Introduction To Ratemaking And Loss Reserving For Property And Casualty Insurance -

A P&C insurer's balance sheet is heavily dominated by liabilities known as loss reserves. If an insurer underestimates these reserves, it paints an artificially rosy picture of its financial health, which can lead to sudden insolvency. If it overestimates reserves, it ties up surplus capital unnecessarily, reducing its capacity to write new business. Types of Reserves