The portion of its liquid assets that an insurance company must hold, either as cash or marketable investments, in order to remain solvent and protect itself against investment loss.
Holding a statutory reserve reduces the risk associated with insurance. However, it also leads to the loss of potential profits, as the money held in reserve cannot be invested into mutual funds or other forms of high yield investments.
On the other hand, holding money in reserve increases investor confidence that the company will be able to pay all its claims when times get tough and claim rates soar.