Posted on

Valuation Reserve Requirements

3 min read

Valuation Reserve Requirements, what is AVRAccording to Fitch Ratings, over the past 12 months ending August 2026, there were 109 defaults by 89 entities, compared to the same period ending July 2026, when 83 entities saw 105 defaults. With businesses (especially life insurers) exposed to asset management risks, it’s important to understand how to find financial balance.

Defining Asset Valuation Reserve (AVR)

An AVR is a repository for life insurance companies to offset a drop in markets and/or asset portfolios that are meant to fulfill contractual obligations for claims, annuities, and related insurance obligations.

According to the American Council of Life Insurers and the National Association of Insurance Commissioners (NAIC), the AVR factors in every realized investment profit and loss after factoring in net deferred taxes for credit and equity investments. Companies are required to fund the AVR initially and adjust it annually to manage ongoing and future obligations.

As part of the agreement that insurance companies have to pay out an insurance claim in exchange for receiving premiums, an insurance company has to ensure they are financially solvent to keep paying out claims. The same requirement also pertains to annuities that an insurance company contracts with customers, including making periodic payments. Through the valuation reserve requirements, insurance companies can measure their reserves and investments to increase the chance they’ll be able to meet their financial obligations regularly.   

Depending on the interest rate environment, insurance companies can experience threats to their allocated reserves to continue annuity payments over time compared to life benefits paid out all at once. Based on the American Council of Life Insurers, the percentage in reserves for annuities increased to 23 percent in 1990, up from 8 percent in 1980, showing how insurers must keep up with client demands and manage risk.    

How it’s Constructed

An AVR creates an organized set of entries for the assets and liabilities. Insurance companies are also able to compare assets and liabilities against actuarial valuation standards to plan for projected unknown, unsettled asset shortfalls. It also helps companies monitor the appropriate detection of long-term anticipated stock investment proceeds. For publicly traded insurance companies, it provides greater transparency for equity and bond holders, along with regulators.

The default component accounts for four-fifths of the AVR. Insurance companies implement investment vehicles such as mortgages and fixed-income options to manage their credit risk. As the name implies, the equity piece of the AVR balances the reserve with preferred and common equities or stocks, along with real estate investments. This mix is required for insurance companies because it creates a buffer from gains realized from positive market years, which offset insurance company obligations during periods of negative market performance.

Building the AVR is unique to each company’s financial makeup and needs to be dynamic, but must follow industry standards. While insurers or any market participant cannot predict the market with 100 percent accuracy, insurers with a properly constructed and reported AVR can more easily navigate an economy that becomes turbulent and uncertain.

Sources

https://www.fitchratings.com/research/corporate-finance/fitch-ratings-us-private-credit-default-rate-rose-to-6-3-in-august-2026-14-09-2026

https://www.acli.com/-/media/ACLI/Files/Fact-BooksPublic/2019FLifeInsurersFactBook.ashx?la=en

https://content.naic.org/sites/default/files/call_materials/4%20-%20AVR%20IMR%20Final%20Rept%20to%20NAIC%20%20Dec%202002.pdf

Posted on

Pre-Election Focus on Russian/Iran Sanctions, AI Utility Bills, Crypto Regulation and Nondiscriminatory FEMA Assistance

4 min read

Pre-Election Focus, AI Utility Bills, Crypto RegulationContinuing Appropriations and Extensions Act, 2027 (HR 6500) – This appropriations bill was finalized and passed by both the House and the Senate on Sept. 1. The act funds the fiscal year 2027 government budget through Dec. 11 at current levels. It was signed by the President on Sept. 2.

Prison Staff Safety Enhancement Act (S 307) – This bill is designed to address sexual harassment and sexual assault of Bureau of Prisons correctional officers and other staff by incarcerated prisoners. Specifically, it details national standards for the prevention, reduction, and punishment of perpetrators. The legislation was introduced by Sen. Marsha Blackburn (R-TN) on Jan. 29, 2025. It passed in the Senate on April 29, 2025; in the House on Aug. 31; and was enacted by the president on Sept. 16.

Retire through Ownership Act (S 2403) – Introduced by Sen. Roger Marshall (R-KS) on July 23, 2025, this bill amends the Employee Retirement Income Security Act of 1974. ESOPs are Employee Stock Ownership Plans that enable employees to accrue shares of their employers’ stock as part of a pension plan, in which they receive the cash value of their shares upon retirement. This bill clearly defines how a good-faith valuation should be determined by independent professional appraisers, based on IRS Revenue Ruling 59-60 for valuing privately held stock. In the past, ambiguous valuation methods have resulted in litigation. This act passed in the Senate on October 9, 2025, and in the House on Sept. 16. It currently awaits the president’s signature.

Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 (HR 5334) – This largely bipartisan act was championed by the late Sen. Lindsey Graham (R-SC). The legislation imposes a variety of sanctions, tariffs, and prohibitions related to Russia and Iran, and explicitly prohibits U.S. persons from making new investments in Russia. It also expands the tax deduction for early childhood education teachers for classroom expenses. The bill was introduced on Sept. 11, 2025, by Rep. Jimmy Panetta (D-CA). It passed in the House on April 27 and in the Senate on Aug. 7, with final changes agreed upon on Sept. 16. The president signed the bill into law a day later.

Digital Asset Market Clarity Act (HR 3633) – Known as the Clarity Act, the purpose of this Trump Administration-backed bill is to implement the first regulations for the crypto sector. The bill was introduced by Rep. French Hill (R-AR) on May 29, 2025. It passed in the House on July 17, 2025. However, opponents of the bill say the industry-led standards are far too lenient and do not provide enough safeguards. The bill recently failed in the Senate after a party-line cloture vote, which means the debate ended before the floor could vote on the bill (considered a filibuster). The cloture vote does not rule out the Senate trying again at a later date.

Ratepayer Protection Act (HR 9340) – In an effort to rein in AI data center utility costs, this bill would require state utilities to consider adopting standards to ensure cost recovery for the generation, transmission, and distribution services of large-load electricity customers. This high-stakes, bipartisan issue comes ahead of the midterm elections in an effort to assure voters that local data centers will not ramp up local residents’ utility bills. The legislation was introduced by Rep. Gabe Evans (R-CO) on June 18. It passed in the House on Sept. 16 and currently resides in the Senate.

Stopping Political Discrimination in Disaster Assistance Act (HR 1342) – Current law states that federal major disaster emergency relief and assistance must be provided without discrimination on the basis of race, color, religion, nationality, sex, age, disability, English proficiency or economic status. The bill, introduced by Rep. Scott Perry (R-PA) on Feb. 13, 2025, would add political affiliation protection under this requirement. The act passed in the House on Sept. 16 and awaits consideration in the Senate.

 

Posted on

Rolling Over Your 401(k) Just Got Less Painful – Here’s What the IRS Changed

4 min read

Rolling Over Your 401kAnyone who has moved retirement money out of an old employer’s plan knows how frustrating it can be. Every administrator has their own forms. Timelines are all over the place. Paper checks show up weeks later with vague instructions. The whole thing should have been fixed a long time ago.

The IRS is finally doing something about it. Notice 2026-49 puts out four sample forms and a five-step procedure meant to bring some consistency to direct rollovers. Plans do not have to use them, and there is no safe harbor, but you can see where this is going.

The Problem Worth Solving

When you leave a job, you have to figure out what to do with your 401(k). You can cash it out and take the tax hit. You can leave it sitting there. Or you can roll it into a new employer’s plan or an IRA.

A direct rollover is usually the way to go. The money travels straight from the old plan to the new one without ever hitting your bank account, which keeps things clean and avoids the 60-day deadline you face if you take possession yourself.

The trouble is that every plan does things differently. A 2024 GAO study found that roughly one in three people doing rollovers ended up with a paper check in hand that they were supposed to forward themselves. Checks get lost. They sit on the counter for weeks. And the whole time, that money is not invested anywhere.

How the New System Works

Here is what Treasury is proposing. You fill out Form 1 and give it to the plan or IRA that will be receiving your money. That form lets the receiving plan reach out to your old plan and handle the transfer on your behalf. The two plans swap Forms 2 through 4 to make sure everything is in order. If something goes sideways, the receiving plan has to tell you.

The IRS wants this done electronically whenever possible. When electronic is not an option, the old plan should write a check payable to the receiving plan for your benefit and mail it directly there. No more sending checks to participants and hoping they take it from there.

Tax Rules Stay the Same

None of this changes how rollovers are taxed. Eligible distributions that complete a proper rollover still stay out of income. You still cannot roll over a required minimum distribution. Pre-tax money stays pre-tax. Roth stays Roth. This is about the plumbing, not the tax code.

IRA-to-IRA transfers are not covered here. Those already go through the ACATS electronic system, so Treasury left them alone.

No Safe Harbor Yet

Plans can use these forms, change them, or ignore them completely. Right now, there is no reward for following along.

That could change. Treasury says it is thinking about offering safe harbors down the road. A receiving plan that uses the standard forms might eventually be allowed to assume the rollover is valid unless something looks off. That would give administrators a real incentive to adopt the new process.

Conclusion and What Comes Next

The IRS has hinted at bigger changes. Future guidance might require electronic transfers across the board, kill off the practice of mailing checks to participants, and get rid of some of the procedural friction that slows things down.

For now, the sample forms are sitting in the appendix of Notice 2026-49. They are there if you want them. If you have ever spent weeks tracking down a check that went to the wrong address or trying to explain one plan’s process to another plan’s administrator, you understand what Treasury is trying to fix. They want rollovers to be faster, simpler, and harder to mess up. This is a start.