Security Valuation

What Does Security Valuation Mean?

Security valuation is the process by which regulators evaluate the safety and risk of the securities held by an insurance company. This assessment ensures that the company is not exposed to excessive risk, thereby safeguarding policyholders from significant financial losses.

Insuranceopedia Explains Security Valuation

The insolvency of an insurance company can lead to significant problems, including substantial financial losses for policyholders, who may also fail to be reimbursed for insured claims. To mitigate this risk, state regulators closely monitor insurance companies to ensure they are operating responsibly. One of the primary tools they use for this oversight is security valuation.

This matters most for long-tail policies like life insurance, where a claim might be paid decades after the premium was collected. When you compare the best life insurance companies or the best car insurance companies, the financial strength ratings you see are doing roughly the same job as security valuation, just packaged for consumers.