In chapter 19, page 26, the notes state in relation to liquidity risk: "We should consider how the impact of a loss may affect liquidity. For example, following an extreme loss there may be delays in collecting reinsurance recoveries or increased trust fund requirements" Can someone please explain the trust fund part of the above paragraph? Not sure what a trust fund has to do with GI? Thanks
I took trust fund to mean any sort of fund set aside to meet claims e.g. Premium Trust funds. Following an extreme loss a large amount of the fund will be used to pay claims and this fund will need to be topped up in order to meet claims from events that may occur after this extreme event.
LastHurdles is correct here. This may be referring to things like the US Trust Funds at Lloyd s. Following a catastrophe, for example, there might be a requirement to increase the amount held in these funds which could have an impact on cashflows and hence liquidity risk.
