What is a Valuation Reserve?

A Valuation Reserve refers to the asset that insurance companies set aside as a hedge against the decrease in the value of the investment they hold or unexpected market upheavals, to ensure that the company remains solvent. The investments are allocated as per state law to protect the portfolio against devaluation risks.

As policies including health insurance, life insurance and various annuities may get affected for an extended period. Valuation Reserve helps insurance companies to protect their portfolio from any losses. This help in ensuring that policyholders are paid for claims and that annuity holder receive income even if an insurance company’s investments lose value.

However, Valuation Reserve sets life insurance companies from other insurance companies, where the allocation of these reserves is influenced by the desire to improve the security.