Which legal requirement is associated with the equalisation reserve?

The equalisation reserve is a financial mechanism used by insurance companies to manage the volatility in their loss ratios, which can fluctuate significantly from year to year due to varying claims experience. By setting aside funds into an equalisation reserve during profitable years, insurers can use this reserve in years when claims are higher than expected. This helps stabilise the company’s financial performance and ensures that policyholders do not face drastic changes in premium rates based on short-term losses.

Smoothing out the fluctuations in the loss ratio is critical for maintaining sustainable and manageable premium pricing for customers over time, as it helps the insurer prevent drastic adjustments in response to sudden spikes in claims. This approach reflects a forward-thinking strategy in risk management and financial planning within the insurance sector.

The other options, while relevant to different aspects of insurance operations, do not relate directly to the purpose of an equalisation reserve. Preventing fraud, allocating marketing funds, and enhancing claim assessment speeds are important objectives but are not the primary legal requirement associated with the equalisation reserve.