reserve deficiency

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Reserve Deficiency

A situation in which a company must meet some unexpected expenses, perhaps resulting in a shortage of cash. For example, a company may set aside a certain amount of funds to cover bad debt. If bad debt exceeds expectations, and the company must write off more funds than it intended, it is said to have a reserve deficiency. Reserve deficiencies reduce profits and may cause a problem with liquidity.

reserve deficiency

A shortage in funds set aside as a reserve for a specific purpose. For example, during a recession a firm may find the reserve fund covering allowance for bad debts deficient when the amount of bad debts exceeds expectations. A reserve deficiency will penalize the firm's profits if the firm has to set aside additional funds to offset the deficiency.
References in periodicals archive ?
On the downside, the Saudi market saw a substantial loss-making year in 2013, stemming mainly from inadequate pricing and material reserve deficiencies in the motor and medical portfolios.
In the next five years, Guy Carpenter said there is potential for reserve deficiencies to play an important role.
Prior year's reserve deficiencies are now mainly funded.
Ongoing focus on underwriting vigilance and adequate pricing should mitigate the need to address large reserve deficiencies as in 2002 and 2003.
The Board also is amending the penalty provision of Regulation D, which is calculated based on the discount rate, to conform the calculation of penalties for reserve deficiencies to the new discount rate framework.
While Fitch does not anticipate broad rating actions related to asbestos, the ratings of individual companies could be adversely affected by the severity of reserve deficiencies relative to capital.
Co Rates hardened on primary workers' compensation, but the impact of low investment yields, reserve deficiencies and adverse development, growth in residual market volume, and the impact of the Patient Protection and Affordable Care Act, plus the expiration of Terrorism Risk Insurance Program Reauthorization Act, remain unanswered.
Prior years' reserve deficiencies are being funded and the competitive part of the commercial lines casualty pricing cycle is here again.
Loss reserves are deficient when the funds set aside to cover claims fail short of the amounts that will be needed--that is, when insurers have underestimated loss costs--and the consequences of loss reserve deficiencies can be disastrous.
4 /PRNewswire/ -- Reserve deficiencies, which have plagued property-casualty (P-C) insurers in recent years, improved dramatically in 2003, according to a new study by Conning Research & Consulting.
As for the industry's high-profile reserve deficiencies, he said, quite simply, "the industry isn't good at this; it has a poor track record.
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