Equalization Reserve

(redirected from Equalization Reserves)

Equalization Reserve

An account where an insurance company deposits funds to use in an emergency. That is, if an insurer finds itself in a position where it needs to pay more claims than it had anticipated, it may use funds from the equalization reserve to ensure that it fulfills its contractual obligations. An equalization reserve helps prevent any potential cash flow problems for the insurance company. It is especially useful in the event of an act of God, such as a flood or fire, where many policyholders live in the affected area. See also: Rainy day fund, Emergency fund.
Mentioned in ?
References in periodicals archive ?
Equalization reserves are for random fluctuations of claim expenses for some types of insurance contracts such as hail insurance, according to the GAO's February 2005 report.
The first two impacts, equalization reserves and employee benefits, are the mere reflection of IFRS.
95 billion in 9/11 claims, Swiss Re says it will use about Sfrl billion from its equalization reserves.
Best believes that BRe has a strong and supportive risk-adjusted capitalisation, which is underpinned by both a regulatory requirement of building up equalization reserves and a comprehensive reinsurance programme.
But some organizations have benefited from stable performance in their life reinsurance segments and favorable regulatory practices within their domiciles, which have allowed them build up equalization reserves to offset severe losses and smooth reported underwriting results.
Best believes BCRe has a strong risk-adjusted capitalisation, underpinned by a regulatory requirement of building up equalization reserves and a comprehensive reinsurance programme, which is expected to remain supportive of its business plans in the coming two years.
He added that the trend in the United Kingdom has been to align the calculation of taxable profits with accounting standards, and he pointed to the government's agreement to let insurers create tax-deductible equalization reserves to help cushion the blow of unusually heavy losses.
1 billion (USD 26 million) and higher transfers to equalization reserves.
Technical results will decline as underwriting conditions deteriorate, but this will be more than compensated by investment income and lower equalization reserves.
Best expects the risk-adjusted capitalisation for both companies to remain strong prospectively due to limited forecasted growth and some transfers to the equalization reserves.
Underlying profitability will improve as smaller increases in the claims equalization reserves smooth out earnings volatility, Standard & Poor's said.
SOVAG's risk-adjusted capitalisation is expected to remain excellent, underpinned by increasing equalization reserves and retained earnings.