Loss Reserve

A key part of any insurance company's business is paying out claims. You hit moose with your BMW...they pay out a claim to repair the car (and pay for the moose's medical bills, depending on the policy).

The insurance company needs cash on hand to pay out claims. But the firm doesn't know at any given point when a claim will come in. In aggregate, they can estimate the amount they'll need, but they can't know for sure the timing or the precise amounts (moose are very fickle animals).

The loss reserve represents the amount the company has set aside to pay out claims. It might consist of cash, or other liquid assets (investments that can get turned into cash quickly, if needed). The company uses data and actuarial estimates to figure out how big their loss reserve should be.