Glossary

Reserves

Liabilities a life insurer must hold on its balance sheet, as required by state law, to cover future claims and benefits owed on policies in force.

Also called: policy reserves, statutory reserves, reserve liabilities

Reserves are the amount an insurer must record today, as a liability, so that together with future premiums and investment earnings it can pay the benefits it has promised. They aren't a separate bank account; they're backed by the insurer's general investment portfolio of bonds, mortgages and other assets.

For a level-premium policy, early premiums exceed the cost of insurance in those years, and the excess builds reserves that fund higher claims as insureds age. State law, based on the NAIC's Standard Valuation Law and Valuation Manual, sets minimum reserve standards using prescribed mortality tables and interest rates. Since 2017, principle-based reserving has been phased in for new life business, letting insurers base part of the calculation on their own experience. Hypothetically, an insurer with $10 billion of policy reserves must hold at least that much in qualifying assets, plus additional capital under risk-based capital rules.

Reserves are central to statutory accounting and to solvency regulation. Under-reserving is one way insurers get into trouble, and reserve relief is a common driver of reinsurance deals. Reserves differ from a policy's cash value, though the two are related. See principle-based reserving and what it means for prices and risk-based capital and life insurer solvency.

Last reviewed October 4, 2026

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Related terms

Statutory accounting The conservative accounting rules state regulators require insurers to use in filings, built to show whether a company can pay its policyholders. CSO mortality table The table of death rates state regulators adopt as the minimum standard for life insurance reserves, guaranteed values and tax-law tests. Reinsurance Insurance that insurance companies buy, passing part of the risk on policies they've sold to another company called a reinsurer. Net amount at risk The part of a death benefit the insurer would pay from its own funds: the total death benefit minus the policy's cash value or reserve. Cash value The savings component that builds inside whole life, universal life and other permanent policies, which the owner can borrow against or withdraw.

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