In non-life insurance, what are "loss reserves"?

Loss reserves are funds that insurers allocate to cover future claims that have already been reported but are still pending resolution or settlement. This practice is crucial for maintaining the financial stability of an insurance company, as it ensures that there are sufficient resources available when claims are ultimately paid out. By setting aside these reserves, insurers can more accurately predict their liabilities and manage their cash flow effectively, ensuring that they can meet their obligations to policyholders. This is a critical component of the overall financial health of an insurance company, as it allows them to operate with a level of confidence that they can face known claims.

The other choices do not accurately represent what loss reserves are in the non-life insurance industry. Money invested in new insurance policies relates more to underwriting activities rather than the management of potential liabilities. Cash reserves required by law refer more broadly to regulatory requirements for liquidity, not specifically tied to pending claims. Premium discounts offered for low-risk clients are promotional strategies aimed at attracting customers, rather than financial preparations for anticipated losses. Thus, defining loss reserves in terms of future claims ensures clarity in understanding the specific financial responsibility that insurers must manage.