purpose of a Fidelity Bond. Answer: To protect the
employer from the dishonest acts of their employees. Today employees
do not purchase their own Fidelity Bonds. Instead employers purchase
employee dishonesty insurance
⩥ Identify and explain the three C's that all underwriters take very
seriously, and that form the basis of credit appraisal. Answer: Character -
this involves a review of the company's management performance.
Ensure that the principal is of good character, pays bills promptly and is
of good business reputation
Capacity - this involves an assessment of the principal's ability based on
past history.
Capital - the financial capability of the principal to complete the work on
hand, in addition to the project for which bonding is requested
⩥ Explain how in many respects surety companies are like banks.
Answer: Suretyship involves the same process used by bankers in
making a loan. Each is being asked to lend their credit to another. Banks
do not lend money to those who do not meet the eligibility requirements.
Surety companies do not bond people who cannot perform obligations
,⩥ Identify the benefit of suretyship for the principal and the Obligee.
Answer: Principal - added confidence gained from the fact that the
surety is satisfied in their ability to carry out the required task
Obligee - such guarantees provide them with the confidence needed to
undertake various projects
⩥ Identify and define the three parties to any surety agreement. Answer:
Principal - the person primarily liable
Obligee - the party to whom someone else is obligated under a contract
Surety - one who undertakes to pay money or to do any other act in the
event the principal fails therein
⩥ Identify the three important characteristics of the guarantee made by
the surety to the obligee with respect to the principal. Answer: 1. Is a
promise made to the Obligee and not to the principal
2. Is a secondary obligation arising only on the default of the principal
3. Surety's duty to pay arises immediately upon the default of the
principal
⩥ Identify two methods available to the surety to collect amounts owed
to it by the principal. Answer: 1. Assignment to surety of Obligees rights
2. Right of subrogation
, ⩥ In addition to being a three party contract and the principal liable to
the surety, identify six other characteristics of surety bond. Answer: 1.
No losses expected
2. Of indeterminate length and non-cancellable
3. Statutory or non-statutory in form
4. Bond limit (penalty)
5. Bond premium
6. Written contract
⩥ Explain the characteristic - No losses expected. Answer: Surety is
based on the extension of credit without risk. Theoretically, the surety
expects no losses to occur.
⩥ Explain the characteristic - Bond limit (penalty). Answer: Reflect the
amount of credit given to the principal by the surety. This limit
represents the amount of the penalty which the surety is prepared to pay
in the event the principal should default
⩥ Explain the characteristic - Bond Premium. Answer: The sum charged
for pre-qualification and other company expenses. Described as a
service fee rather than a premium
⩥ Identify the four categories of surety bonds used to address the
different obligations of principals. Answer: 1. Contract bonds
2. Judicial bonds
2026 COMPLETE STUDY GUIDE GRADED
A+
⩥ Briefly explain the purpose of a Fidelity Bond. Answer: To protect the
employer from the dishonest acts of their employees. Today employees
do not purchase their own Fidelity Bonds. Instead employers purchase
employee dishonesty insurance
⩥ Identify and explain the three C's that all underwriters take very
seriously, and that form the basis of credit appraisal. Answer: Character -
this involves a review of the company's management performance.
Ensure that the principal is of good character, pays bills promptly and is
of good business reputation
Capacity - this involves an assessment of the principal's ability based on
past history.
Capital - the financial capability of the principal to complete the work on
hand, in addition to the project for which bonding is requested
⩥ Explain how in many respects surety companies are like banks.
Answer: Suretyship involves the same process used by bankers in
making a loan. Each is being asked to lend their credit to another. Banks
do not lend money to those who do not meet the eligibility requirements.
Surety companies do not bond people who cannot perform obligations
,⩥ Identify the benefit of suretyship for the principal and the Obligee.
Answer: Principal - added confidence gained from the fact that the
surety is satisfied in their ability to carry out the required task
Obligee - such guarantees provide them with the confidence needed to
undertake various projects
⩥ Identify and define the three parties to any surety agreement. Answer:
Principal - the person primarily liable
Obligee - the party to whom someone else is obligated under a contract
Surety - one who undertakes to pay money or to do any other act in the
event the principal fails therein
⩥ Identify the three important characteristics of the guarantee made by
the surety to the obligee with respect to the principal. Answer: 1. Is a
promise made to the Obligee and not to the principal
2. Is a secondary obligation arising only on the default of the principal
3. Surety's duty to pay arises immediately upon the default of the
principal
⩥ Identify two methods available to the surety to collect amounts owed
to it by the principal. Answer: 1. Assignment to surety of Obligees rights
2. Right of subrogation
, ⩥ In addition to being a three party contract and the principal liable to
the surety, identify six other characteristics of surety bond. Answer: 1.
No losses expected
2. Of indeterminate length and non-cancellable
3. Statutory or non-statutory in form
4. Bond limit (penalty)
5. Bond premium
6. Written contract
⩥ Explain the characteristic - No losses expected. Answer: Surety is
based on the extension of credit without risk. Theoretically, the surety
expects no losses to occur.
⩥ Explain the characteristic - Bond limit (penalty). Answer: Reflect the
amount of credit given to the principal by the surety. This limit
represents the amount of the penalty which the surety is prepared to pay
in the event the principal should default
⩥ Explain the characteristic - Bond Premium. Answer: The sum charged
for pre-qualification and other company expenses. Described as a
service fee rather than a premium
⩥ Identify the four categories of surety bonds used to address the
different obligations of principals. Answer: 1. Contract bonds
2. Judicial bonds
