Definition of Insurance Reserves

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Definition of Insurance Reserves
Insurance reserves are cash reserves that help companies anticipate future demands. (gold image by Raimundas from Fotolia.com)

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 honour its claims and payment premiums.

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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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