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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.


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The estimate for the reserve deficiency at year-end 2007 was $2 billion.
As of 2002, the workers' comp market had a $21 billion reserve deficiency, he said.
According to Fitch's analysis, the potential for the market to shift toward a future reserve deficiency is greater now due to the following factors: -- Fitch's estimate that any redundancy in loss reserves for most recent accident years at year-end 2008 is more closely offset by projected deficiencies in asbestos and environmental losses, and other prior year exposures.
 
 
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