Collateralization of Cash Flow Programs — under cash flow programs (e.g., retrospectively rated plans), substantial
portions of the ultimate premium for coverage are not due until the insurer has
actually paid claims. Therefore, the insurer is assuming a credit risk (in
addition to an insurance risk). This creates the need for collateralization of
such programs. Additionally, cash flow programs must be collateralized as a
result of statutory requirements (i.e., virtually all states require
organizations self-insuring their workers compensation exposures to purchase
bonds securing these obligations).