What does Equalization Reserve mean?

An equalization reserve is the spare pool of capital of an insurance company. This capital is usually kept for covering large expenses in case an unfavorable event such as a catastrophe might occur.

Equalization Reserve explained

The occurrence of major catastrophic events as would a fire or an earthquake would definitely trigger huge losses for the insurance company. These spare pools of capital have the role of covering for such events which usually require great sums of money. Moreover, because insurance companies are also subject to market oscillations in general, these reserves serve as a compensative and preventive measure for periods in which the risk of losses is much higher than in period when there is a pretty much stable profit.