Final answer:
Insurance reserves are the monies set aside by insurers for future claims costs. Reserves ensure that there is enough money available to pay for claims when they arise.
Step-by-step explanation:
The monies set aside by insurers for future claims costs are referred to as reserves. Reserves are an important financial tool for insurance companies as they ensure that there is enough money available to pay for claims when they arise.
By setting aside a portion of the premiums received from policyholders, insurers can ensure that they have enough funds to cover potential claims. This is especially important for long-tail insurance lines, such as liability insurance, where claims may be made years after the policy has been issued.
Reserves can be classified into different types depending on their purpose and the type of insurance coverage. For example, there are reserves for known claims, such as reported but not settled claims, and reserves for incurred but not reported claims.