Regulation 114 Trust
This term refers to Regulation 114 of the Insurance Department of the State
of New York, which details standards for the use of trust funds for reinsurance.
When applied to captives, a trust agreement is entered into between the captive,
the fronting company, and a bank. The bank acts as the trustee for the fund.
The captive deposits cash and/or allowable securities into the trust. The fronting
company, as the beneficiary of the trust, must approve the assets in the trust.
The fronting company can demand, at any time, assets from the trust to meet
the captive's obligations under the reinsurance agreement. The assets are delivered
as securities, which are converted to cash by the fronting company. A Regulation
114 trust can be used to collateralize both the loss fund and the risk gap
or used in combination with a letter of credit.
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