AFSB 151 COMPREHENSIVE EXAM
QUESTIONS AND SOLUTIONS STUDY GUIDE
●● statutes of frauds
Answer: law originating in English Parliament requiring that, to be
enforceable, certain contracts must be in writing and signed. Surety's
promise to an obligee derives from statutes of frauds
●● power of attorney
Answer: agreement authorizing one person to act as another's agent or
attorney
●● surety and insurance commonalities
Answer: assumption of risk, receipt of premium, protection against
financial loss, contract defining the risk
●● surety and insurance differences
Answer: insurance prevents against accidental occurrence, suretyship
does not protect the buyer of the bond, risk of surety stays with the
principal
●● surety and banking commonalities
,Answer: premiums are similar to interest, loan repayment similar to
principal reimbursement, bank has right to pursue loan defaulters, gives
borrower the benefit of the bank/surety's money
●● joint and several liability
Answer: surety and principal are equally liable for the obligation
●● forfeiture bond
Answer: classification that guarantees the surety will pay the entire bond
penalty is the obligation is not completed
●● third-party beneficiary
Answer: individuals or businesses that are beneficiaries who can benefit
from a surety bond
●● steps of underwriting considerations
Answer: nature of obligations in contract, principal's ability to perform,
nature of principal's performance, principal's guarantee to the surety,
need for an indemnity agreement, need for collateral, need for security
interests, legal remedies if principal defaults
●● security interest
Answer: an interest in property that allows the property to be sold on
default to satisfy the debt
,●● perfect the security interest
Answer: the act of filing a security interest with the appropriate court to
provide the surety a priority interest over others who may have security
interests in the property
●● equitable relief
Answer: a court-ordered remedy form used in cases in which the
plaintiff seeks an injunction or specific performance from the defendant
instead of monetary damages
●● subrogation
Answer: the surety's right to enforce an obligee's rights against the
principal
●● exoneration
Answer: the surety's right to require a principal to perform or post
collateral when a loss in imminent, exhausts the principal's resources
instead of its own
●● facultative reinsurance
Answer: reinsurance of individual loss exposures where the primary
insurer chooses which loss exposures to submit to the reinsurer, and the
reinsurer can accept or reject
, ●● treaty reinsurance
Answer: reinsurance agreement that covers an entire class or portfolio of
loss exposures that are automatically reinsured
●● cosureties
Answer: two or more sureties that execute the same bond with a
principal, become joint and severally liable to the obligee
●● bid bond
Answer: contract bond guaranteeing that a contractor bidding on a
construction or supply contract will ender into the contract and provide a
performance bond if bid is accepted
●● payment on bid bond
Answer: obligee is entitles to be paid the difference between the
principal's bid and the next lowest bid if the contractor fails to accept the
contract
●● performance bond
Answer: guarantee the obligee will be indemnified for any loss resulting
from the principal's failure to perform the work according to the
contract, plans, specifications, and price
QUESTIONS AND SOLUTIONS STUDY GUIDE
●● statutes of frauds
Answer: law originating in English Parliament requiring that, to be
enforceable, certain contracts must be in writing and signed. Surety's
promise to an obligee derives from statutes of frauds
●● power of attorney
Answer: agreement authorizing one person to act as another's agent or
attorney
●● surety and insurance commonalities
Answer: assumption of risk, receipt of premium, protection against
financial loss, contract defining the risk
●● surety and insurance differences
Answer: insurance prevents against accidental occurrence, suretyship
does not protect the buyer of the bond, risk of surety stays with the
principal
●● surety and banking commonalities
,Answer: premiums are similar to interest, loan repayment similar to
principal reimbursement, bank has right to pursue loan defaulters, gives
borrower the benefit of the bank/surety's money
●● joint and several liability
Answer: surety and principal are equally liable for the obligation
●● forfeiture bond
Answer: classification that guarantees the surety will pay the entire bond
penalty is the obligation is not completed
●● third-party beneficiary
Answer: individuals or businesses that are beneficiaries who can benefit
from a surety bond
●● steps of underwriting considerations
Answer: nature of obligations in contract, principal's ability to perform,
nature of principal's performance, principal's guarantee to the surety,
need for an indemnity agreement, need for collateral, need for security
interests, legal remedies if principal defaults
●● security interest
Answer: an interest in property that allows the property to be sold on
default to satisfy the debt
,●● perfect the security interest
Answer: the act of filing a security interest with the appropriate court to
provide the surety a priority interest over others who may have security
interests in the property
●● equitable relief
Answer: a court-ordered remedy form used in cases in which the
plaintiff seeks an injunction or specific performance from the defendant
instead of monetary damages
●● subrogation
Answer: the surety's right to enforce an obligee's rights against the
principal
●● exoneration
Answer: the surety's right to require a principal to perform or post
collateral when a loss in imminent, exhausts the principal's resources
instead of its own
●● facultative reinsurance
Answer: reinsurance of individual loss exposures where the primary
insurer chooses which loss exposures to submit to the reinsurer, and the
reinsurer can accept or reject
, ●● treaty reinsurance
Answer: reinsurance agreement that covers an entire class or portfolio of
loss exposures that are automatically reinsured
●● cosureties
Answer: two or more sureties that execute the same bond with a
principal, become joint and severally liable to the obligee
●● bid bond
Answer: contract bond guaranteeing that a contractor bidding on a
construction or supply contract will ender into the contract and provide a
performance bond if bid is accepted
●● payment on bid bond
Answer: obligee is entitles to be paid the difference between the
principal's bid and the next lowest bid if the contractor fails to accept the
contract
●● performance bond
Answer: guarantee the obligee will be indemnified for any loss resulting
from the principal's failure to perform the work according to the
contract, plans, specifications, and price
