Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

When qualifying a principal, a surety focuses on character, capacity, and capital because these factors are crucial in assessing the applicant's ability to fulfill their obligations under a bond. Character refers to the trustworthiness and reliability of the principal, which helps the surety determine whether the individual or entity is likely to adhere to the terms of the contract. Capacity involves the principal’s capability to perform the work or service they are being bonded for, including their skills, experience, and resources. Lastly, capital reflects the financial strength of the principal; a well-capitalized business is more likely to withstand financial setbacks and successfully complete the project in question.

This comprehensive assessment allows the surety to mitigate risk by ensuring that the principal is a viable candidate for bonding before issuing a surety bond. The other options, such as market speculation, pre-existing contracts, and client feedback, while potentially relevant in certain contexts, do not encompass the core financial and reputational characteristics that sureties prioritize when qualifying a principal.