What Does Valuation Reserve Mean?
A valuation reserve is an amount of money that life insurance companies set aside as a hedge against the possibility that their investments go down in value. Required by law, they serve the purpose of supplementing loss reserves and making sure insurance companies are still able to settle claims in the event of a failed investment with money earned from premiums.
A valuation reserve is also known as a mandatory securities valuation reserve.
Insuranceopedia Explains Valuation Reserve
The reserve requirement exists because of the fact that life insurance policies can span long periods of time, and inevitable fluctuations in the insurer’s investments may deplete too much of the loss reserves. Originally, the National Association of Insurance Commissioners (NAIC) maintaineda mandatory securities valuation reserve (MSVR); however, following 1992, it became required of the asset valuation reserves (ASV) of insurers.