Voluntary Reserve
What Does Voluntary Reserve Mean?
A voluntary reserve refers to monetary or other liquid assets set aside voluntarily by insurance companies. As government agencies do require a certain reserve amount, voluntary reserves are surplus or additional liquid assets above the requirement.
Insuranceopedia Explains Voluntary Reserve
To ensure the solvency of banks, financial institutions and insurance companies, government agencies prescribe a certain amount of monetary reserves that these entities should hold. However, a company wanting to be more fiscally sound may voluntarily set aside an amount beyond the requirements.
Insurance companies establish a voluntary reserve for various reasons. The most common is that it helps makes them appear liquid and stable. Moreover, it can act as a contingency fund, that is, to meet unforeseen obligations and pay future liabilities.
