The funds or assets an insurance company holds can be used to pay insurance claims at any given time. Insurers set the reserve aside, along with interest and premiums paid by all policyholders, as they accrue and mature, allocating money for losses as they occur.
When examining their financial status on a balance sheet, an insurance company’s reserve is always considered a liability. It is calculated on net premiums and represents the difference between a policy’s current total value and future premiums’ current value.
