Claims do not all get paid the day they are reported. Reserves are the funds an insurer sets aside on its balance sheet to pay claims that have already occurred but are not yet fully settled. They represent one of the largest liabilities on an insurance company’s books.

Case reserves are assigned by claims staff to individual known claims. Incurred-but-not-reported reserves, estimated by actuaries, cover claims that have happened but have not yet been recorded, plus future development on known claims. Together they form the total loss reserve.

Accurate reserving keeps reported profits honest and protects policyholders if the company must pay large future amounts. Under-reserving can mask problems until cash runs short; over-reserving ties up capital. Regulators and auditors examine reserve methods and adequacy every year.

• Funds held for unpaid claims
• Include case reserves and IBNR estimates
• Major liability on the insurer’s balance sheet
• Subject to actuarial and regulatory scrutiny