What do loss reserves cover in relation to policy periods?

Loss reserves are established by insurance companies to set aside funds for claims that have been reported but not yet settled and for claims that are incurred but not yet reported (IBNR). When considering their relation to policy periods, loss reserves specifically cover events that occur during the expired portion of the policy. This means they account for claims arising from incidents that have happened while the policy was in force but are not paid out until after the policy has expired. Therefore, the correct interpretation aligns with the concept that loss reserves must sufficiently cover these liabilities stemming from events that occurred before the policy's end date, ensuring that the insurance company maintains financial stability and can fulfill future claim obligations.

This understanding emphasizes the insurance company's need to accurately estimate and reserve sufficient funds for both reported claims and those that have not yet been reported, but were incurred during the duration of the policy. The other options do not accurately capture this essential characteristic of loss reserves.