As per the provisions applicable to insurance companies, an insurance business has to set aside adequate reserves that are required to meet the claims that are already filed but not yet settled or the claims that are presented but the filing process is not yet completed.
A property and casualty insurance company usually has three types of balance sheet reserves namely,
Unearned premium reserves
Loss and loss adjustment reserves
Incurred but not reported (IBNR) reserves
An insurance company needs to ensure a fine balance between the over-reserving and under-reserving funds to meet future obligations as both scenarios have a direct impact on its bottom lines.
