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.

RELATED TERMS
  1. Depletion

    An accrual accounting method that companies use to allocate the ...
  2. Catastrophe Insurance

    Insurance to protect businesses and residences against natural ...
  3. Catastrophe Loss Index - CLI

    An index used in the insurance industry to quantify the magnitude ...
  4. Catastrophe Excess Reinsurance

    Insurance for catastrophe insurers. Because of the unpredictable ...
  5. Insurance Derivative

    A financial instrument that derives its value from an underlying ...
  6. Act Of God Bond

    A bond issued by an insurance company, linking principal and ...
Related Articles
  1. Professionals

    Depletion

    Depletion
  2. Investing Basics

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
  3. Insurance

    How Catastrophic Health Insurance Works

    Catastrophic health insurance is open to people under 30 and those who qualify by income under the Affordable Care Act. But how exactly does it work?
  4. Stock Analysis

    How Does Reserve Work and Make Money?

    Learn what Reserve is and how it makes money through securing reservations at fine dining establishments for clients willing to pay for its premium service.
  5. Professionals

    Health and Property Insurance

    Health and Property Insurance
  6. Economics

    Explaining Capital Reserve

    Capital reserve is an account on a company’s or municipality’s balance sheet that is dedicated to money reserved for long-term or large-scale projects.
  7. Insurance

    Is Catastrophic Health Insurance Right for You?

    Catastrophic health plans protect you from high medical costs if you get seriously hurt or injured. But when is catastrophic the best option for you?
  8. Trading Strategies

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  9. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  10. Home & Auto

    Intro To Insurance: Fundamentals Of Insurance

    By Cathy ParetoHow does insurance work? Insurance works by pooling risk.What does this mean? It simply means that a large group of people who want to insure against a particular loss pay their ...
RELATED FAQS
  1. Who determines the reserve ratio?

    Understand what the Federal Reserve is and what it regulates in the U.S. economy. Learn about the reserve ratio and how the ... Read Answer >>
  2. How are bank reserve requirements determined and how does this affect shareholders?

    Learn how bank reserve requirements are determined and how bank reserves affect shareholders through improved bank stability ... Read Answer >>
  3. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  4. What happens if the Federal Reserve lowers the reserve ratio?

    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
  5. Why would the Federal Reserve change the reserve ratio?

    Understand the Federal Reserve's monetary policy and the tools it uses to change that monetary policy. Learn about the reserve ... Read Answer >>
  6. What do banks do to control the bank reserve?

    Understand what the Federal Reserve does in order to expand or contract the economy. Learn what depository institutions can ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center