Statutory reserves,
Definition of Statutory reserves:
Alternative term for legal reserves.
Statutory reserves are state-mandated reserve requirements for insurance companies. By law, insurers must hold a portion of their assets as either cash or readily marketable securities so that they will be able to make good on their claims promptly.
The McCarran-Ferguson Act, passed by Congress in 1945, gave states the authority to regulate insurance companies. To do business in a state, each insurer must be licensed by the state's insurance department and abide by its rules. Among those rules is how much money an insurer must keep in reserve (that is, have readily available) to make sure that it will be able to pay its future claims. Statutory reserves apply to a range of insurance products, including life insurance, health insurance, property and casualty insurance, long-term care insurance, and annuity contracts. The requirements can vary from one state to another and according to the type of insurance product.
How to use Statutory reserves in a sentence?
- Many states are moving toward a principle-based approach to calculating statutory reserves, which offers insurers more flexibility.
- Statutory reserves can also give investors confidence that an insurance company is financially solid and likely to remain that way.
- Insurance companies are regulated by the individual states, which set rules for how much money insurers must keep in reserve to cover their claims.
Meaning of Statutory reserves & Statutory reserves Definition