Equalization Reserve

AAA

DEFINITION of 'Equalization Reserve'

A long-term reserve that an insurance company keeps for the purpose of preventing cash-flow depletion in the event of a significant unforeseen catastrophe.

INVESTOPEDIA EXPLAINS 'Equalization Reserve'

A disastrous event such as a flood, earthquake, or fire can result in the severe depletion of an insurance company's equalization reserve. These reserves could be seen as the company's personal "rainy day fund," compensating for unforeseen and often expensive events.

RELATED TERMS
  1. Insurance

    A contract (policy) in which an individual or entity receives ...
  2. Named Perils Insurance Policy

    A home insurance policy that only provides coverage on losses ...
  3. Hazard Insurance

    Insurance that protects a property owner against damage caused ...
  4. Aggregate Stop-Loss Reinsurance

    A type of reinsurance agreement in which losses over a specific ...
  5. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  6. Buyout Settlement Clause

    An insurance contract provision that allows the insured to refuse ...
RELATED FAQS
  1. What is the difference between moral hazard and adverse selection?

    Adverse selection occurs when there's a lack of symmetric information prior to a deal between a buyer and a seller, whereas ... Read Full Answer >>
  2. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  3. What is the difference between the loss ratio and combined ratio?

    The loss ratio and combined ratio are two ratios used to measure the profitability of an insurance company. The loss ratio ... Read Full Answer >>
  4. How do I calculate the combined ratio?

    The combined ratio is a quick and simple way to measure the profitability and financial health of an insurance company. The ... Read Full Answer >>
  5. What does the lapse ratio in the insurance sector measure?

    The lapse ratio measures the amount of insurance policy renewals with respect to the total number of insurance policies at ... Read Full Answer >>
  6. How does the combined ratio measure the financial health of insurance companies?

    The combined ratio measures the profitability of an insurance company by examining its earned premium from its policyholders ... Read Full Answer >>
Related Articles
  1. Insurance

    Insurance Tips For Homeowners

    Use these simple ideas to save money and get better coverage for your house.
  2. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  3. Home & Auto

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  4. Home & Auto

    5 Insurance Policies Everyone Should Have

    Insurance policies come in a wide variety of shapes and sizes. Shop carefully and the right policies will go a long way towards helping you protect your assets.
  5. Home & Auto

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  6. Options & Futures

    Let Life Insurance Riders Drive Your Coverage

    Find out how these additional benefits can help you customize your policy.
  7. Economics

    What is Adverse Selection?

    Adverse selection occurs when one party in a transaction has more information than the other, especially in insurance and finance-related activities.
  8. Insurance

    How to Use a Waiver of Subrogation

    A waiver of subrogation means that a party to a contract waives the right to allow someone (usually an insurance company) to sue the other party to the contract in case of a loss.
  9. Insurance

    How the Affordable Care Act Changed Insurance

    6 Ways Obamacare Impacts the Health Insurance Marketplace
  10. Insurance

    Why You Don’t Need Mortgage Protection Life Insurance

    Mortgage protection life insurance sounds great in concept - a guarantee that your mortgage will be paid off if you die unexpectedly. But take a hard look at what you get before choosing it.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center