LOMA 361 COMPREHENSIVE ANSWERS AND
QUESTIONS SET A+
✔✔Record date - ✔✔The date on which parties who are listed on a company's records
as owning the company's common stock are identified as being entitled to receive
dividends on stock, which are declared by the issuing company's board of directors.
✔✔derivative - ✔✔securities whose value is based on other securities, such as stocks
or bonds. Insurers employ different kinds, each of which has its own terms and features.
Insurers generally use these to mitigate their exposure to various risks, such as interest-
rate risk, currency risk, and market risk."
"highly complex instruments that in some cases come with high risks. Therefore,
regulators require insurers to submit detailed information about the ones they hold.
For both U.S. GAAP and statutory reporting, insurers typically include these on the
balance sheet or disclose them in notes that accompany their financial statements.
For statutory reporting purposes, insurers must also report these in Schedule DB of
their Quarterly and Annual Statements.
✔✔Hedging - ✔✔refers to counterbalancing a given risk exposure against another. In
other words, to protect itself from a given risk, an insurer takes an action—such as
entering into a derivatives contract minimizes that risk.
"If the item being hedged is reported at amortized cost, then the derivative should be
reported at amortized cost.
If the item being hedged is reported at fair value, then the derivative should be reported
at fair value."
✔✔Derivative instruments model regulation - ✔✔"establishes standards for the prudent
use of derivatives by insurance companies. According to this Model Regulation, insurers
must have written guidelines that govern their transactions in derivative instruments,
and they also must have procedures in place for monitoring their derivatives."
,✔✔short term assets - ✔✔assets that a company expects to convert to cash or
consume within the current accounting period, typically one year. Typical examples held
by insurers include cash and cash equivalents, investment income due and accrued,
deferred premiums, uncollected premiums, and prepaid expenses.
"typically considered admitted assets for U.S. statutory accounting purposes."
page 111
✔✔Gap accounting rEcords - ✔✔designed for financial reporting to investors,
noninsurance regulators (such as the SEC in the United States), and the general public.
In the United States, all stock insurance companies and many mutual insurance
companies maintain accounting records and prepare financial statements according to
This.
focus on showing a company's financial stability and its profitability.
a type of profitability-basis accounting.
The reserves are profitability-basis reserves."
✔✔Internal accounting records - ✔✔also known as modified GAAP accounting records
are designed for financial reporting to a company's management team, whose primary
interest is in having appropriate data for making decisions.
are used in management accounting because they are designed to produce results that
managers believe present a realistic picture of a company's financial situation.
Each insurer freely sets its own desired accounting standards, although most
companies base these records and reports on their own modified version of GAAP.
Reserves calculated under modified GAAP are called internal reserves. Because they
contain proprietary information, such as a company's product sales, investment returns,
and profits, these records generally are not released to external parties.
✔✔Statutory accounting records - ✔✔also called solvency-basis accounting records.
are designed to comply with the financial reporting requirements established by state
insurance regulators.
a type of solvency-basis accounting. Reserves calculated under this are called statutory
reserves, required reserves, and solvency-basis reserves.
✔✔Tax accounting records - ✔✔are designed for financial reporting to taxing
authorities.
, Typically, the taxing authorities—for example, the IRS and the state revenue
departments in the United States—develop the procedures for companies to comply
with tax reporting requirements.
Reserves calculated for tax accounting purposes are called tax reserves. Most tax
accounting topics are outside the scope of this textbook.
✔✔Contractual reserve - ✔✔a liability that identifies the amount that, together with
future premiums and investment earnings, represents the expected amount of future
benefits payable on an insurer's in-force business.
In other words, the insurer's estimates for the amounts it needs on hand today to pay
contractual benefits on a product as they come due.
Reserves + Future premiums + Investment earnings =
Expected future benefits payable on in-force business
✔✔Non-contractual reserve - ✔✔is a liability amount that an insurer estimates it will
need to pay the insurer's business obligations that are not directly attributable to
benefits payable for a specified product. In other words, all reserves that are not
contractual reserves are classified as this.
Two examples for life insurers are the asset valuation reserve (AVR) and the interest
maintenance reserve (IMR)
✔✔Provision for adverse deviation - PAD - ✔✔a safety margin that allowed for
unfavorable variations from actuarial assumptions.
✔✔Released reserve - ✔✔a contractual reserve that was originally established in
connection with an in-force policy but is no longer required.
help cushion the impact of policy benefit payments on the insurer's surplus pg 129
✔✔Reserve strengthening - ✔✔"If a reserve is too low, an insurer may consider
strengthening it.
Typically, this situation occurs if the insurer's experience with a product reveals that the
assumptions used to calculate contractual reserves were too optimistic.
In such a situation, the insurer may decide to increase its reserves to protect or improve
its solvency or its quality rating by an independent rating agency.
The act of increasing a reserve amount, which results in a decrease in the insurer's
capital or surplus.
Insurers strengthen reserves by using actuarial assumptions that are less favorable to
the company than those used in the original reserve valuation."
QUESTIONS SET A+
✔✔Record date - ✔✔The date on which parties who are listed on a company's records
as owning the company's common stock are identified as being entitled to receive
dividends on stock, which are declared by the issuing company's board of directors.
✔✔derivative - ✔✔securities whose value is based on other securities, such as stocks
or bonds. Insurers employ different kinds, each of which has its own terms and features.
Insurers generally use these to mitigate their exposure to various risks, such as interest-
rate risk, currency risk, and market risk."
"highly complex instruments that in some cases come with high risks. Therefore,
regulators require insurers to submit detailed information about the ones they hold.
For both U.S. GAAP and statutory reporting, insurers typically include these on the
balance sheet or disclose them in notes that accompany their financial statements.
For statutory reporting purposes, insurers must also report these in Schedule DB of
their Quarterly and Annual Statements.
✔✔Hedging - ✔✔refers to counterbalancing a given risk exposure against another. In
other words, to protect itself from a given risk, an insurer takes an action—such as
entering into a derivatives contract minimizes that risk.
"If the item being hedged is reported at amortized cost, then the derivative should be
reported at amortized cost.
If the item being hedged is reported at fair value, then the derivative should be reported
at fair value."
✔✔Derivative instruments model regulation - ✔✔"establishes standards for the prudent
use of derivatives by insurance companies. According to this Model Regulation, insurers
must have written guidelines that govern their transactions in derivative instruments,
and they also must have procedures in place for monitoring their derivatives."
,✔✔short term assets - ✔✔assets that a company expects to convert to cash or
consume within the current accounting period, typically one year. Typical examples held
by insurers include cash and cash equivalents, investment income due and accrued,
deferred premiums, uncollected premiums, and prepaid expenses.
"typically considered admitted assets for U.S. statutory accounting purposes."
page 111
✔✔Gap accounting rEcords - ✔✔designed for financial reporting to investors,
noninsurance regulators (such as the SEC in the United States), and the general public.
In the United States, all stock insurance companies and many mutual insurance
companies maintain accounting records and prepare financial statements according to
This.
focus on showing a company's financial stability and its profitability.
a type of profitability-basis accounting.
The reserves are profitability-basis reserves."
✔✔Internal accounting records - ✔✔also known as modified GAAP accounting records
are designed for financial reporting to a company's management team, whose primary
interest is in having appropriate data for making decisions.
are used in management accounting because they are designed to produce results that
managers believe present a realistic picture of a company's financial situation.
Each insurer freely sets its own desired accounting standards, although most
companies base these records and reports on their own modified version of GAAP.
Reserves calculated under modified GAAP are called internal reserves. Because they
contain proprietary information, such as a company's product sales, investment returns,
and profits, these records generally are not released to external parties.
✔✔Statutory accounting records - ✔✔also called solvency-basis accounting records.
are designed to comply with the financial reporting requirements established by state
insurance regulators.
a type of solvency-basis accounting. Reserves calculated under this are called statutory
reserves, required reserves, and solvency-basis reserves.
✔✔Tax accounting records - ✔✔are designed for financial reporting to taxing
authorities.
, Typically, the taxing authorities—for example, the IRS and the state revenue
departments in the United States—develop the procedures for companies to comply
with tax reporting requirements.
Reserves calculated for tax accounting purposes are called tax reserves. Most tax
accounting topics are outside the scope of this textbook.
✔✔Contractual reserve - ✔✔a liability that identifies the amount that, together with
future premiums and investment earnings, represents the expected amount of future
benefits payable on an insurer's in-force business.
In other words, the insurer's estimates for the amounts it needs on hand today to pay
contractual benefits on a product as they come due.
Reserves + Future premiums + Investment earnings =
Expected future benefits payable on in-force business
✔✔Non-contractual reserve - ✔✔is a liability amount that an insurer estimates it will
need to pay the insurer's business obligations that are not directly attributable to
benefits payable for a specified product. In other words, all reserves that are not
contractual reserves are classified as this.
Two examples for life insurers are the asset valuation reserve (AVR) and the interest
maintenance reserve (IMR)
✔✔Provision for adverse deviation - PAD - ✔✔a safety margin that allowed for
unfavorable variations from actuarial assumptions.
✔✔Released reserve - ✔✔a contractual reserve that was originally established in
connection with an in-force policy but is no longer required.
help cushion the impact of policy benefit payments on the insurer's surplus pg 129
✔✔Reserve strengthening - ✔✔"If a reserve is too low, an insurer may consider
strengthening it.
Typically, this situation occurs if the insurer's experience with a product reveals that the
assumptions used to calculate contractual reserves were too optimistic.
In such a situation, the insurer may decide to increase its reserves to protect or improve
its solvency or its quality rating by an independent rating agency.
The act of increasing a reserve amount, which results in a decrease in the insurer's
capital or surplus.
Insurers strengthen reserves by using actuarial assumptions that are less favorable to
the company than those used in the original reserve valuation."
