The Lords Insurance Blog

Making Insurance

Term of the Day

From our insurance terms section, this is the definition:

Reserve – An amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.”

In depth explanation from eHow:

Insurance reserves are assets kept by an insurance company, a bank or other financial institution to cover it against future claims and unforeseen circumstances. Insurance reserves insure that an institution has funds available to honor its claims and payment premiums.

Uncertainty

Payments made by insurance companies can sometimes differ from those originally predicted. Reserves guarantee against claims payments or anticipated premiums being higher than expected by actuarial estimates.

Features

Banking insurance reserves can be in cash or assets which can easily be turned into cash, such as gold. In the U.S., the reserve of a national bank must be in cash while the Bank of England stores gold for reserve purposes.

Liability

Life insurance companies always regard their reserves as a liability. These reserves represent the financial difference between the insurance policy’s present value and future premiums paid on the policy.

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Written by lordsinsurancelog

December 24, 2010 at 5:53 am

Posted in Daily Quip