Question 1

In a funds-withheld arrangement, who physically holds and invests the cash equal to the reinsurer’s share of premium and reserves?

Accepted Answer

The cedent — That is the entire mechanism: the cedent keeps the cash on its own balance sheet and invests it, crediting the reinsurer an agreed interest rate rather than transferring the funds.

Question 2

What risk does a funds-withheld structure primarily protect the cedent against?

Accepted Answer

The reinsurer’s credit — counterparty default — risk — Because the reinsurer’s share of premium and reserves is never released, the cedent is not exposed to the reinsurer defaulting on that share — it functions exactly like posted collateral.

Funds Withheld

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