A practical alternative


Robert Quinn

An insurance trust offers a real alternative to letters of credit for UK and EU-based insurance programmes looking to manage their collateral requirements, as Robert G. Quinn, senior vice president from Wells Fargo explains.

Until recently, few if any cost-saving alternatives to letters of credit (LOCs) existed for UK-based corporations and captives, specifically those insuring UK and EU-based risk. Today, however, many companies can choose to employ an insurance trust to manage the collateral requirements of their policies covering UK and EU-based risk.

An insurance trust is ideal for compulsory lines and captive programmes:

  • Compulsory lines, such as employers’ liability (EL) and auto, are often insured through a form of self-insured retention or large deductible. In these arrangements, the carrier is liable for the full amount of a claim if a client is unable to pay. Therefore, they ask for collateral, usually in the form of an LOC. Many companies can use insurance trusts instead of LOCs to fulfi l the collateral requirements of their compulsory lines.
  • Captive programmes also have a collateral component. Whether it is EL, auto, or some other corporate insurance line (if collateral is required for a captive programme), the trust is usually an acceptable form of collateral. This goes for fronted reinsurance, deductible buybacks, and insurance-linked securities (ILS) programmes.

Insurance trusts versus lOCs

Insurance Trust, Europe, Wells Fargo

Intelligent Insurer