reserve deficiency

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 ?
Among the lines falling further into reserve deficiency 2012 are Workers' Compensation and Financial Guaranty.
Competition for "good" workers compensation risk in other states will build now that much of the reserve deficiency has been funded and accident year results for 2004 through 2007 have been profitable.
Insurers have increased rates, strengthened reserves, and reduced the reserve deficiency that we have been tracking for at least the past seven years.
The Board also approved a related technical amendment to the reserve deficiency penalty provision of Regulation D (Reserve Requirements of Depository Institutions).
Applicable Criteria and Related Research: Asbestos Losses: Continued Source of Reserve Deficiency
The bulk of the industry's total all lines non-A&E reserve deficiency is derived from accident years 2003 and prior; the total deficiency associated with these accident years is $26.
Yet, with the strengthening investment income and much of the reserve deficiency addressed, there will be increasing pressure within carriers to again compete actively for profitable segments of business.
The disposition of any over earnings is at the discretion of the FPSC, with alternatives including refunding to customers, adding the over earnings to the storm damage reserves, funding environmental reserves or reducing any depreciation reserve deficiency.
In particular, the workers' compensation segment exhibits a significant reserve deficiency, while other liability occurrence and medical professional liability lines continue to show material reserve redundancies,' Auden added.
The National Council on Compensation Insurance (NCCI) estimates the reserve deficiency for workers' compensation on the financial statements of insurers to be $18 billion at the end of 2002.
As of 2002, the workers' comp market had a $21 billion reserve deficiency, he said.
Full browser ?