Claims Fluctuation Reserve (CFR)

This is a reserve established by the insurer when a group is underwritten on a retention accounting basis. The reserve is funded through emerging surplus until the ultimate level is reached. The ultimate level is dependent upon the size of the group and plan design and usually ranges between 10% and 20% of the annual premium. The purpose of the reserve is to absorb any potential significant increase in paid claims over a period of time. If a deficit is generated in any given year the loss if first recovered through future year’s surplus. Also referred to as a Rate Stabilization Fund.