What are "insurance reserves"?

Insurance reserves are funds that insurers set aside to ensure they can meet their future obligations to policyholders, particularly in paying out claims. These reserves are established based on actuarial calculations, which estimate the future claims that will arise from issued policies. The reserves ensure that the insurer has the necessary financial backing to fulfill these commitments, maintaining the financial stability of the insurance company and protecting policyholders' interests.

By contrast, the other options represent different concepts within the insurance industry. Investments made in the stock market pertain to the insurer's strategy to grow its overall assets, while premiums collected from policyholders reflect the revenue generation aspect rather than the financial obligations to pay claims. Funds designated for agent commissions relate to the compensation structure within the insurance business, focusing on the business operations rather than the reserve funds that ensure future payout capabilities. Thus, the selection of insurance reserves as funds earmarked for future claims is foundational to understanding how insurers manage their liabilities and support their policyholders effectively.