Claims do not all get paid on the day they are reported. A loss reserve is the insurer’s estimate of the amount still to be paid on claims that have already occurred. It appears as a liability on the balance sheet and is one of the largest numbers in an insurer’s financial statements.

Case reserves are set by claims staff on individual known claims. IBNR reserves are estimated by actuaries for unreported claims and for future development on known claims. Together they constitute the total loss reserve. Accuracy affects reported profit, tax, and solvency.

Reserve adequacy is tested by actuaries, auditors, and regulators. Emerging claim patterns, legal changes, and inflation can cause prior estimates to prove too high or too low. Management’s attitude toward reserving—conservative or aggressive—shapes the reliability of the published results.

• Estimated liability for unpaid claims
• Includes case reserves and IBNR
• Major balance-sheet liability for insurers
• Subject to actuarial and regulatory review