Principles of Risk Management and Insurance, 13th Edition

Notes

1. 1. A legal reserve is a liability item on a company’s balance sheet that measures the insurer’s obligations to its policyholders. State laws require a company to maintain policy reserves at a level sufficient to pay all policy obligations as they fall due.

2. 2. In property and casualty insurance, a loss reserve is an estimated liability item that represents an amount for claims reported but not yet paid, claims in the process of settlement, and claims that have already occurred but have not been reported.

3. 3. A loss ratio is the ratio of incurred losses and loss adjustment expenses to earned premiums. For example, if incurred losses and loss adjustment expenses are $70 and earned premiums are $100, the loss ratio is 0.70, or 70 percent. ...