Business Glossary

explicit liability reserve , required by the National Association of Insurance Commissioners (NAIC) , established for all invested asset classes. Specific reserves are established for real estate and mortgages. In essence, the purpose of this reserve is to provide a back-up sum for potential equity and credit losses. To accomplish this objective, reserves are maintained for stocks, bonds, real estate, mortgages, and similar types of invested assets. Realized and unrealized equity and credit capital gains and losses are credited to or debited against this reserve. Amount of reserves required to be maintained for each invested asset is determined by actuarial formula.