Balance sheet reserve is a term that is used within the balance sheet of an insurance company. The balance sheet reserve is an expression of liability for the insurance company and in actual it is the amount that is owed by the insurance company to the policy holders in the form of benefits of the policy holders. In other words balance sheet reserve is the reserved amount that is placed aside by the insurance company in order to deal with the claims that are filed by the clients but not reported to the company or that are filed by the clients but not settled yet by the insurance company. It is a legal regulation and considered as the legal responsibility of the insurance company to set aside some amount in the form of balance sheet reserve. Another name given to the balance sheet reserve is also the claim reserves.
It is very important for an insurance company to have sufficient funds in the form of balance sheet reserve as it shows that the insurance company is stable in terms of finances and it is able to settle and repay the claims made by the clients. Moreover third parties that check the financial health of the insurance companies through their financial statements such as balance sheet also pay a great importance to the balance sheet reserve figure of the insurance company. An insurance company with adequate balance sheet reserve indicates that it can pay any gains and losses to the clients when they claim for it
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