What is the definition of Reserves?
Reserves are what the insurance company sets aside in order to pay for its claims.
Insurance companies set aside a portion of their funds to meet policyholder obligations when they mature or when a claim comes up, based on a particular mortality table. These include obligations for policies that are currently in force.
Calculations for reserves are also based on net premiums, which is looked as the difference between the present value of both the total insurance and all expected future premiums on the insurance.
At the end of every year, the reserves refer to the balance left at the end of the year and are called the terminal reserve. At the beginning of the year, the initial reserve includes the net premiums plus the previous year's terminal reserves.
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