If an insurance company actively buys and sells bonds and does not intend to hold the bonds to maturity, bonds are reported at market values and temporary changes in the market values of bonds are…

Question

Options

• Aintermediate bond sharing
• BSecurities Valuation Office
• Ctrading securities
• Dheld-to-maturity securities

• A
  2% (1)
• B
  6% (3)
• C
  81% (38)
• D
  11% (5)

Explanation

Trading securities (C) is correct because this classification applies when an entity actively buys and sells financial instruments with the intent to profit from short-term price changes - not to hold them long-term. Under this designation, bonds are marked to fair market value on the balance sheet, and unrealized gains or losses flow directly through the income statement as part of earnings.

Option A (intermediate bond sharing) is not a real accounting or insurance term - it's a fabricated distractor designed to sound plausible.

Option B (Securities Valuation Office) is an actual NAIC body that establishes bond valuation guidelines for insurers, but it's an organization, not an accounting classification for how bonds are reported.

Option D (held-to-maturity securities) is the opposite scenario - this classification applies when the entity has the positive intent and ability to hold bonds until they mature; under HTM, bonds are reported at amortized cost, and temporary market fluctuations do NOT affect earnings.

Memory tip: Think "trading = turbulent earnings" - if you're actively trading, your income statement rides the market's waves. Held-to-maturity = "lock it and forget it" on the income statement.

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