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Valuation Reserve
Definition
Insurance companies often hold a valuation reserve against predicted losses on investments and policies. These reserves do cause a charge against earnings so they are calculated carefully as you do not wish to have too much or too little of such a reserve on the books.
Using the term Valuation Reserve :
The investment committee at the insurance company set up valuation reserves for bonds when they dropped to 80% of par value.
Pay Special Attention To :
Be careful not to over-reserve by being too conservative. This can make the firm less efficient in capital management. At the same time, it very prudent to reserve as soon as the probability of losses are reasonably known.
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Related terms
Risk Management , Accounting
