What are claims reserves?

Claims reserves refer to the funds that insurers set aside to cover the estimated future payments for claims that have already been reported but not yet settled. This accounting practice is crucial for accurately reflecting the insurer's financial position and ensuring that there are sufficient funds available to meet obligations arising from these claims. By establishing claims reserves, insurers can manage their cash flow and prepare for the financial impact of settling claims in the future.

Options related to marketing expenses, new policy developments, and training expenses do not align with the primary function of claims reserves, which is specifically geared towards covering anticipated claims. The correct answer emphasizes the importance of reserving capital for fulfilling legal and contractual obligations to policyholders.