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Collateral

Collateral

Definition

Assets that are provided as security to ensure satisfaction of a future liability. Often required by ceding companies to minimize their credit risk or offset a nonadmitted balance. A direct writing captive writing deductible reimbursement coverage may provide collateral to the insurance company that has issued a deductible policy to the captive's insureds. The most common form of collateral posted by captives or captive insureds or captive shareholders is the bank letter of credit (LOC), but insurance trust funds may be used.

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