MODULE 2- LOMA 361 EXAM QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026
Valuation - Answers "the process of calculating the monetary value of an insurer's assets,
liabilities, and owners' equity for accounting and financial reporting purposes."
Historical Cost - Answers "the price originally paid for the asset. This is a simple asset valuation
method because nearly all assets have a readily determinable historical cost. On the date of
purchase, an asset's historical cost equals its book value."
Book value - Answers "the value at which a company records the asset in its accounting records
and reports the asset on its balance sheet."
Amortization - Answers the reduction of a loan balance through payments made over a period
of time
"typically applies to certain long-term assets such as bonds and mortgages, is the periodic and
systematic increase or decrease of the original cost of an investment to its ultimate value at
maturity."
amortized cost - Answers "the asset's book value after its cost has been adjusted for applicable
amortization"
Accumulate Depreciation - Answers "The total amount of depreciation allocated to an asset as
of a specified date"
fair value - Answers "the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants on the valuation date."
fair value accounting - Answers The process of valuing a company's balance sheet accounts,
including assets, on the price that the asset would bring in an active, organized market in which
(1) the asset sale is not the result of liquidation, and (2) neither the buyer nor the seller is
forced to enter the transaction.
The purpose is to provide transparent, validated information about the values for a company's
balance sheet accounts.
Securities Valuation Office (SVO) - Answers responsible for the ongoing credit quality
assessment and valuation of securities owned by state-regulated insurance companies.
,Automated valuation service - Answers "provides access to the Valuation of Securities (VOS)
database, from which an insurer can quickly price its securities for the Annual Statement."
Realized Capital Gain (Loss)- SAP-debt security - Answers The taxable profit or loss resulting
from the purchase and sale of a security. It is the difference between the sales proceeds and the
investment's cost basis.
"For an asset, the net sales proceeds equal the gross sales proceeds, or selling price, minus any
sales commissions and other costs associated with the sale of the asset. If the net sales
proceeds from the debt security are greater than its book value, then the result is a realized
capital gain; if the net sales proceeds are less than the debt security's book value, then the
result is a realized capital loss."
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Unrealized capital gain loss -SAP-debt security - Answers "the difference between the debt
security's fair value and its book value. If the fair value of the debt security is greater than its
book value, then the result is an unrealized capital gain; if the fair value is less than the debt
security's book value, then the result is an unrealized capital loss."
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Realized Capital Gain (Loss)- GAAP- debt security - Answers "the difference between the debt
security's net sales proceeds and its amortized cost. If the net sales proceeds from the debt
security are greater than its amortized cost, then the result is a realized capital gain; if the net
sales proceeds are less than the debt security's amortized cost, then the result is a realized
capital loss."
unrealized capital gain loss- GAAP- debt security - Answers "the difference between the fair
value of the debt security and its amortized cost. If the fair value of a debt security is greater
than its amortized cost, then the result is an unrealized capital gain; if the fair value is less than
the debt security's amortized cost, then the result is an unrealized capital loss."
Realized Capital Gain (Loss)- ES - Answers On a equity security is the difference between the
equity security's net sales proceeds and its historical cost. If the net sales proceeds from the
equity security are greater than its historical cost, then the result is a realized capital gain; if the
net sales proceeds are less than the equity security's historical cost, then the result is a realized
capital loss."
,"Under GAAP and SAP, realized and unrealized capital gains on equity securities are generally
calculated the same way"
unrealized capital gain loss- ES - Answers "on an equity security is the difference between the
equity security's fair value and its historical cost. If the fair value of the equity security is greater
than its historical cost, then the result is an unrealized capital gain; if the fair value is less than
the equity security's historical cost, then the result is an unrealized capital loss."
Admitted asset - Answers "assets whose full value is reported on the Assets page of the Annual
Statement. Examples are cash, cash equivalents, and most invested assets."
Note that the admitted and nonadmitted asset classifications are only relevant for statutory
reporting purposes; under GAAP accounting, an insurer includes values for all of its assets in its
financial statements. Because of this difference, the asset amounts in an insurer's Annual
Report rarely equal those shown on the Assets page of the insurer's Annual Statement."
Nonadmitted assets - Answers Types of property, such as office furniture and equipment, that
regulators do not allow insurers to show as assets on financial statements because these assets
cannot readily be converted to cash at or near their market value.
prepaid expenses are an example
a lower value for a company's nonadmitted assets ratio indicates a smaller amount of highly
illiquid assets
Partially nonadmitted assets - Answers "only a portion of their value is reported on the Assets
page of the Annual Statement. One example is deferred tax assets."
liquid assets - Answers cash and items that can be quickly converted to cash
Net admitted assets - Answers = Assets - Nonadmitted assets
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Investing - Answers "refers to employing a principal sum of money to generate earnings. In a
financial sense, usually involves using a sum of money to (1) purchase assets or (2) deposit
funds into a financial institution. Typical examples are bonds, mortgages, and stock."
Investment Accounting - Answers "the area of accounting that is responsible for recording all
accounting entries related to the invested assets held in an insurer's investment portfolios"
, Investment portfolio - Answers "a collection of various investments owned by the same
organization, usually assembled to meet a defined set of financial goals.
The invested assets in a portfolio can be further classified as securities.
For insurance companies, important examples of securities are debt securities, equity securities,
hybrid securities, and derivative securities."
debt security - Answers "an obligation of indebtedness owed by a business, a government, or an
agency. Important examples are bonds and mortgages issued by other companies or entities.
They represent loans made by the purchaser of the security to the issuer of the security."
Insurers prefer these in part because their investment risk is generally lower than that of equity
securities.
Have fixed maturity dates and fixed interest-payment schedules. These characteristics ensure
that adequate funds are available to insurers when needed to pay contractual obligations. Of
the ones held by life insurance companies, bonds are the clear industry favorite.
equity security - Answers Represents stock ownership in another company that sometimes pays
dividends
"an ownership interest in a business. The most important example for life insurers is common
stock.
By purchasing the common stock of another company, the insurer hopes to receive (1) income
in the form of cash dividends and (2) growth in the value of that stock upon its eventual sale."
Hybrid security - Answers "has characteristics of debt and equity securities. are becoming more
common in insurance company portfolios because they often combine the best features of debt
securities and equity securities. Preferred stock is an example
Derivative security - Answers "derives its value from other securities. Types that are important
to insurers are options, forward contracts, futures contracts, and swaps."
Bond - Answers "A debt security that a bond issuer, typically a corporation or government
entity, sells to raise money.
Valuation - Answers "the process of calculating the monetary value of an insurer's assets,
liabilities, and owners' equity for accounting and financial reporting purposes."
Historical Cost - Answers "the price originally paid for the asset. This is a simple asset valuation
method because nearly all assets have a readily determinable historical cost. On the date of
purchase, an asset's historical cost equals its book value."
Book value - Answers "the value at which a company records the asset in its accounting records
and reports the asset on its balance sheet."
Amortization - Answers the reduction of a loan balance through payments made over a period
of time
"typically applies to certain long-term assets such as bonds and mortgages, is the periodic and
systematic increase or decrease of the original cost of an investment to its ultimate value at
maturity."
amortized cost - Answers "the asset's book value after its cost has been adjusted for applicable
amortization"
Accumulate Depreciation - Answers "The total amount of depreciation allocated to an asset as
of a specified date"
fair value - Answers "the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants on the valuation date."
fair value accounting - Answers The process of valuing a company's balance sheet accounts,
including assets, on the price that the asset would bring in an active, organized market in which
(1) the asset sale is not the result of liquidation, and (2) neither the buyer nor the seller is
forced to enter the transaction.
The purpose is to provide transparent, validated information about the values for a company's
balance sheet accounts.
Securities Valuation Office (SVO) - Answers responsible for the ongoing credit quality
assessment and valuation of securities owned by state-regulated insurance companies.
,Automated valuation service - Answers "provides access to the Valuation of Securities (VOS)
database, from which an insurer can quickly price its securities for the Annual Statement."
Realized Capital Gain (Loss)- SAP-debt security - Answers The taxable profit or loss resulting
from the purchase and sale of a security. It is the difference between the sales proceeds and the
investment's cost basis.
"For an asset, the net sales proceeds equal the gross sales proceeds, or selling price, minus any
sales commissions and other costs associated with the sale of the asset. If the net sales
proceeds from the debt security are greater than its book value, then the result is a realized
capital gain; if the net sales proceeds are less than the debt security's book value, then the
result is a realized capital loss."
Page 31
Unrealized capital gain loss -SAP-debt security - Answers "the difference between the debt
security's fair value and its book value. If the fair value of the debt security is greater than its
book value, then the result is an unrealized capital gain; if the fair value is less than the debt
security's book value, then the result is an unrealized capital loss."
Page 32
Realized Capital Gain (Loss)- GAAP- debt security - Answers "the difference between the debt
security's net sales proceeds and its amortized cost. If the net sales proceeds from the debt
security are greater than its amortized cost, then the result is a realized capital gain; if the net
sales proceeds are less than the debt security's amortized cost, then the result is a realized
capital loss."
unrealized capital gain loss- GAAP- debt security - Answers "the difference between the fair
value of the debt security and its amortized cost. If the fair value of a debt security is greater
than its amortized cost, then the result is an unrealized capital gain; if the fair value is less than
the debt security's amortized cost, then the result is an unrealized capital loss."
Realized Capital Gain (Loss)- ES - Answers On a equity security is the difference between the
equity security's net sales proceeds and its historical cost. If the net sales proceeds from the
equity security are greater than its historical cost, then the result is a realized capital gain; if the
net sales proceeds are less than the equity security's historical cost, then the result is a realized
capital loss."
,"Under GAAP and SAP, realized and unrealized capital gains on equity securities are generally
calculated the same way"
unrealized capital gain loss- ES - Answers "on an equity security is the difference between the
equity security's fair value and its historical cost. If the fair value of the equity security is greater
than its historical cost, then the result is an unrealized capital gain; if the fair value is less than
the equity security's historical cost, then the result is an unrealized capital loss."
Admitted asset - Answers "assets whose full value is reported on the Assets page of the Annual
Statement. Examples are cash, cash equivalents, and most invested assets."
Note that the admitted and nonadmitted asset classifications are only relevant for statutory
reporting purposes; under GAAP accounting, an insurer includes values for all of its assets in its
financial statements. Because of this difference, the asset amounts in an insurer's Annual
Report rarely equal those shown on the Assets page of the insurer's Annual Statement."
Nonadmitted assets - Answers Types of property, such as office furniture and equipment, that
regulators do not allow insurers to show as assets on financial statements because these assets
cannot readily be converted to cash at or near their market value.
prepaid expenses are an example
a lower value for a company's nonadmitted assets ratio indicates a smaller amount of highly
illiquid assets
Partially nonadmitted assets - Answers "only a portion of their value is reported on the Assets
page of the Annual Statement. One example is deferred tax assets."
liquid assets - Answers cash and items that can be quickly converted to cash
Net admitted assets - Answers = Assets - Nonadmitted assets
page 45
Investing - Answers "refers to employing a principal sum of money to generate earnings. In a
financial sense, usually involves using a sum of money to (1) purchase assets or (2) deposit
funds into a financial institution. Typical examples are bonds, mortgages, and stock."
Investment Accounting - Answers "the area of accounting that is responsible for recording all
accounting entries related to the invested assets held in an insurer's investment portfolios"
, Investment portfolio - Answers "a collection of various investments owned by the same
organization, usually assembled to meet a defined set of financial goals.
The invested assets in a portfolio can be further classified as securities.
For insurance companies, important examples of securities are debt securities, equity securities,
hybrid securities, and derivative securities."
debt security - Answers "an obligation of indebtedness owed by a business, a government, or an
agency. Important examples are bonds and mortgages issued by other companies or entities.
They represent loans made by the purchaser of the security to the issuer of the security."
Insurers prefer these in part because their investment risk is generally lower than that of equity
securities.
Have fixed maturity dates and fixed interest-payment schedules. These characteristics ensure
that adequate funds are available to insurers when needed to pay contractual obligations. Of
the ones held by life insurance companies, bonds are the clear industry favorite.
equity security - Answers Represents stock ownership in another company that sometimes pays
dividends
"an ownership interest in a business. The most important example for life insurers is common
stock.
By purchasing the common stock of another company, the insurer hopes to receive (1) income
in the form of cash dividends and (2) growth in the value of that stock upon its eventual sale."
Hybrid security - Answers "has characteristics of debt and equity securities. are becoming more
common in insurance company portfolios because they often combine the best features of debt
securities and equity securities. Preferred stock is an example
Derivative security - Answers "derives its value from other securities. Types that are important
to insurers are options, forward contracts, futures contracts, and swaps."
Bond - Answers "A debt security that a bond issuer, typically a corporation or government
entity, sells to raise money.
