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Collateral refers to assets that are provided as security to ensure satisfaction of a future liability.

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It is 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.

Related Terms

A letter of credit (LOC) is a legal commitment issued by a bank or other entity stating that, upon...

Regulation 114 trust refers to Regulation 114 of the Insurance Department of the State of New York,...