Contingency Reserve

Published: | Updated: December 12, 2017

Definition - What does Contingency Reserve mean?

A contingency reserve, in the context of insurance, is the amount of money insurers set aside above the legal requirements to cover unexpected or unforeseen losses. It may be used to pay out claims or other underwriting expenses in the event that the money brought in from premiums and the loss reserves are not enough to cover costs.

It is also sometimes called a contingency surplus.

Insuranceopedia explains Contingency Reserve

Contingency reserves essentially act as a sort of emergency fund that can be called upon in times of great need. For example, if a property insurance company does business in an area that suddenly experiences a great hurricane, it may need to dip into its contingency reserves to help pay for some expenses. Although contingency funds can be used to balance risk, reinsurance policies are also taken out for the same purpose.

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