What is meant by a loss reserve in the context of insurance?

In the context of insurance, a loss reserve refers specifically to an estimate of future claim payments that an insurance company anticipates it will need to settle claims that have already been reported but not yet paid, as well as claims that are expected to be reported in the future.

Loss reserves are crucial for accurately reflecting the financial health of an insurance company. They ensure that sufficient funds are set aside to cover the anticipated obligations related to claims. By estimating the total expected payouts for these claims, insurers can manage their finances effectively, maintain regulatory compliance, and fulfill their obligations to policyholders.

The other options do not accurately define a loss reserve. Total premiums collected relate to the income side of the insurer's operations rather than its liabilities. Legal fees are specific costs associated with litigation regarding claims but do not encompass the broader estimate of claim payouts. Compensation for denied claims refers to payments made to policyholders for disputes over claims that are rejected, which is unrelated to the concept of reserves that account for anticipated future payments.