Asset Valuation Reserve

What Does Asset Valuation Reserve Mean?

Asset Valuation Reserves (AVR) are financial resources set aside by a company for future use, particularly in anticipation of unforeseen financial challenges. Insurance companies are required to maintain AVR to ensure they can cover claims in the future.

Insuranceopedia Explains Asset Valuation Reserve

Banks and other financial institutions are legally required to maintain an asset valuation reserve to protect their clients from potential losses if these institutions face fiscal difficulties.

Similarly, the National Association of Insurance Commissioners (NAIC) mandates that insurance companies in the United States maintain an asset valuation reserve to ensure they can meet policyholder claims, even if the company experiences financial challenges. Reserves like AVR are one of the reasons financial strength matters when comparing the best life insurance companies, since the buyer is trusting the insurer to pay out claims that may not come due for decades.

The reserve can take the form of securities or real estate. This matters most for buyers of permanent life insurance, because those policies can stay in force for the rest of the policyholder’s life and depend on the insurer remaining solvent the whole time.