Which of the following best defines 'loss reserves'?

Loss reserves are a crucial concept in insurance that refer to the estimation of liability for unpaid claims that have occurred as of a specific date. This estimation is essential for insurance companies as it allows them to set aside appropriate funds to cover claims that have been reported but not yet paid, as well as claims that are incurred but not reported (IBNR).

By accurately estimating these reserves, an insurance company ensures that it has sufficient resources to meet its future obligations to policyholders, leading to greater financial stability and compliance with regulatory requirements. Maintaining appropriate loss reserves reflects the company's responsibility to its clients and supports the integrity of the insurance industry.

The other options do not accurately capture the concept of loss reserves. Future profits are related to revenue projections rather than liability determination. Total claims paid out addresses actual payouts rather than liabilities for unpaid claims. Reserves set aside for tax purposes relate to a different aspect of financial management and do not reflect the commitment to cover insured losses.