• Collateral is an asset that is provided as collateral to secure the repayment of future liabilities. Often ceding companies are required to mitigate credit risk or offset unrecognized balances. Direct issuance of deductible captive written insurance can provide collateral to the insurance company that issued the franchise policy to captive policyholders. The most common form of collateral provided by captives or captive policyholders or captive shareholders is a bank letter of credit (LOC), but insurance trust funds may be used.