Balance Sheet Reserves

Should you ever need to collect on an insurance claim, the insurance company is expected to have that money available. Otherwise, it is (aptly named) insurance fraud.

Insurance companies must have reserves set aside to cover insurance claims made by policyholders. It's not legal for an insurance company to collect the premiums if they can't reasonably, rationally pay claims as they legitimately come in. The level of balance sheet reserves is established based on the level of claims filed historically by that company's policyholders for a given level of risk, deductibles, and other dial-turning events in InsuranceLand, which is definitely not the happiest place on earth...where the theme song of the park remains, "It's A Risky World, After All."