Legal Definitions - loss reserve

A loss reserve is a type of reserve that represents the estimated value of future payments for losses that have been incurred but not yet reported. This type of reserve is commonly used by insurance companies to ensure that they have enough funds to cover future claims.

• An insurance company sets aside a loss reserve of $10 million to cover future claims related to a recent natural disaster. This reserve represents the estimated value of future payments for losses that have been incurred but not yet reported.
• A bank sets aside a loss reserve of $5 million to cover possible losses from defaulting loans. This reserve ensures that the bank has enough funds to cover any losses that may occur in the future.

These examples illustrate how loss reserves are used to ensure that companies have enough funds to cover future liabilities. By setting aside funds in a loss reserve, companies can protect themselves from financial losses and ensure that they are able to meet their obligations to customers and stakeholders.