What Does Reserve Mean?
Reserve is the amount of money that an insurance company has to set aside to pay future obligations to the policyholders. The regulatory body of the government often checks on the reserve to ensure that policyholders will actually be covered according to the risks that they have insured.
Insuranceopedia Explains Reserve
An insurance company doesn’t report as income all the earnings that it has received. In fact, a large portion of them is placed as liabilities in its balance sheet. That is because those earnings will be spent for future claims. These earnings are from premiums paid and when they are meant for claims, they are considered unearned premiums.
An insurance company is also obliged by the insurance regulatory board of a state to keep a minimum amount meant for reserves. This mandate keeps the insurance company from being financially insolvent and guarantees that policyholders can actually receive their claims.