What is the main purpose of calculating reserve estimates in insurance?

The main purpose of calculating reserve estimates in insurance is to quantify and monitor estimates of unpaid losses. This process is crucial for insurance companies because it helps ensure they have sufficient funds set aside to cover future claims. Reserves represent the insurer's best estimate of what will be required to settle claims that have already been incurred but are not yet paid, including losses that have been reported and those that may occur in the future.

By accurately estimating these reserves, insurance companies can maintain financial stability and comply with regulatory requirements, which demand that insurers remain solvent and able to pay future claims. This practice is a fundamental aspect of risk management and financial planning within the insurance industry, allowing companies to assess their liabilities and manage cash flow effectively.