A loss reserve is an accounting entry that estimates the amount that an insurance company will have to pay for future insured events under insurance policies that it has signed.
The calculation of loss reserves is a complex process, as it is an attempt to guess when and how many claims will occur, for which the insurance company will be liable.
The rules require loss provisions to be reported at nominal value, while insurance companies would prefer them to be reported as a discounted present value loss.
The correct assessment of the loss reserve is important for the insurance company, as it directly affects the profitability and solvency.
Loss provisions in relation to the banking sector are known as loan loss provisions.