Understanding the Interest Maintenance and Asset Valuation Reserves
The NAIC introduced the Interest Maintenance Reserve (IMR) and the Asset Valuation Reserve (AVR) in 1992 in order to help life insurers better comply with the statutory accounting framework. Specifically, the reserves help insurers better abide by the concept of “conservatism,” which requires that life insurers use adequate accounting estimates in order to ensure policyholder obligations can be fulfilled. IMR and AVR deal with the issue that invested assets and certain liabilities may be subject to swings in value or even default, which may lead to volatile changes in surplus and may limit/distort the ability of an insurer to pay policyholders as needed. In essence, IMR and AVR help life insurers mitigate large/unforeseen fluctuations in statutory surplus. The NAIC summarizes each reserve below: