What primarily drives the average of reserves?

The average of reserves is primarily driven by subrogation bad debt, DW loss, and disputed claims because these factors directly impact the financial obligations a company must prepare for regarding future claims. Subrogation involves recovering amounts paid on a claim from a third party, which affects how reserves are calculated and maintained. Bad debt, particularly related to disputes or uncertain recoveries, can also lead to increased reserve levels as companies need to account for potential losses.

Furthermore, disputed claims can lead to unpredictable cash flows and necessitate a larger reserve buffer to ensure that sufficient funds are available to cover potential liabilities. By focusing on these aspects, companies can gauge the adequacy of their reserves, ensuring that they remain aligned with the actual risks and claims expected in their operations. This driver is crucial for accurate financial planning and risk management, as it ensures that an organization has the necessary resources to address its obligations without disrupting its financial stability.