Final answer:
Reserves in insurance companies serve as a financial safety net, allowing the company to pay out claims, particularly in the event of major disasters. They are not solely investments, and while they can earn a return, their main purpose is to provide funds for claims as necessitated by regulatory requirements. option c.
Step-by-step explanation:
Reserves that are set aside to cover losses by an insurance company act as a financial cushion for the insurer. These reserves are derived from insurance premiums and investment income, and are, in fact, invested by the insurance companies in safe, liquid assets. They are necessary for insurance companies to swiftly address claims, especially during the occurrence of major disasters. While these funds technically could be counted as investments due to their nature of earning a return, their primary purpose is not investment but rather ensuring the company's ability to pay out claims. Therefore, reserves are fundamentally different from investments focused only on generating income. Furthermore, while reserves are mandated by regulatory bodies, such as the Federal Reserve for banks, with specific requirements for reserve levels, they are also used to pay out claims directly. Hence, statement "C" is the most accurate description of the function of the reserves held by insurance companies.