Businesses can assess their financials using a balance sheet. For property and casualty insurance companies, there are three major sections of the balance sheet: assets, liabilities, and policyholders' surplus. Assets usually include investments and retained earnings. The liabilities however are a bit more complex. Property and casualty insurance companies are required to maintain certain reserves. These reserves remain a liability for a period of time depending upon the type of reserve - unearned premium reserve or loss reserves.

Objective

• Explain how an insurer's claim function achieves each of its primary goals.
• Describe the activities in the claims handling process.

Why are property and casualty insurance companies required to maintain loss reserves? How do loss reserves impact an insurance company's balance sheet?

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