Contingency Reserve
What Does Contingency Reserve Mean?
In the context of insurance, a contingency reserve refers to the amount of money that insurers set aside above the legal requirements to cover unexpected or unforeseen losses. This reserve may be utilized to pay claims or other underwriting expenses if the funds generated from premiums and loss reserves are insufficient to cover costs.
It is also commonly referred to as a contingency surplus.
Insuranceopedia Explains Contingency Reserve
Contingency reserves essentially function as an emergency fund that can be accessed during times of significant need. For instance, if a property insurance company operates in an area that suddenly faces a severe hurricane, it may need to draw from its contingency reserves to cover various expenses. While contingency funds can help balance risk, insurers also purchase reinsurance policies for the same purpose.
