Claims Reserve

Posted in Finance, Accounting and Economics Terms, Total Reads: 463
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Definition: Claims Reserve

A kind of reserve which is made to cover possible future claims. How much money should be included in claim reserve is hard to find as it is unpredictable in nature.


If you get a look the financial statements of an insurance company you will defiantly find a Claim reserve as an insurance company is the one which is most effected by the future claims of the polies it has sold. They acts as a liability to an insurance company. The calculation of this claim reserve is very difficult to calculate as too many factors needs to be considered and very skilled professionals are required to do the job. In insurance companies this task is done by Actuaries.

 

Example:

Now if person has taken an insurance for his new car the insurance provider will have to make a reserve for the possibility of the claim. The predicted claim for the insurance will go in Claims reserve. The company will have to show the reserve as a liability in their financials.

 

Hence, this concludes the definition of Claims Reserve along with its overview.

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