Which type of risk is characterized by unfavorable underwriting problems?

The type of risk characterized by unfavorable underwriting problems is best identified as distressed risk. Distressed risks are those that present significant challenges for insurers, often due to factors that make them less attractive or more difficult to underwrite effectively. This can include a history of claims that exceeds acceptable guidelines, adverse conditions that increase the likelihood of loss, or other negative factors that indicate a higher probability of significant risk exposure.

In the context of surplus lines insurance, recognizing distressed risk is crucial because these are the types of risks that often require specialized policies or coverage options that the standard insurance market may not readily provide. Underwriters dealing with distressed risks must take into account these unfavorable conditions and exercise caution, as the potential financial implications for the insurer can be substantial.

The other options relate to different risk categories that do not inherently imply unfavorable underwriting conditions. Unique risk refers to risks that are not commonly insured and may not have sufficient data for standard evaluation. High capacity risk signifies something that may require significant coverage amounts but does not necessarily create underwriting problems. Aviation risk is a specific type of risk associated with aircraft operations, which can be complex but isn't exclusively characterized by unfavorable underwriting challenges as distressed risk is.