Legal Definitions - mean reserve

Definition: Mean reserve is a term used in insurance to refer to the average of the beginning reserve and the ending reserve of a policy year. Reserve, on the other hand, refers to something retained or stored for future use, such as a fund of money set aside by a bank or an insurance company to cover future liabilities.

Examples:

• Amortization reserve: An account created for bookkeeping purposes to extinguish an obligation gradually over time.
• Bad-debt reserve: A reserve to cover losses on uncollectible accounts receivable.
• Legal reserve: The minimum amount of liquid assets that a bank or an insurance company must maintain by law to meet depositors' or claimants' demands.
• Loss reserve: An insurance company's reserve that represents the estimated value of future payments, as for losses incurred but not yet reported.
• Policy reserve: An insurance company's reserve that represents the difference between net premiums and expected claims for a given year.
• Required reserve: The minimum amount of money, as required by the Federal Reserve Board, that a bank must hold in the form of vault cash and deposits with regional Federal Reserve Banks.

For instance, an insurance company may calculate the mean reserve of a policy year by adding the beginning reserve and the ending reserve and dividing the sum by two. This helps the company to estimate the amount of money it needs to set aside to cover future claims. Similarly, a bank may maintain a required reserve to ensure that it has enough cash on hand to meet the demands of its depositors.