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Reserves

See: Free Assets; Technical Reserves.
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The amount of money that has been set aside by an insurer or reinsurer to meet outstanding claims, incurred but not reported losses and any associated expenses.

Reserving

Process of estimating or calculating amounts to be allocated to cover outstanding claims and unexpired risks. Insurers use an actuarial approach or a computerised program for the purpose. The reserved amount is adjusted whenever new information on a claim is received.

Reserving assumptions

The amount of money that has been set aside by an insurer or reinsurer to meet outstanding claims, incurred but not reported losses, and any associated expenses. Assumptions that typically actuaries or claims handlers make to estimate how much money will be needed.

Reserving Versus Provisioning

The following are the main differences between reserve and provision: (i) Mode of Creation: Reserve is created against the charge of the profit and loss appropriation account. Provision is created against the change of the profit and loss account. (ii) Objective: Main objective of reserve is to strengthen the financial position and to meet future unknown losses and liabilities. Objective of provision is to meet known losses and liabilities the amount of which is not certain. (iii) Relation with Profit: Reserve is created when there is enough profit in the business. Provision is created even if there is loss in the business. (v) Distribution: Reserve can be distributed to shareholders as dividend. Provision cannot be distributed as dividend to shareholders.(vi) Future Requirement: Provision is created by estimating the future requirements of the business. (vii) Impact: Impact of reserve will be on financial position. Impact of provision will be on profit or loss of the business.

Reset mechanisms

Applies to some ART products enabling them to be varied following the occurrence of loss(es). It also refers to risk modelling techniques whereby the premium payable under a multi-year contract is automatically adjusted by reference to the claims record and changes in the prevailing market and economic conditions.