Which principle best describes SI Reserves?

• A. Realistic estimate of future liability
• B. Anticipated recoveries only
• C. Ignore future costs
• D. Monthly budget

Answer: (A)

SI Reserves are built around the idea of setting aside funds that reflect a realistic estimate of all future claim costs. In a self-insurance plan, you must anticipate the total amount needed to pay eventual benefits for claims that have occurred and those that will be reported later, including medical costs, indemnity benefits, and claim-handling expenses. Actuarial methods look at past experience, trends, inflation, and development of claims to project the ultimate liability, so the reserves are enough to cover what is likely to be paid over time and to protect the plan’s solvency.

This isn’t about only what might be recovered from subrogation or other sources, so anticipation of recoveries alone would miss the primary obligation to pay the claims themselves. It’s not about ignoring future costs, since reserves are specifically meant to cover costs that will be paid in the future. And it isn’t simply a monthly budget, which is more about day-to-day cash flow than establishing a long-term liability foundation for claims.