What does Regulation 114 Trust mean? Read on to discover the definition & meaning of the term Regulation 114 Trust - to help you better understand the language used in insurance policies.
Regulation 114 Trust
This term refers to Regulation 114 of the Insurance Department of the State of New York, which details standards for the use of trust funds for reinsurance. When applied to captives, a trust agreement is entered into between the captive, the fronting company, and a bank. The bank acts as the trustee for the fund. The captive deposits cash and/or allowable securities into the trust. The fronting company, as the beneficiary of the trust, must approve the assets in the trust. The fronting company can demand, at any time, assets from the trust to meet the captive's obligations under the reinsurance agreement. The assets are delivered as securities, which are converted to cash by the fronting company. A Regulation 114 trust can be used to collateralize both the loss fund and the risk gap or used in combination with a letter of credit.
We hope the you have a better understanding of the meaning of Regulation 114 Trust.