What could cause an insurer to become overreserved?

Overreservation occurs when an insurer sets aside more funds than necessary to cover expected future claims. The most common reason for overreservation is the overestimation of claim outcomes. If an insurer anticipates that the costs related to claims will be higher than they actually turn out to be, they may reserve more funds than needed to settle these claims. This could stem from overly conservative assumptions about claim severity or frequency based on historical data, resulting in inflated reserves that can affect the insurer's profitability and overall financial health.

The other options, while they might foster good practices in financial management, do not lead to overreservation. Effective management of existing claims and accurate financial projections tend to ensure that reserves are appropriately aligned with actual risk exposure. Similarly, cautious funding strategies are typically aimed at prudent financial management and do not inherently cause overestimations of claim outcomes. Therefore, overestimation of claim outcomes is the primary cause of overreservation in an insurance context.