What does reserving refer to in an insurance context?

Reserving in the insurance context specifically refers to the process of estimating unpaid losses accurately. This involves creating a financial reserve to cover claims that have been incurred but not yet reported (IBNR) as well as those that have been reported but not yet paid. Reserving is crucial as it ensures that an insurance company has sufficient funds to meet its future obligations to policyholders. Accurate loss estimation directly impacts the financial health and stability of the insurance company, influencing its ability to pay claims when they arise.

This process involves a careful evaluation of historical data, trends, and actuarial assessments to predict future claims costs. The reserves must be regularly monitored and adjusted as new information becomes available or as claims are settled. Thus, reserving is a fundamental aspect of an insurance company’s financial management and risk assessment strategy.