Reserves are money set aside (reserved or held back) to meet future obligations at their due dates. Reserves are also called provisions. Insurance companies in South Africa are highly regulated by law. The short-term insurance act stipulates the reserves that have to be maintained by insurance companies to meet expected future claims. The reason for insisting on maintaining reserves is to protect the policy holders of the company.

As there will always be a delay between the actual occurrence giving rise to an insurance claim—such as a car accident—and the actual settlement of the claim, money need to be placed in reserve to meet the obligations of the insurance company.

There are different types of reserves that need to be maintained by the insurance company, the main one being the loss reserve as discussed above. Under this category there are different sub-categories: reported and adjusted losses; reported and not yet adjusted, incurred but not reported and future claim handling and settlement.

Another reserve applicable to insurance is the unearned premium reserve. This is basically premiums paid in advance that cannot be included in the financial statements of the company before they are due and are therefore placed in a reserve fund.