LOMA 361 CORE REVIEWS ANSWERS AND
QUESTIONS SET A+
✔✔C-3 risk (interest-rate risk) - ✔✔Risk that market interest rates might shift, causing
insurer's assets to lose value and/or its liabilities to gain value.
✔✔C-3 Risk Examples - ✔✔1. Loss of asset value because of interest-rate increases.
2. Loss on the forced sale of assets or withdrawals by customers when interest rates
increase.
3. Losses relate to bond prepayments or mortgage prepayments when interest rates
decrease.
✔✔C-4 risk (general management) - ✔✔Risk of losses resulting from:
1. The insurer's ineffective general business practices.
2. The need to pay a special assessment to cover another insurer's unsound business
practices.
3. Unfavorable regulatory changes.
4. Unfavorable changes in tax laws.
✔✔C-4 Risk Examples - ✔✔1. Market risk from expansion into new lines or business or
new markets.
2. Changes in laws affecting insurance business.
3. Fraud by employees, agents, or customers.
4. Mismanagement.
5. Withdrawals by customers who fear insolvency.
✔✔financial condition examination - ✔✔Onsite regulator examination designed to
investigate two broad aspects of an insurer's operations:
1. Whether the insurer's accounting records are accurate and the insurer is being
operated on a sound and lawful basis.
2. Whether the insurer's financial and business profiles contain any apparent hazards to
the insurer's solvency.
✔✔Specific Tasks of Financial Condition Examinations - ✔✔1. Verify operating results
reported in the Annual Statement.
, 2. Examine accounting records to determine operation on a sound basis.
3. Investigate financial and business activities to ensure no contribution to insolvency.
4. Search inaccurate financial records concealing financial problems or unlawful
activities.
5. Evaluate compliance with the law using broad-based or specific-focused analysis.
✔✔association examination - ✔✔Onsite regulatory examination that conforms to the
procedures outlines in the NAIC's Financial Condition Examiners Handbook.
✔✔examination report - ✔✔Summary of association examination results, emphasizing
any adverse conditions the examiners discover and any significant changes in the
insurer's operations or financial condition since the last report.
Submitted to both state regulators and the insurance company's officers, it must at least
identify and report any problems uncovered during the most recent examination.
It may also explain the causes of problems and suggestions for corrections.
✔✔ generally accepted accounting principles (GAAP) - ✔✔Set of financial accounting
standards, conventions, and rules that stock insurance companies follow when
summarizing transactions and preparing their financial statements.
✔✔statutory accounting practices - ✔✔Accounting standards that all life insurers in the
United States must follow when preparing the Annual Statement and specified other
financial reports that they submit to insurance regulators.
✔✔codificiation - ✔✔Process undertaken by the NAIC to help standardize financial
reporting requirements and, ultimately, to develop one set of comprehensive statutory
guidelines among the 50 states.
✔✔rules-based approach - ✔✔An approach where a valuation actuary uses
deterministic modeling and a required set of rules to calculate an insurer's reserves.
✔✔deterministic modeling - ✔✔Simulates real-world interactions through the use of a
stated set of inputs, which produces a single set of outputs.
✔✔enterprise risk management (ERM) - ✔✔A system that identifies and quantifies an
organization's risks from both potential threats and potential opportunities and manages
these risks in a coordinated approach that supports the organization's strategic
objectives.
✔✔principles-based approach (PBA) - ✔✔An approach where a valuation actuary
applies stochastic (probabilistic) analysis to develop probabilities for various outcomes
and then applies professional judgment to set appropriate values for reserves.
QUESTIONS SET A+
✔✔C-3 risk (interest-rate risk) - ✔✔Risk that market interest rates might shift, causing
insurer's assets to lose value and/or its liabilities to gain value.
✔✔C-3 Risk Examples - ✔✔1. Loss of asset value because of interest-rate increases.
2. Loss on the forced sale of assets or withdrawals by customers when interest rates
increase.
3. Losses relate to bond prepayments or mortgage prepayments when interest rates
decrease.
✔✔C-4 risk (general management) - ✔✔Risk of losses resulting from:
1. The insurer's ineffective general business practices.
2. The need to pay a special assessment to cover another insurer's unsound business
practices.
3. Unfavorable regulatory changes.
4. Unfavorable changes in tax laws.
✔✔C-4 Risk Examples - ✔✔1. Market risk from expansion into new lines or business or
new markets.
2. Changes in laws affecting insurance business.
3. Fraud by employees, agents, or customers.
4. Mismanagement.
5. Withdrawals by customers who fear insolvency.
✔✔financial condition examination - ✔✔Onsite regulator examination designed to
investigate two broad aspects of an insurer's operations:
1. Whether the insurer's accounting records are accurate and the insurer is being
operated on a sound and lawful basis.
2. Whether the insurer's financial and business profiles contain any apparent hazards to
the insurer's solvency.
✔✔Specific Tasks of Financial Condition Examinations - ✔✔1. Verify operating results
reported in the Annual Statement.
, 2. Examine accounting records to determine operation on a sound basis.
3. Investigate financial and business activities to ensure no contribution to insolvency.
4. Search inaccurate financial records concealing financial problems or unlawful
activities.
5. Evaluate compliance with the law using broad-based or specific-focused analysis.
✔✔association examination - ✔✔Onsite regulatory examination that conforms to the
procedures outlines in the NAIC's Financial Condition Examiners Handbook.
✔✔examination report - ✔✔Summary of association examination results, emphasizing
any adverse conditions the examiners discover and any significant changes in the
insurer's operations or financial condition since the last report.
Submitted to both state regulators and the insurance company's officers, it must at least
identify and report any problems uncovered during the most recent examination.
It may also explain the causes of problems and suggestions for corrections.
✔✔ generally accepted accounting principles (GAAP) - ✔✔Set of financial accounting
standards, conventions, and rules that stock insurance companies follow when
summarizing transactions and preparing their financial statements.
✔✔statutory accounting practices - ✔✔Accounting standards that all life insurers in the
United States must follow when preparing the Annual Statement and specified other
financial reports that they submit to insurance regulators.
✔✔codificiation - ✔✔Process undertaken by the NAIC to help standardize financial
reporting requirements and, ultimately, to develop one set of comprehensive statutory
guidelines among the 50 states.
✔✔rules-based approach - ✔✔An approach where a valuation actuary uses
deterministic modeling and a required set of rules to calculate an insurer's reserves.
✔✔deterministic modeling - ✔✔Simulates real-world interactions through the use of a
stated set of inputs, which produces a single set of outputs.
✔✔enterprise risk management (ERM) - ✔✔A system that identifies and quantifies an
organization's risks from both potential threats and potential opportunities and manages
these risks in a coordinated approach that supports the organization's strategic
objectives.
✔✔principles-based approach (PBA) - ✔✔An approach where a valuation actuary
applies stochastic (probabilistic) analysis to develop probabilities for various outcomes
and then applies professional judgment to set appropriate values for reserves.
