What are the balance sheet reserves?

Also known as reserves for receivables are the balance sheet reserves for cash reserves, which are earmarked for the purpose of paying the payment of liabilities if necessary. This term is most often associated with insurance companies, which must allocate funds to which any approved insurance claims submitted by the Company's clients can be handled. The types of these funds are usually referred to as balance sheet reserves, as the balance that is set aside to meet the claims is recorded as a line item in the balance sheet for the provider.

Almost every type of insurance provider will lead a certain amount of balance sheet reserves at hand. Life insurance companies, as well as health insurance providers and even car carriers and real estate, make sure that there are reserves in order to solve the demands in time. The amount of these reserves is usually determined using government regulatians as standards for the minimum amount to be maintained in reservesOLI is not unusual for insurance companies to maintain larger reserves based on the type of written policies and the size of the client base.

Within the accounting process, the balance sheet reserves are listed as responsibility in the balance sheet. This is because funds are in principle considered to be a form of debt that is owed to policy holders, and the proceeds are drawn every time the claim is reviewed and approved. Once the claims are resolved, these funds can be deducted from the balance in reserves, while the insurance provider regularly complements this number to remain in accordance with government standards and regulations.

Since there are regulations that set minimum standards for balance sheet reserves, periodic audits are used to ensure that the minimum is maintained throughout the Dobus. Many companies decide to maintain a greater balance that makes it easier to manage the insurance provider unusually large volumeclaims, for example after the occurrence of a natural disaster. It is not uncommon for the company to regulate the actual amount of claim or balance sheet reserves from one year to another, on the basis of factors such as changes in the economy, actual data related to the total value of filed and approved receivables last year, and even predicting upcoming events that have the potential to induce further influx.