Zurich has launched eZ trust in the UK as an alternative to letters of credits, helping customers in the current challenging financial climate.
Traditionally, the insurance industry has favoured letters of credit as their preferred form of collateral to secure their credit exposure with captive insurance companies and their parent companies. This letter of credit would normally be provided by a bank, based on the customer’s credit access. However, in today's difficult economic climate, lines of credit have become much more costly and tougher to obtain.
In response to this, Zurich developed the eZ trust, which the insurer believes is a more cost-effective, simpler alternative to letters of credit. eZ Trust is a tri-partite agreement between Zurich, the captive and the investment manager, giving Zurich a charge over a proportion of the captive’s existing investment portfolio.
Among the many benefits of eZ Trust are:
• Reduced need for complex legal discussions as Zurich has already agreed the wordings for the eZ trusts with a panel of leading financial institutions
• Zurich has pre-negotiated discounted bank fees with the panel of financial institutions for trust administration and does not charge any additional fees
• Lower direct set-up costs compared with cash-backed letters of credit
• The trust frees up available credit for the parent company and/or captive
• The depositor may earn investment income on the funds held on trust
• No renewals or yearly negotiations are needed as the trust is evergreen
Véronique Méautte-Evans, Head of Captive Services & ART, Zurich Global Corporate UK, said:
“At Zurich, we are well aware of the strain on credit that our customers are facing in the current economic environment. That’s why we have introduced the eZ Trust, which is an easy-to-use and cost-effective alternative to letters of credit. eZ Trust demonstrates Zurich’s commitment to constantly responding to the needs of our customers with innovative and relevant solutions”.
Anthony Brown, Senior Vice-President at Marsh added:
“We at Marsh anticipate that parental guarantees are likely to result in increased capital expense for fronting insurers relative to other forms of captive credit enhancement. As a result, captive owners will welcome the introduction of any innovative and flexible solution that allows them to manage their capital more efficiently and that makes documentation as standardised as possible.”
The EZ Trust has already been introduced in the US market and has been well received by customers with captives.
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