Category: Reinsurance fundamentals · Reviewed by Chrissie Anderson, Client Executive · Last reviewed 2026-06-05
A trust account in reinsurance is a collateral structure under which assets equal to the reinsurer’s exposure under the contract are held by a third-party trustee for the benefit of the cedant. The trust secures the cedant’s recoverables against the credit risk of the reinsurer and is the standard collateral mechanism for alternative capital, ILS-backed reinsurance and non-admitted reinsurance.
Category: Reinsurance fundamentals Also known as: reinsurance trust, trust fund, Regulation 114 trust Related concepts: collateralised reinsurance, letter of credit reinsurance, funds withheld
A reinsurance trust account is established by deed (the trust agreement) executed by the reinsurer (as grantor), the cedant (as beneficiary) and a bank or other financial institution (as trustee). The trustee holds segregated assets — typically cash, Treasury bills or other highly rated short-duration securities — for the cedant’s benefit. The trust agreement specifies the events of default on which the cedant may draw on the trust, the permitted investments, and the release mechanism for assets no longer required to secure the exposure.
The US National Association of Insurance Commissioners (NAIC) Regulation 114 trust is the standard form for non-admitted reinsurance into the United States. UK trusts may follow a similar pattern but are governed by English law and managed by London market trustees.
The legal effectiveness of a reinsurance trust depends on the trust deed creating an enforceable trust under the applicable law of the trust. For Solvency II purposes the PRA expects the trust to be: legally effective and enforceable; held by an independent trustee of adequate credit standing; sized to the exposure with appropriate haircuts for asset volatility; and accessible to the cedant on a defined default event without material delay.
Where these conditions are met, the trust is recognised as a credit risk mitigant and the cedant’s bad debt provision is reduced or eliminated.
In practice the trustee values the trust assets daily and reports to both cedant and reinsurer. Where the trust value falls below the required level (because of market movements or because of an increase in the reinsurer’s exposure), the reinsurer is required to top up the trust. Conversely, where the trust value exceeds the requirement, the reinsurer may withdraw the excess.
Following a qualifying loss event, the cedant notifies the trustee with appropriate evidence of the recoverable, and the trustee releases assets to the cedant. The trust agreement typically provides for accelerated release on insolvency or other event of default of the reinsurer.
An illustrative example: a UK insurer reinsures part of its property book with a Bermuda-domiciled reinsurer rated A- by AM Best. The reinsurer establishes a $50m trust account with a London branch of a UK clearing bank, holding US Treasury bills. The trust covers 100 per cent of the reinsurer’s maximum exposure, allowing the cedant to record a clean reinsurance recoverable with no bad debt provision.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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