A type of reinsurance transaction that involves an agreement between the primary insurer and the reinsurer specifying how to transfer risks, that defines
... [Show More] the eligible risks in terms of lines and classes of business, that specifies the parties' obligations, and for which eligible risks are automatically reinsured, is - correct answer Treaty reinsurance
A surety's liability for a surety bond can only cease to exist when the underlying obligation/agreement has - correct answer been performed as specified in the contract or when the bond has been canceled
An organization that uses its collected data to calculate loss costs that member company underwriters use to determine premiums for risks is - correct answer The SFAA
If the bond applicant is a business entity, from what parties do corporate sureties routinely require indemnity agreements? - correct answer any persons who have major financial interests in the entity
he surety bond three-party relationship, the party who guarantees fulfillment of the obligation and who will either perform the obligation or pay the costs for its fulfillment is the?
READ the question fully - correct answer surety
Suretyship and insurance are alike in that - correct answer Insurance commissioners regulate both.
When evaluating a surety claim, claims representatives are often assisted by outside legal counsel. What other professionals assist claims representatives? - correct answer engineers
Following the Civil War, the growing number and complexity of financial/commercial relationships led to the need for - correct answer commercial suretyship
Designated depositories are banks approved by - correct answer A government entity and in which the official or employee should deposit public funds
Which one of these statements is true regarding financial guaranty bonds? - correct 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.
What type of miscellaneous bond do sureties often write as open penalty forms to provide for fluctuation of the value of the subject of the bond? - correct answer A lost security bond
The legally mandated hazardous waste facilities performance bond - correct answer Can be posted only for hazardous waste facilities with permits, and it requires an underwriting review of the closure plan.
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 - correct answer a plaintiff bond
One type of fiduciary bond is required of an individual who has the legal responsibility for the care of a minor or a legally incompetent person or for such a person's property. This bond is called - correct answer A guardians bond.
In this public official category of bonds, sureties pay losses when subordinates in the principal's office cause them, as well as when the principal causes them. This described category of bonds - correct answer Is officials who handle public funds, and the principals are charged with honesty and faithful performance of duty while handling money as required by law
Under a public official bond guaranteeing the honesty of a treasurer - correct answer He or she must account for the cash that he or she holds while in office.
Public official bonds for officials who handle public funds - correct answer Guarantee losses that occur when the principal fails to follow designated depository guidelines.
Bonds that are required by business entities and individuals to protect them from loss, and for which the obligation is dictated by the contract between the principal and the obligee and by the bond provisions, are - correct answer Nonstatutory bonds
Which one of the these groups, for the most part, serves the market for fidelity and surety bonds in the United States? - correct answer Multiline property-casualty insurers
Which one of the following developed in the United States to guarantee the large amounts of money involved in the country's industrial and commercial growth? - correct answer corporate suretyship
Which one of these is an accurate comparison of suretyship and banking? - correct 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.
A surety that is not satisfied with the principal's financial capacity, past experience, and resources other than money will probably - correct answer Provide the bond subject to additional considerations and bond requirements
A surety choosing to write a risky bond typically insists that the principal post adequate collateral in the form of - correct answer A liquid asset, such as a certificate of deposit, or cash.
A type of reinsurance in which the reinsurer evaluates the submission and can accept or reject it, and which is often called "nonobligatory reinsurance," is - correct answer Facultative reinsurance.
Which one of the following is an example of a third-party beneficiary on a given bond? - correct answer An heir on a fiduciary executor bond
In an unlimited cosurety arrangement, the obligee can collect - correct answer The full loss from any of the cosureties up to the penal sum of the bond.
Line underwriting activities generally include which one of the following? - correct answer Selecting insureds
Large accounts should be monitored to ensure that when companies add subsidiaries or affiliates or are acquired by new owners, the new parties sign a new indemnity agreement. Otherwise, if a claim arises, the surety might have only which one of the following to fall back on? - correct answer Its common-law rights
Line underwriting activities generally include which one of the following? - correct answer Providing service to producers and policyholders
In the protective phase of the bond underwriting decision, indemnity is waived only for what type of bonds? - correct answer The smallest and least hazardous bonds
What is the name of the agreement in which the company owner agrees not to withdraw funds the company owes the owner while the bond is in force? - correct answer A subordination agreement
What bond terms deal with an extended period of time after cancelation during which claims can be made? - correct answer Terms discussing the bond's tail
An indemnity agreement does what to a surety's rights arising from common law? - correct answer Extends them
Financial reports are important in bond underwriting not only because they reveal an applicant's financial condition, but also because they reflect what about the applicant? - correct answer Overall management ability
An example of a common addendum that might address a principal's concern about the conditions of a general agreement of indemnity (GAI) is - correct answer Spousal exemption.
As a loss control practice concerning large public official bonds, what may a surety ask for to confirm that the governmental body has established an approved list of banks? - correct answer Designation of depository
What is the only entity or individual that can make a claim against a public official bond? - correct answer The government body that requires the bond
What type of bond would make a surety liable for the difference between what should have been collected and the amount that can be accounted for, even though a public official might not have been dishonest? - correct answer Faithful performance bond.
Courts often order attachment bonds to secure property when who is within the court's jurisdiction? - correct answer A nonresident defendant
Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin bonds - correct answer More quickly and for smaller amounts.
Why are fiduciary bonds generally considered to be short-term obligations? - correct answer Because most estates can be handled within several months or, at most, within a year or two.
Compliance-only or privilege bond penalties are usually - correct answer Nominal.
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? - correct answer Surety
Forfeiture bonds require the surety to pay what percentage of the bond penalty if the principal fails to complete an obligation? - correct answer 100
As a fidelity loss control measure, all employees should take an annual vacation of at least how many consecutive days? - correct answer Five
For a new firm that is not profitable, at the very least, the bond underwriter should verify which of the following? - correct answer That the firm's founders have meaningful, sufficient experience in related work
line underwriters - correct answer
Instead of holding a principal's assets as security, a surety might choose to hold an instrument issued by a commercial bank for the principal, but with the surety named as the beneficiary. What is this instrument? - correct answer an irrevocable standby letter of credit
Except in the case of a forfeiture bond, if the principal defaults, the surety will pay - correct answer up to the bond penalty amount, but no more than the obligees actual loss amount
Which one of the following in a bond applicant's personal and employment history provides the surety underwriter with evidence of good character? - correct answer Trade and payment record
When assessing a contractor's capacity in terms of management control, what is the first step in the construction process? - correct answer Estimating
The bond underwriter must underwrite the contract, which includes determining whether it allows for a shutdown because of what type of unfavorable conditions? - correct answer Weather
The Miller Act was passed to require principals, in addition to furnishing a performance bond, to furnish a separate payment bond guaranteeing payment of all bills incurred by the contractor - correct answer For labor and materials at the project completion for all federal jobs.
Which one of these statements provides an accurate description of license and permit bonds or their use? - correct answer Licenses help regulate license holders through statutes, regulations, or ordinances, and they are backed by license and permit bonds.
Public official bonds are written for principals who have administrative duties but do not handle money and who - correct answer Include commissioners, assessors, judges, coroners, town clerks, engineers, and auditors.
Bonds in the category of public official bonds for officials whose duties require direct involvement with members of the public - correct answer Pay losses when principals commit wrongful acts such as seizing the wrong goods or making wrongful arrests.
A bond that guarantees that, if a higher court sustains an initial judgment on appeal, the defendant will pay the entire judgment, plus court costs and interest, is - correct answer A supersedeas bond.
The principal on a hazardous waste bond - correct answer Is an owner or operator of a hazardous waste facility and is responsible for closure and postclosure care of the facility.
Which one of these types of miscellaneous bonds guarantees that the principal will establish and fund a trust or will provide alternative financial insurance? - correct answer Hazardous waste facilities financial guarantee bonds
Which one of these statements is true about lost securities bonds? - correct answer The security owner signs an affidavit describing the lost security and explaining how it became lost and completes a bond application with an indemnity agreement.
What type of miscellaneous bond do sureties often write as open penalty forms to provide for fluctuation of the value of the subject of the bond? - correct answer A lost security bond
In the next step of the bond prequalification process, once the producer has compiled the contractor's financial documents showing significant liquidity, - correct answer The producer may facilitate underwriter interviews to help determine the contractor's experience in meeting past contractual obligations.
Which one of these statements regarding bids is true? - correct answer Usually, at least thirty days elapse from bid opening to contract award.
Which one of the following is a factor of marketing that requires the surety producer to have education, training, knowledge, skill, and organization to provide professional service that clients need? - correct answer Product
A producer who has developed a favorable percentage of the local bond market and has earned a reputation among local contractors for professional-quality service has established which one of the following? - correct answer Position
The most effective and credible form of promotion for surety producers is - correct answer word-of-mouth advertising and referrals
Which one of the following statements is true regarding surety producers' marketing? - correct answer By dividing a target market into more specific trade groups, an agency can tailor services, expertise, and promotional material to that group's needs.
A sound business philosophy considers and balances the mutual needs of - correct answer Clients, employees, management, equity owners, and the community at large.
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? - correct answer strengths and weaknesses
When developing an effective business plan, the planning group should identify the agency's strengths and weaknesses, and then the agency should - correct answer Focus on correcting the weaknesses
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? - correct answer BKR bonds
Which one of these categories of court bonds is written primarily on the basis of an attorney's character and reputation for trustworthiness? - correct answer Fiduciary bonds
Producers of public official bonds serve themselves and their prospective principals by - correct answer Offering their services in September after primary elections are over and the candidates are known.
A comparison of how surety operates with how insurance operates shows that underwriting must contrast the nature of insurance policies with bond forms. Which one of the following are among the features that are unique to insurance policies? - correct answer The fact that they are typically filed with and approved by insurance departments in each state in which they are to be used
Staff underwriting activities generally include which one of the following? - correct answer Formulating underwriting policy
What collateral is considered to give the surety the most protection if the principal files for bankruptcy while the bond is still in force? - correct answer irrevocable letters of credit
What does the second part of the assessment phase of the bond underwriting decision require the underwriter to do? - correct answer Make a judgment about whether the principal is capable of carrying out the obligation under the bond
The assessment phase of bond underwriting has two parts. In the first part, what must the underwriter determine? - correct answer The obligation under the bond and the parties involved
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. - correct answer Omnibus agreement
Despite the potential legal and political issues, why are most sureties eager to write public official bonds? - correct answer Because these bonds have proven to be profitable
Generally, what type of individuals cause most public official bond losses? - correct answer Dishonest individuals
Why does a surety not impose its own limitations on a public official bond? - correct answer Because the law prescribes conditions for claims
An appeal bond is a litigation bond that is used when the principal has lost the case in lower court and is appealing that judgment to a higher court. If the appeal bond is for the plaintiff's case, what does it guarantee the payment of? - correct answer cost of the appeal
A fiduciary bond form has no cancellation provision. Therefore, the term of the bond continues until which event occurs? - correct answer The court has relieved the fiduciary of all responsibilities.
An example of a litigation bond used by a plaintiff or defendant in a lawsuit is a - correct answer replevin bond
Typical businesses using compliance-only and permit bonds are which one of the following? - correct answer construction related
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. - correct answer Management might be reluctant to prosecute employee thefts.
In general, the Equal Credit Opportunity Act (ECOA) and Regulation B affect or preempt - correct answer Only state laws that are inconsistent with federal laws and only to the extent that they are inconsistent.
Which one of the following identifies the government entity that has added specific requirements to meet the guidelines set out under Regulation B and provides explanations and clarifications? - correct answer The Federal Reserve Board
Which one of the following includes sections of the Consumer Credit Protection Act that apply directly to the surety industry? - correct answer Titles VI and VII
Which one of the following identifies a section of the Consumer Credit Protection Act that applies to all credit transactions, commercial and personal, without regard to the nature or type of credit or the creditor? - correct answer Title VII, the Equal Credit Opportunity Act, which prevents creditors from discriminating against applicants on the basis of sex, marital status, race, color, religion, national origin, age, or receipt of public assistance income.
Which one of the following names a chapter of bankruptcy that contains provisions for corporate reorganizations—a means of preserving the going-concern value of a business enterprise to the benefit of all creditors through the elimination of the factors that created the distress? - correct answer Chp. 11
Respectively, the credit terms ROI, slow 60, CIA, and COD mean - correct answer 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 these statements regarding commercial transactions law is true? - correct answer Under the UCC, a creditor receives a security interest in goods in return for granting credit to a buyer.
In one type of credit arrangement, a borrower purchases goods for resale to third parties, and a bank finances the purchase price. The bank secures the loan with a lien on the goods and, when each item is sold, the borrower pays the lender the full amount due on that item. This arrangement is called - correct answer A floor plan loan.
Which one of the following sources of surety underwriting information provides the most reliable information because the party has less bias with regard to the principal's bond success? - correct answer Architects and engineers
Which one of the following statements is true regarding the principal as a source of underwriting information for bonding? - correct answer The principal is the primary source of direct information, including identification, historical, management, financial, bank, and performance information.
Which one of the following statements is true regarding the surety underwriter's use of information received from financial institutions? - correct answer 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 surety underwriter's evaluation of a surety principal? - correct answer The underwriter needs to obtain current information quickly or risk making a bad decision on broad-based or outdated information.
Which one of the following controls the information that consumer credit report providers place in their files and how they place it? - correct answer The Equal Credit Opportunity Act and the Fair Credit Reporting Act.
Which one of the following consumer credit report providers also provides business credit reporting? - correct answer Experian Information Solutions, Inc.
Which one of the following consumer credit report providers is identified as being used by insurers, lenders, trade creditors, merchants, public utilities, government agencies, and others? - correct answer Equifax, Inc.
Which one of the following is a consumer credit report provider that offers investigative reports based on interviews and confirms unfavorable information with two or more sources? - correct answer Equifax, Inc.
Name the special characteristic of fidelity bonds to which this refers: The nature of the employment relationship provides the employee an opportunity to learn the firm's routines; schedules; and the existence, absence, or relative effectiveness of management controls. - correct answer Property exposed to loss is accessible.
The fidelity loss control measure of divided responsibilities, under which employees who regularly handle cash do not also handle merchandise, is impractical for some small businesses. To address this situation, which of the following practices should the employer perform? - correct answer Make frequent spot checks
In the protective phase of the bond underwriting decision, indemnity is waived only for what type of bonds? - correct answer The smallest and least hazardous bonds
Which one of the following consumer credit report providers also provides business credit reporting? - correct answer Experian
Which one of the following consumer credit report providers is identified as being used by insurers, lenders, trade creditors, merchants, public utilities, government agencies, and others? - correct answer Equifax
Which one of the following is a consumer credit report provider that offers a Credit Risk Score that projects a consumer's potential of becoming a serious credit risk within twelve months?
Select one: - correct answer Experian
Which one of the following is a consumer credit report provider that uses a network of owned and serviced credit bureaus to provide credit information for most United States households? - correct answer TransUnion
Which one of the following identifies the most credible documents that the surety underwriter uses to evaluate the positive and negative information gathered?
Select one: - correct answer SEC 10-K and 10-Q reports
The information that the surety underwriter organizes for the background investigation of a principal includes - correct answer Public information, including the principal's legal filings, such as lawsuits, judgments, tax liens, bankruptcies, reorganizations, and Uniform Commercial Code filings.
When a creditor includes "2/10 N 30" on a credit report, this means that - correct answer The creditor offers a 2 percent (2/10) discount if the balance due is paid within ten days; otherwise, payment is due in full within thirty days (N 30).
Which one of the following is a true statement regarding the North American Industry Classification System (NAICS)? - correct answer The NAICS provides business classification codes along with trade line classifications, which indicate business products or services.
Which one of the following statements is true regarding sureties and credit acts and laws? - correct answer Sureties must be aware of continuous modifications by amendment, Federal Reserve Board staff commentaries, and the Federal Trade Commission.
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?
Select one: - correct answer As a response to a court order or a written request of the consumer who is the subject of the report
Plastics Manufacturing Company (PMC) operates globally with property values approaching $100 million. Liability exposures are considerable particularly for products liability. Because of its size, PMC decides to form a captive insurer. PMC's board of directors is unwilling to risk huge losses as the captive begins operations. Which function of reinsurance would be most beneficial to PMC and its captive insurer? - correct answer stabilize loss experience
Reinsurers may transfer part of the liability that they have accepted in reinsurance agreements to other reinsurers, known as - correct answer Retrocessionaires.
A primary insurer uses reinsurance to - correct answer To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit
Blue Sky Enterprises wants to join with a small group of other organizations to create an entirely new type of medical device for heart transplant patients. ABC Insurer is interested in working with the group to meet their insurance needs. However, ABC has no experience in the biotechnology field. Which function of reinsurance would be most beneficial to ABC Insurer? - correct answer Provide underwriting guidance
Treaty reinsurance - correct answer Obligates the reinsurer to assume those loss exposures that fall within the treaty
Facultative reinsurance - correct answer Involves more administrative expense than treaty reinsurance transactions.
Which one of the following statements is correct with regard to the use of facultative reinsurance? - correct 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.
Which one of the following statements is correct regarding treaty reinsurance? - correct answer A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them
Which one of the following describes a type of reinsurance in which the ceding company is indemnified for the portion of a loss that exceeds a specified amount—the ceding company's net retention? - correct answer Excess of loss reinsurance
Under which one of the following kinds of pro rata reinsurance does the surety cede a fixed percentage of each covered bond, and then the division of premiums and losses, including adjustment expenses, is automatically set at that percentage? - correct answer quota share reinsurance
With which one of the following major types of reinsurance agreements does the reinsurer assume a proportional share of the obligations that the surety assumes, and the reinsurer receives a proportional share of the premium that the surety charges? - correct answer pro rata share reinsurance
In surplus work program reinsurance, when is surplus ceded to the reinsurer? - correct answer . When the surety's expression of aggregate risk appetite for each contractor is reached, the surplus is ceded to the reinsurer.
Reinsurance pools, syndicates, and associations are - correct answer Groups of insurers that share the loss exposures of the group, usually through reinsurance.
Which one of the following is true of a reinsurance agreement because it is a contract of utmost good faith? - correct answer Both parties to the contract are bound to disclose all relevant facts.
Gemini Insurance Company would like to purchase reinsurance for the professional liability insurance it will sell in the coming year. Which one of the following statements is true concerning the various sources of reinsurance? - correct answer Reinsurance pools (syndicates) can offer reinsurance to insurers that are not members of the pool.
Professional reinsurers - correct answer Interact with other insurers either directly or through intermediaries.
Which one of the following is the primary business purpose of a professional reinsurer? - correct answer To serve insurers' reinsurance needs
Which one of the following statements is correct regarding the available sources of reinsurance? - correct answer Reinsurance intermediaries can often help secure high coverage limits and catastrophe coverage.
Reinsurance pools, syndicates, and associations can be formed by - correct answer Reinsurance intermediaries to meet their clients' needs. [Show Less]