Interest Maintenance Reserve (IMR)

Published: | Updated: November 6, 2020

Definition - What does Interest Maintenance Reserve (IMR) mean?

An Interest Maintenance Reserve (IMR) is a reserve of funds and other assets that are held according to standard accounting principles in order to deal with fluctuations in the interest rate.

The value of financial vehicles like bonds or mortgages can change along with the interest rate. Having an IMR on hand allows companies to deal with losses related to interest rate fluctuations by tapping into this reserve.

This interest maintenance reserve is usually required by regulators in order to maintain the financial stability of the insurance industry. For example, the National Association of Insurance Commissioners (NAIC) requires the creation of an IMR to accumulate realized capital gains and losses resulting from interest rate fluctuations. These results are then amortized and used to adjust net investment income levels over the estimated holding period of those assets.

This ensures that insurance companies are not subject to wild swings in their balance sheet due to losses or gains from their investments. This keeps insurers financially stable and able to meet their obligations to policyholders in almost all economic conditions.

Insuranceopedia explains Interest Maintenance Reserve (IMR)

The National Association of Insurance Commissioners (NAIC) requires insurance companies to maintain an interest maintenance reserve. The purpose of this reserve is to ensure that insurers accumulate enough financial assets to offset some of the losses they incur as a result of changes in the interest rate.

A healthy interest maintenance reserve allows insurance companies to fulfill their long-term financial obligations, rather than fall short when they experience periodical and temporary losses.

The fund works by accumulating both gains and losses resulting from changes in interest rates in a separate reserve account. Keeping that money separate makes it easier to track as no funds are commingled. Then any gains or losses can be amortized into income over the estimated remaining life of an investment (ie. bonds or treasury notes with fixed repayment terms). The hope is that in ideal scenarios, the losses are offset by the gains so that little to no adjustments to net investment income values are needed.

Valuation reserves of this type are mandated by state law to mitigate the risk of a decline in the value of investments held by insurers or other financial institutions. Essentially, they act as a hedge for an insurer’s investment portfolio to ensure they remain solvent even during a downturn. In the end, these measures protect the public by ensuring their claims or annuity payments continue even if the insurance company’s assets lose value.


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