funds withheld

Funds withheld refers to a provision in a reinsurance treaty under which some or all of the premium due to the reinsurer, usually an unauthorized reinsurer, is not paid but rather is withheld by the ceding company either to enable the ceding company to reduce the provision for unauthorized reinsurance in its statutory statement or to be on deposit in a loss escrow account for purposes of paying claims.

This enables the ceding company to either reduce the provision for unauthorized reinsurance in its statutory statement or for funds to be on deposit in a loss escrow account for purposes of paying claims. The reinsurer's asset, in lieu of cash, is "funds held by or deposited with reinsured companies."