LOMA 361 STUDY GUIDE 2025/2026 QUESTIONS AND
SOLUTIONS RANKED A+
✔✔auditing - ✔✔The process of conducting a financial audit. [16]
✔✔auditor's opinion - ✔✔A statement, prepared by a public accounting company, that
attests that the information contained in an insurer's annual report fairly represents the
insurer's operations and that the audit was conducted in accordance with applicable
auditing standards. [16]
✔✔authorization level - ✔✔Within the context of an internal control system, the
maximum monetary amount that a company employee has been granted official power
to approve for disbursement. [16]
✔✔balance sheet - ✔✔A financial statement that shows a company's financial condition
or position by summarizing the company's assets, liabilities and owner's equity as of a
specified date. Also known as statement of financial position or statement of financial
condition. [4]
✔✔bank reconciliation - ✔✔The process of identifying and explaining the difference
between (1) the bank statement balance and (2) the balance in the insurer's accounting
records. [6]
✔✔base period - ✔✔The earliest financial reporting period used in horizontal analysis
[14]
✔✔basic accounting equation - ✔✔The formula that expresses the relationship among
the three key account classifications - assets, liabilities, and owners' equity - on the
balance sheet. Also known as balance sheet equation. [1]
✔✔benchmarking - ✔✔An analytical process wherein an insurer selects a number of
other companies to use as a "best practices" standard for comparison with the insurer's
own operations and expenses. [14]
✔✔benefits budget - ✔✔A type of expense budget, which indicates the amount of
money the insurer expects to pay for insurance policy or annuity contract benefits, such
as claims, cash surrenders, and policy dividends during the next accounting period. [15]
✔✔bond - ✔✔A debt security issued by a borrower, typically a corporation or
government entity. [5]
✔✔bond discount - ✔✔The amount by which a bond's purchase price is lower than its
par value. Also known as discount. [5]
, ✔✔bond issuer - ✔✔The entity that sells the bond to raise money. [5]
✔✔bond premium - ✔✔The amount by which a bond's purchase price is higher than its
par value. Also known as premium. [5]
✔✔bondholder - ✔✔The owner of a bond
✔✔book value - ✔✔The value at which an asset is recorded in a company's accounting
records. [3]
✔✔bottom-up budgeting - ✔✔Budgeting that is generated in each department or
responsibility center in a company by lower-level managers and is presented in the form
of recommendations to senior management. Compare to top-down budgeting and zero-
based budgeting. [15]
✔✔breakeven point - ✔✔The point at which a product's revenues are equal to its costs
(expenses). [14]
✔✔budget - ✔✔A financial plan of action, expressed in monetary terms, that covers a
specified period, such as one year. [15]
✔✔budgeting - ✔✔A management accounting process that includes creating a financial
plan of action that an organization believes will help achieve its goals. [15]
✔✔business transaction - ✔✔A transaction to which a company must assign an
objective monetary value, whether the impact on the company is large or small, actual
or expected. [1]
✔✔C-1 Risk (Asset Risk) - ✔✔The risk that an insurer will lose asset value (other than a
loss in value caused by movements in interest rates) on its investments such as stocks,
bonds, mortgages, and real estate. [2]
✔✔C-2 risk (Pricing Risk) - ✔✔The risk that an insurer's experience with mortality or
expenses will differ significantly from expectations, causing the insurer to lose money on
its products. [2]
✔✔C-3 risk (Interest-Rate Risk) - ✔✔The risk that market interest rates might shift,
causing an insurer's assets to lose value and/or its liabilities to gain value. [2]
✔✔C-4 risk (General Management Risk) - ✔✔The risk of losses resulting from an
insurer's ineffective general business practices, the need to pay a special assessment
to cover another insurer;s unsound business practices, unfavorable regulatory changes,
or unfavorable changes in tax laws. [2]
SOLUTIONS RANKED A+
✔✔auditing - ✔✔The process of conducting a financial audit. [16]
✔✔auditor's opinion - ✔✔A statement, prepared by a public accounting company, that
attests that the information contained in an insurer's annual report fairly represents the
insurer's operations and that the audit was conducted in accordance with applicable
auditing standards. [16]
✔✔authorization level - ✔✔Within the context of an internal control system, the
maximum monetary amount that a company employee has been granted official power
to approve for disbursement. [16]
✔✔balance sheet - ✔✔A financial statement that shows a company's financial condition
or position by summarizing the company's assets, liabilities and owner's equity as of a
specified date. Also known as statement of financial position or statement of financial
condition. [4]
✔✔bank reconciliation - ✔✔The process of identifying and explaining the difference
between (1) the bank statement balance and (2) the balance in the insurer's accounting
records. [6]
✔✔base period - ✔✔The earliest financial reporting period used in horizontal analysis
[14]
✔✔basic accounting equation - ✔✔The formula that expresses the relationship among
the three key account classifications - assets, liabilities, and owners' equity - on the
balance sheet. Also known as balance sheet equation. [1]
✔✔benchmarking - ✔✔An analytical process wherein an insurer selects a number of
other companies to use as a "best practices" standard for comparison with the insurer's
own operations and expenses. [14]
✔✔benefits budget - ✔✔A type of expense budget, which indicates the amount of
money the insurer expects to pay for insurance policy or annuity contract benefits, such
as claims, cash surrenders, and policy dividends during the next accounting period. [15]
✔✔bond - ✔✔A debt security issued by a borrower, typically a corporation or
government entity. [5]
✔✔bond discount - ✔✔The amount by which a bond's purchase price is lower than its
par value. Also known as discount. [5]
, ✔✔bond issuer - ✔✔The entity that sells the bond to raise money. [5]
✔✔bond premium - ✔✔The amount by which a bond's purchase price is higher than its
par value. Also known as premium. [5]
✔✔bondholder - ✔✔The owner of a bond
✔✔book value - ✔✔The value at which an asset is recorded in a company's accounting
records. [3]
✔✔bottom-up budgeting - ✔✔Budgeting that is generated in each department or
responsibility center in a company by lower-level managers and is presented in the form
of recommendations to senior management. Compare to top-down budgeting and zero-
based budgeting. [15]
✔✔breakeven point - ✔✔The point at which a product's revenues are equal to its costs
(expenses). [14]
✔✔budget - ✔✔A financial plan of action, expressed in monetary terms, that covers a
specified period, such as one year. [15]
✔✔budgeting - ✔✔A management accounting process that includes creating a financial
plan of action that an organization believes will help achieve its goals. [15]
✔✔business transaction - ✔✔A transaction to which a company must assign an
objective monetary value, whether the impact on the company is large or small, actual
or expected. [1]
✔✔C-1 Risk (Asset Risk) - ✔✔The risk that an insurer will lose asset value (other than a
loss in value caused by movements in interest rates) on its investments such as stocks,
bonds, mortgages, and real estate. [2]
✔✔C-2 risk (Pricing Risk) - ✔✔The risk that an insurer's experience with mortality or
expenses will differ significantly from expectations, causing the insurer to lose money on
its products. [2]
✔✔C-3 risk (Interest-Rate Risk) - ✔✔The risk that market interest rates might shift,
causing an insurer's assets to lose value and/or its liabilities to gain value. [2]
✔✔C-4 risk (General Management Risk) - ✔✔The risk of losses resulting from an
insurer's ineffective general business practices, the need to pay a special assessment
to cover another insurer;s unsound business practices, unfavorable regulatory changes,
or unfavorable changes in tax laws. [2]
