Adjusted Liabilities

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DEFINITION

The liabilities of an insurance company that differ from the company's statutory liabilities due to adjustments. It is calculated by taking the statutory liability and subtracting the interest maintenance reserve and asset valuation reserve. Statutory liabilities are the insurance company's liabilities as determined by the applicable accounting rules. Insurance companies are required by the National Association of Insurance Commissioners (NAIC) to maintain the aforementioned reserves as a cushion for potential equity and credit losses. This definition is specific to the insurance industry.

INVESTOPEDIA EXPLAINS

Adjusted liabilities are used in the analysis of an insurance company and better reflect the economic reality of the liabilities as opposed to just the accounting value (statutory) of the liabilities. Many financial ratios are calculated based on adjusted liabilities to judge the liquidity and capital position of the insurance company. These ratios (such as adjusted liabilities to total adjusted capital) would be used by the rating agencies to assign a financial strength rating to the insurance company.


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