Insurance reserves refer to a certain amount of funds corresponding to the insurance liabilities that the insurance company withdraws from premium income or surplus in accordance with relevant government legal regulations or specific business needs in order to ensure that the insurance company performs its insurance compensation or payment obligations as promised.

In order to ensure the normal operation of insurance companies and protect the interests of the insured, various countries generally stipulate through insurance legislation that insurance companies should set aside insurance reserves to ensure that insurance companies have the solvency corresponding to the scale of their insurance business.

Classified insurance reserves mainly include the following types: total reserves, unexpired liability reserves, outstanding claims reserves, reinsurance reserves, etc.

In order to ensure the normal operation of insurance companies and protect the interests of the insured, various countries generally stipulate through insurance legislation that insurance companies should set aside insurance reserves to ensure that insurance companies have the solvency corresponding to the scale of their insurance business.

[1] Total reserves Total reserves, or free reserves, are liability reserves used to meet the portion of risk losses that exceed loss expectations.

It is taken from the insurance company's pre-tax profits.

[2] The total reserve is a fund that the insurance company withdraws in a certain proportion from the profits after the final accounts and accumulates them year by year to make up for losses when dealing with huge claims.

The establishment of a total reserve fund is not only a need to maintain the stability of the insurer's business operations and organize economic compensation, but also an inevitable result of the annual imbalance in the occurrence of mega disasters and extremely serious accidents.

The calculation method for withdrawing total reserves is: Total reserves = Profit realized in the current year - Income tax for the year - Adjustment tax - Profit retention. Unexpired liability reserves. Unexpired liability reserves refer to the unexpired liability reserves at the time of the accounting year's final accounts.

A reserve system for depositing insurance policies.

The reason for this provision of funds is that the insurance business year is inconsistent with the accounting year.

For example, if the policyholder pays a year's insurance premium on October 1, 2009, 3 months of it belong to the 2009 fiscal year, and the remaining 9 months belong to the next fiscal year.

This insurance policy remains in effect for the first nine months of the next fiscal year.

Therefore, a corresponding portion of the insurance premiums earned in the current year should be set aside as the insurance premium income for the next year, as a source of compensation funds for the insurance policy.

According to my country's actuarial regulations: Unexpired liability reserves at the end of the fiscal year shall be withdrawn based on 50% of the gross premiums retained during the fiscal year.

Unexpired liability reserves should be calculated and withdrawn at one time during the final accounts of the fiscal year. The calculation methods for withdrawal include annual average estimation method, quarterly average estimation method and monthly average estimation method.

[3] Pending claims reserve Pending claims reserve, also known as claims reserve, is a reserve that is set aside from the insurance premium income of the current year when an insurance accident occurs before the final accounts of the accounting year but the compensation has not yet been decided or the compensation is payable but unpaid.

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It is a fund reserve set aside by the insurance company for unpaid compensation due to insured accidents that have occurred during the accounting year during the final accounting of the accounting year.

The reason for withdrawing the outstanding compensation reserve is that there is a time delay between the occurrence, reporting and settlement of a compensation case, which sometimes lasts for several years.

In accordance with the principles of accrual accounting and cost-to-income matching, insurance companies must estimate in advance the number of claims that have occurred during each accounting period and set aside reserves for outstanding claims.

The outstanding compensation reserve includes the incurred and reported compensation reserves, the incurred but unreported compensation reserves and the claim settlement expense reserves.

The reserve for claims that have occurred, reported and pending refers to the reserve set aside by the insurer for claims for non-life insurance accidents that have occurred and for which claims have been made to the insurer but have not yet been settled.

The basic data of reported and pending claims reserves mainly comes from the claims department, and should reflect the claims department’s experience and judgment on claims patterns, changes in compensation expenditures, zero claim cases, large claim cases, etc.

The reserve for outstanding claims that have occurred but not been reported refers to the reserve set aside by the insurance company for the claims for non-life insurance accidents that have occurred but for which no claim has been made to the insurer.

The claim settlement expense reserve refers to the reserve set aside by the insurance company for the possible attorney fees, litigation fees, loss inspection fees, salaries of relevant claims adjusters and other claim settlement investigation expenses that may occur in non-life insurance accidents that have occurred but have not yet been settled.

[3] Reinsurance reserves Insurance reserves are a fund used by insurance companies to assume insurance liabilities or prepare for future claims.

Its fund is withdrawn regularly from premium income or assets.

Although the source of insurance reserves is premium income, this fund drawn from insurance premiums is not an asset of the insurance company, but a liability.

This liability must be backed by assets of equal value.

Reserves for property insurance and liability insurance are divided into statutory reserves and discretionary reserves based on the way they are withdrawn.

Among them, statutory reserves can be divided into unexpired liability reserves and outstanding claims reserves.

The main form of life insurance reserves is liability reserves.

Life insurance reserves must be set aside separately to ensure that the insurance company has sufficient solvency to fulfill its compensation and benefit obligations.

Reinsurance reserves are actually margins.

A fund that the ceding company deducts from the reinsurance premiums payable in order to pay the claims that the reinsurance recipient is responsible for under the reinsurance contract is called the reinsurance reserve.