Reserve requirements are regulatory and accounting rules that dictate how much money an insurance company must set aside to cover expected future policy benefits and obligations. Reserves are calculated using actuarial assumptions about mortality, morbidity, interest rates, expenses, and policyholder behavior. In life insurance, different products-such as term, whole life, universal life, and annuities-have distinct reserving methodologies, which can be statutory, GAAP, or principle-based. Adequate reserves are critical to insurer solvency and policy security; under-reserving can lead to financial distress and regulatory intervention, while overly conservative reserves may make products less competitive.

Within carriers, actuaries and finance teams manage reserve requirements as part of product pricing, financial reporting, and risk management. Regulatory changes, such as adoption of principle-based reserving, can alter how reserves are calculated and may influence product design and pricing. Advisors occasionally hear about reserve requirements when carriers explain why certain guarantees are being reduced or why some legacy blocks are being repriced or reinsured. Rating agencies and analysts review reserve adequacy when evaluating insurer financial strength. Understanding reserve requirements at a high level helps advisors appreciate the long-term commitments behind policy promises and why insurers emphasize disciplined actuarial practices.