What types of collateral are available in the market?
The most common form of collateral that is requested by insurance carriers is a letter of credit. But there are many other types of collateral that are used on occasion, such as surety bonds, trust programs and cash. A trust program provides an alternative to a letter of credit and allows the insured to place negotiable securities into a trust account where the carrier can access the trust assets. The advantage of this option is that the insured is able to earn an investment income on those securities and they don’t impact their balance sheet as a letter of credit would. Trust programs also tend to be less expensive, with savings of up to 50 basis points over letters of credit. Surety bonds, over the last several years, have not been widely used, as the surety bond market has been restricted. When should collateral be reviewed? We normally recommend that collateral be reviewed twice a year. When an insured has been on a loss-sensitive program for a period of time, there tends to be a p
