Asset Valuation Reserve - AVR

Reserves are to businesses what savings are to individuals. This particular kind of reserve has two pieces: a default component and an equity component. The default is set to cover future potential losses. For example, insurance companies are required to have enough in reserves to cover claims. This requirement is set by the National Association of Insurance Commissioners (NAIC).

Usually, reserves are tucked away annually. The business can calculate this sum by estimating future losses, for example, or by an estimate of all outstanding assets like stocks and bonds. Basically, this is the business saying "When it rains, it pours. If a metaphorical storm hit us tomorrow, how much do we need on hand to cover everything we need to cover?" These amounts will vary based on type of business (and the laws pertaining to them)...but you get the idea.