DEFINITION of Adjusted Liabilities
Adjusted liabilities are the statutory liabilities of an insurance company less its interest maintenance reserve and its asset valuation reserve, which insurance companies are required to maintain as a cushion for potential equity and credit losses by the National Association of Insurance Commissioners.
BREAKING DOWN Adjusted Liabilities
Adjusted liabilities are used in the analysis of insurance companies, because they provide a better reflection of economic reality than just using the accounting value of the liabilities. Statutory liabilities, which are calculated according to the industry's accounting standards, sometimes overstate liabilities, because they do not account for the maintenance reserve and asset valuation reserve.
Many financial ratios are calculated based on adjusted liabilities, and used to assess the liquidity and capital position of insurance companies. Ratios such as the adjusted liabilities to total adjusted capital, are used by the rating agencies to assign a financial strength rating to insurance companies.