What are "Loss Reserves" in the context of insurance claims?

"Loss Reserves" refer to the estimated costs that an insurance company anticipates it will incur to settle pending claims. This includes amounts set aside for losses that have been reported but not yet fully settled, as well as those that have occurred but have not yet been reported (IBNR - Incurred But Not Reported). Insurance companies are required to maintain these reserves to ensure they have sufficient funds available to pay out claims as they arise, thus protecting both the policyholders and the financial stability of the insurer.

In the context of insurance operations, accurately estimating loss reserves is critical because underestimating can lead to financial strain, while overestimating can affect an insurer's profitability and pricing of policies. Therefore, understanding loss reserves is essential for anyone involved in insurance claims management or general adjusting, as it directly influences the financial health and operational practices of insurance entities.