Equalization Reserve

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.

BREAKING DOWN '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.