Many worker cooperatives utilize a collective reserve account as a form of self insurance. Functionally the collective reserve account allows the cooperative to provide itself insurance internally instead of utilizing an external insurance provider. In this manner it is similar to the internal capital accounts which bring the banking function within the cooperative.
Typically, in each period a fraction of the profits are credited in the collective reserve account and are not attributed to the members. When there are losses a portion of the losses are debited from the collective reserve account and not passes on to the members. This smooths out the earnings and losses over time, which adds stability to the members compensation.
The collective reserve account is permanently retained by the cooperative and never paid out directly to the members. It is pure equity for the cooperative because there is no obligation associated with it. The collective reserve account reduces the liabilities of the coop, increasing the chances that the internal capital accounts can be paid out in full when they come due.
By convention the rules for how much is paid into or out of the collective reserve account are relatively fixed. For example a cooperative may choose to pay 15% of profits into the collective reserve account and use the collective reserve account to cover 15% of the losses. Fixing the rules provides some measure of fairness, so that later members don’t decide to contribute a minimal amount to the collective reserve account and/or have it cover a large share of losses. That act would unfairly burden the earlier members of the coop who contributed more of their profits to build up the collective reserve account.