Module 2- loma 361 Exam 2025
Questions and Answers
Valuation - ✔✔"the process of calculating the monetary value of an insurer's assets,
liabilities, and owners' equity for accounting and financial reporting purposes."
Historical Cost - ✔✔"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 - ✔✔"the value at which a company records the asset in its accounting
records and reports the asset on its balance sheet."
Amortization - ✔✔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 - ✔✔"the asset's book value after its cost has been adjusted for applicable
amortization"
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,Accumulate Depreciation - ✔✔"The total amount of depreciation allocated to an asset as
of a specified date"
fair value - ✔✔"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 - ✔✔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) - ✔✔responsible for the ongoing credit quality
assessment and valuation of securities owned by state-regulated insurance companies.
Automated valuation service - ✔✔"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 - ✔✔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
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
,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 - ✔✔"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 - ✔✔"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 - ✔✔"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 - ✔✔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."
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 3
, "Under GAAP and SAP, realized and unrealized capital gains on equity securities are
generally calculated the same way"
unrealized capital gain loss- ES - ✔✔"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 - ✔✔"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 - ✔✔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
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 4
Questions and Answers
Valuation - ✔✔"the process of calculating the monetary value of an insurer's assets,
liabilities, and owners' equity for accounting and financial reporting purposes."
Historical Cost - ✔✔"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 - ✔✔"the value at which a company records the asset in its accounting
records and reports the asset on its balance sheet."
Amortization - ✔✔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 - ✔✔"the asset's book value after its cost has been adjusted for applicable
amortization"
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
,Accumulate Depreciation - ✔✔"The total amount of depreciation allocated to an asset as
of a specified date"
fair value - ✔✔"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 - ✔✔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) - ✔✔responsible for the ongoing credit quality
assessment and valuation of securities owned by state-regulated insurance companies.
Automated valuation service - ✔✔"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 - ✔✔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
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
,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 - ✔✔"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 - ✔✔"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 - ✔✔"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 - ✔✔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."
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 3
, "Under GAAP and SAP, realized and unrealized capital gains on equity securities are
generally calculated the same way"
unrealized capital gain loss- ES - ✔✔"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 - ✔✔"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 - ✔✔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
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 4
