How Letters of Credit Power Collateral in Captive Insurance

Letters of credit remain the most widely used form of collateral in captive insurance programs, valued for their reliability, simplicity, and universal acceptance by fronting insurers and regulators. In this episode of The Edge of Risk podcast by IRMI, host Joel Appelbaum speaks with Marty Ellis of Comerica Bank about how letters of credit function behind the scenes, from application through draw procedures, and why features such as evergreen clauses and irrevocability are central to maintaining confidence on all sides of a captive program. The discussion also examines how letters of credit compare with trust accounts and cash collateral in terms of cost, liquidity, and investment flexibility. Special attention is given to how group captives use back-to-back letter of credit structures and how banking regulations may influence future pricing and collateral requirements. Together, these insights provide a practical look at why letters of credit continue to anchor collateral strategies in the captive insurance market.