DEFINITION of 'Adjusted Surplus'

The surplus (assets minus liabilities) of an insurance company that differs from the company's statutory surplus due to adjustments. It is calculated by taking the statutory surplus plus the Interest Maintenance Reserve and Asset Valuation Reserve.

The Statutory Surplus is determined by the accounting treatment of assets and liabilities. Insurance companies are required by the National Association of Insurance Commissioners (NAIC) to maintain reserves as a cushion for potential equity and credit losses.

BREAKING DOWN 'Adjusted Surplus'

The Adjusted Surplus is an important metric for analyzing the relative strength and standing of a non-publicly traded insurance company. Adjusted Surplus is akin to the retained earnings of a stock-based company, and is a balance sheet item. The Adjusted Surplus grows when the insurance company makes an operating profit and/or experiences gains in its investment portfolio.

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