AFSB 153 FINAL TEST 2026
QUESTIONS WITH CORRECT
ANSWERS GRADED A+
◍ The surety relationship includes all of the following parties, EXCEPT:a.
Suretyb. Fiduciaryc. Obligeed. Principal.
Answer: b. Fiduciary
◍ What is the primary underwriting tool for commercial crime and financial
institution risks?.
Answer: The application — it identifies the named insured and locations,
requested coverages/endorsements, limits, deductibles, rating factors, audit
procedures, and loss history.
◍ Why must the named insured and location be accurate on the application?.
Answer: The named insured has specific contractual rights and
responsibilities; correct locations affect exposures and classification.
◍ What coverage details should underwriters verify on the application?.
Answer: Requested coverages and endorsements (e.g., "Include Volunteer
Workers as Employees"), liability limits, and deductibles — and whether
limits match loss trends and needs.
◍ All of the following are recognized bond terms, EXCEPT:a. Noncancelable
(open term)b. Definite termc. Continuous termd. Revolving term.
Answer: d. Revolving term
◍ What are key rating factors for commercial crime insurance?.
Answer: Number of employees, employee classifications (by work type,
with separate charges for officers), number of locations, and optional
coverages/endorsements.
,◍ In addition to assisting bond applicants to complete applications and
indemnity agreements, some surety producersa. Investigate commercial
surety bond losses.b. Design commercial surety bond forms.c. Have
underwriting authority to execute bonds.d. Investigate applicants' credit
reports, financial statements, and loss experience..
Answer: c. Have underwriting authority to execute bonds
◍ What audit procedures and controls should underwriters evaluate?.
Answer: Frequency and source of external/internal audits, who conducts
them, board reporting frequency, who reconciles bank accounts,
co‑signature requirements on checks, and how securities are handled.
◍ What's the difference among an audit, a review, and a compilation?.
Answer: - Audit = formal examination to verify accounts- Review =
inquiries and analytical procedures comparing results- Compilation =
unaudited statements based on management‑provided info.
◍ A surety would use an indemnity agreement rather than a bond application
whena. The underwriter is concerned that the surety faces a
greater-than-average risk of loss.b. Several subsidiaries of a corporation
require a number of bonds.c. A producer with power of attorney and
underwriting authority executes a bond.d. The surety reuqires signed
indmenity agreements for all bonds..
Answer: b. Several subsidiaries of a corporation require a number of bonds.
◍ How important is loss history in underwriting?.
Answer: Very important — past loss experience is a strong predictor of
future losses and influences accept/decline, limits, and pricing.
◍ An underwriter determines the surety's ability to cancel a bond and the
period of subsequent liability bya. Reviewing the bond form and the
applicable laws.b. Reading the SAA documentation for that particular class
of bonds.c. Studying court decisions in similar bond cases.d. None of the
above determines the surety's ability to cancel or the liaiblity period..
Answer: a. Reviewing the bond form and the applicable laws.
, ◍ In addition to the amount of the expected loss and investigative expenses,
claim representatives should consider the following when setting reserves on
commercial surety bond losses:a. Legislative loss reserve requirements.b.
Producer commissions.c. Obligee's financial worth.d. Payment of interest..
Answer: d. Payment of interest.
◍ What supplemental information might underwriters request?.
Answer: Questionnaires on unique risks, descriptions of operating
subsidiaries, organizational background, and internal control details.
◍ What financial reports should underwriters review?.
Answer: Recent annual reports, CPA audits, management letters and
responses — ideally covering the past two to three years.
◍ Which one of the following SAA classifications of license and permit bonds
do sureties consider the most hazardous?a. Compliance bond with
third-party liabilityb. Reclamation and environmental protection bondsc.
Forfeiture bondsd. Merchandising and dealer bonds.
Answer: b. Reclamation and environmental protection bonds
◍ When should an underwriter require collateral for license and permit
bonds?a. When the underwriter is certain that the principal will default on
the bond obligationb. After the principal has defaulted on the bond
obligationc. When the principal presents a higher-than-average risk of
default on the bond obligationd. When the principal fails to meet all
underwriting requirements.
Answer: c. When the principal presents a higher-than-average risk of default
on the bond obligation
◍ What other sources inform underwriting decisions?.
Answer: Agents/brokers (local insight), internal financials, marketing
materials, bylaws/articles, regulatory reports, resumes of key personnel,
SOPs, indemnity agreements, contracts, board reports, litigation reports,
business plans, and internal audit reports.
◍ How does ownership affect underwriting and what should be done for sole
QUESTIONS WITH CORRECT
ANSWERS GRADED A+
◍ The surety relationship includes all of the following parties, EXCEPT:a.
Suretyb. Fiduciaryc. Obligeed. Principal.
Answer: b. Fiduciary
◍ What is the primary underwriting tool for commercial crime and financial
institution risks?.
Answer: The application — it identifies the named insured and locations,
requested coverages/endorsements, limits, deductibles, rating factors, audit
procedures, and loss history.
◍ Why must the named insured and location be accurate on the application?.
Answer: The named insured has specific contractual rights and
responsibilities; correct locations affect exposures and classification.
◍ What coverage details should underwriters verify on the application?.
Answer: Requested coverages and endorsements (e.g., "Include Volunteer
Workers as Employees"), liability limits, and deductibles — and whether
limits match loss trends and needs.
◍ All of the following are recognized bond terms, EXCEPT:a. Noncancelable
(open term)b. Definite termc. Continuous termd. Revolving term.
Answer: d. Revolving term
◍ What are key rating factors for commercial crime insurance?.
Answer: Number of employees, employee classifications (by work type,
with separate charges for officers), number of locations, and optional
coverages/endorsements.
,◍ In addition to assisting bond applicants to complete applications and
indemnity agreements, some surety producersa. Investigate commercial
surety bond losses.b. Design commercial surety bond forms.c. Have
underwriting authority to execute bonds.d. Investigate applicants' credit
reports, financial statements, and loss experience..
Answer: c. Have underwriting authority to execute bonds
◍ What audit procedures and controls should underwriters evaluate?.
Answer: Frequency and source of external/internal audits, who conducts
them, board reporting frequency, who reconciles bank accounts,
co‑signature requirements on checks, and how securities are handled.
◍ What's the difference among an audit, a review, and a compilation?.
Answer: - Audit = formal examination to verify accounts- Review =
inquiries and analytical procedures comparing results- Compilation =
unaudited statements based on management‑provided info.
◍ A surety would use an indemnity agreement rather than a bond application
whena. The underwriter is concerned that the surety faces a
greater-than-average risk of loss.b. Several subsidiaries of a corporation
require a number of bonds.c. A producer with power of attorney and
underwriting authority executes a bond.d. The surety reuqires signed
indmenity agreements for all bonds..
Answer: b. Several subsidiaries of a corporation require a number of bonds.
◍ How important is loss history in underwriting?.
Answer: Very important — past loss experience is a strong predictor of
future losses and influences accept/decline, limits, and pricing.
◍ An underwriter determines the surety's ability to cancel a bond and the
period of subsequent liability bya. Reviewing the bond form and the
applicable laws.b. Reading the SAA documentation for that particular class
of bonds.c. Studying court decisions in similar bond cases.d. None of the
above determines the surety's ability to cancel or the liaiblity period..
Answer: a. Reviewing the bond form and the applicable laws.
, ◍ In addition to the amount of the expected loss and investigative expenses,
claim representatives should consider the following when setting reserves on
commercial surety bond losses:a. Legislative loss reserve requirements.b.
Producer commissions.c. Obligee's financial worth.d. Payment of interest..
Answer: d. Payment of interest.
◍ What supplemental information might underwriters request?.
Answer: Questionnaires on unique risks, descriptions of operating
subsidiaries, organizational background, and internal control details.
◍ What financial reports should underwriters review?.
Answer: Recent annual reports, CPA audits, management letters and
responses — ideally covering the past two to three years.
◍ Which one of the following SAA classifications of license and permit bonds
do sureties consider the most hazardous?a. Compliance bond with
third-party liabilityb. Reclamation and environmental protection bondsc.
Forfeiture bondsd. Merchandising and dealer bonds.
Answer: b. Reclamation and environmental protection bonds
◍ When should an underwriter require collateral for license and permit
bonds?a. When the underwriter is certain that the principal will default on
the bond obligationb. After the principal has defaulted on the bond
obligationc. When the principal presents a higher-than-average risk of
default on the bond obligationd. When the principal fails to meet all
underwriting requirements.
Answer: c. When the principal presents a higher-than-average risk of default
on the bond obligation
◍ What other sources inform underwriting decisions?.
Answer: Agents/brokers (local insight), internal financials, marketing
materials, bylaws/articles, regulatory reports, resumes of key personnel,
SOPs, indemnity agreements, contracts, board reports, litigation reports,
business plans, and internal audit reports.
◍ How does ownership affect underwriting and what should be done for sole
