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IRMI Update Quiz

How Well Do You Understand Captive Collateral Requirements?

Which of the following statements about collateral in a fronted captive insurance arrangement is not correct?

A. The Schedule F collateral requirement is generally based on ceded reserve liabilities such as unearned premium reserves, case reserves, incurred but not reported reserves, and unallocated loss adjustment expenses.

B. Excess collateral above the Schedule F floor is often driven by a fronting insurer's internal credit policies and negotiating position.

C. Fronting insurers can avoid Schedule F collateral requirements simply by adding extra contractual provisions to the reinsurance agreement.

D. Letters of credit and reinsurance trusts are common forms of collateral used in fronted captive programs.

Correct Answer: C is the incorrect statement. Schedule F collateral is a regulatory requirement, not a contractual preference. This article from the August 2026 Captive Insurance Company Reports explores why many captive owners mistakenly view all collateral requirements as one number when, in reality, they often consist of a regulatory floor plus additional collateral demanded by the fronting insurer.