A valuation reserve is money set aside by an insurance company to hedge against a decline in the value of its assets.
Valuation reserves are required by state law to protect against natural fluctuations in the value of investments.
Valuation reserves are calculated using asset valuation reserve and interest rate maintenance reserve to separate estimates of equity and interest gains and losses.
Regulators are increasingly considering risk-based capital requirements, such as allowances, as a smarter way to ensure solvency.
In order to make sure that an insurance company remains solvent so that it can pay insurance claims and annuities, it must maintain a certain amount of valuation reserves.