Regulation 114 trust (New York)
A three-party trust defined by New York regulation, through which a non-admitted reinsurer deposits assets for the benefit of the cedent so that it can take credit for reinsurance.
A U.S. ceding insurer can take balance sheet credit for reinsurance placed with a reinsurer not authorized in its state only if the recoverable is secured, and a collateralized reinsurance vehicle or an ILS fund is almost never authorized. New York's Regulation 114, codified at Part 126 of Title 11, sets the conditions for that security: an agreement among the grantor reinsurer, the beneficiary cedent and a bank trustee independent of both. Eligible assets are limited to cash, certificates of deposit and certain high-quality investments, valued at market, and the cedent can withdraw them without the reinsurer's consent. This form has become widespread in the United States, well beyond New York. Its limit is cost: the capital it ties up cannot work elsewhere, which is the source of trapped collateral after a loss.
Part 126 requires a bank trustee that is a member of the Federal Reserve System or chartered by New York State, unaffiliated with the parties, and 30 to 45 days' notice of termination; trusts in existence before April 6, 1988, remained acceptable after January 1, 1989, only if brought into compliance or if no new business was ceded.
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