What Is an Inventory Reserve?

A reserve is a cash deposit from a commercial bank in proportion to a central bank's deposit. The purpose of implementing the reserve fund is to ensure that commercial banks can have a fairly sufficient solvency when they encounter a sudden large withdrawal of bank deposits. Since the 1930s, the statutory reserve system has also become an important means for the country to regulate the economy, and it is a system where the central bank controls the scale of commercial bank credit. The amount of reserves and the reserve ratio of commercial banks controlled by the central bank affect the bank's credit scale. This system stipulates that commercial banks cannot lend all the deposits they have absorbed, and must deposit them at the central bank in a certain proportion, or in the form of deposits, or keep them by themselves in the form of cash on hand. The ratio of reserves to total deposits is called the reserve ratio.

Reserve

Commercial bank cash is stored in proportion

Insurance reserve refers to the insurer's compliance with relevant government laws or business specific needs in order to ensure that it performs its insurance compensation or payment obligations as promised.

Life insurance liability reserve is also called life insurance liability reserve, which refers to a type of reserve that the insurer withdraws from the receivable net insurance premiums year by year to fulfill the insurance company's fund preparation for future insurance payments. The life insurance liability reserve is applicable to long-term life insurance business. It comes from the difference between the net premium and interest of the current income and the insurance premium paid in the current year.

In long-term life insurance, in order to meet the needs of the insured, the insurance premiums are often paid at one time at a rate other than the natural rate, or are paid annually at an even rate, while insurance compensation is due to the law of people's mortality. It increases with the increase of age, so there is a phenomenon of premium premium collection in the first year and failure of premium collection in the last year. Although the premiums collected are under the control of the insurance company, they are the liabilities of the insurance company, and the accumulation must be strictly calculated in order to make up for the loss of the compensable amount in the year of poor collection. Because the mortality rate and the various pure rate receivables are the result of scientific calculations, there is coordination between them. The premiums collected in the beginning year plus the specified interest are exactly equal to the shortfall in the last year. In order to fulfill contractual obligations, insurance companies are responsible for accumulating the premiums paid in advance by the insured. In order to enable insurance companies to effectively fulfill their various payment obligations and protect the interests of policy owners, the insurance regulations of various countries have clearly stipulated the method by which insurance companies must deposit liability reserves.