Risk Transfer Agreements: How Insurance Brokers Hold Money as the Insurer's Agent Under CASS 5.2

Key takeaways

• Under CASS 5.2.3R a broker may only receive money as an insurer's agent if there is a written agreement with that insurer that expressly covers the activity, such as receiving premiums or holding claims money and premium refunds.
• A premium received under a risk transfer agreement is treated as received by the insurer, while claims money and premium refunds are treated as received by the client only when actually paid over to the client (CASS 5.2.1G).
• Money held as agent of an insurer is not client money and must not be kept in a client bank account, unless the insurer agrees in writing to client money treatment and to its interests ranking behind other clients (CASS 5.1.5AR).
• The broker must keep a copy of each agreement for at least six years after it ends and must tell affected clients in writing that it holds their money as the insurer's agent, and to what extent.
• If an agreement is missing, unsigned, with the wrong insurer entity or silent on claims, the conditions in CASS 5.2.3R are not met and the money falls back into the client money rules.

What risk transfer means

Risk transfer describes who bears the loss if an insurance broker fails while holding money. An agent is a person authorised to act for someone else. When an insurer appoints a broker as its agent to collect premiums, the law treats a premium paid to the broker as paid to the insurer. If the broker then fails before passing the premium on, the risk of that loss has moved from the client to the insurer. That is the risk being transferred.

CASS 5.2 is the part of the FCA's Client Assets Sourcebook that governs this arrangement. CASS 5.2.1G explains the protection it gives: clients who are not insurers are protected because premiums received by the agent are treated as received by the insurer, and claims money and premium refunds are treated as received by the client only when they are actually paid over. In plain terms, the insurer carries the risk on premiums from the moment the broker receives them, and continues to carry the risk on claims and refunds until the client actually receives the money.

CASS 5.2.2G describes the kinds of agreement involved. Some are general introductory agreements that simply help a broker introduce business to an insurer. Others are binding authorities, which let the broker commit the insurer to cover, settle claims or handle premium refunds. Money received under either kind is not client money unless the firm and the insurer have agreed otherwise. For the wider rules on client money held by brokers, see the CASS 5 client money rules.

What a risk transfer agreement can cover

A risk transfer agreement can cover three kinds of money: premiums from clients, claims money from the insurer on its way to a client, and premium refunds. It does not cover them automatically. CASS 5.2.3R(1)(f) requires the written agreement to state expressly that the broker acts as the insurer's agent for each purpose. An agreement that covers premiums only leaves claims money and refunds as client money.

This is the point brokers most often misread. Many insurer agreements in the market grant agency for premiums but say nothing about claims or refunds. When a claim payment arrives from that insurer, it is client money from the moment it is received, and it must go into a client bank account and into the client money calculation.

What must be in writing

CASS 5.2.3R sets four conditions before a broker may agree to act as an insurer's agent. There must be a written agreement with that insurer. The broker must be satisfied on reasonable grounds that the terms of the policies the insurer issues to the broker's clients are likely to be compatible with the agreement. The agreement must expressly cover each activity, as described above. And, under CASS 5.2.3R(4), if the agency is to extend to money received by the broker's appointed representatives, field representatives or other agents, the insurer must consent and the agreement must provide for it.

Two further duties follow once an agreement is in place. CASS 5.2.3R(2) requires the broker to keep a copy of each agreement for at least six years from the date it ends. CASS 5.2.3R(3) requires the broker to tell affected clients, other than insurers, in writing that it will hold their money as agent of the insurer and, if necessary, the extent of that agency, for example whether it covers all money or only premiums. This is usually done in the broker's client terms of business.

Insurer agreements and client terms of business

Two documents carry risk transfer. The first is the agreement with the insurer, usually called a terms of business agreement or TOBA. Market model wordings exist in both forms: the company market has a Risk Transfer TOBA and a Non Risk Transfer TOBA published by the International Underwriting Association with the London and International Insurance Brokers Association, and Lloyd's points brokers to the model wording agreed between the Lloyd's Market Association and the same brokers' association. Firms may amend these wordings, so each signed agreement must be read on its own terms.

The second document is the broker's terms of business with its clients. It must give the disclosure required by CASS 5.2.3R(3). It also matters for commission: under CASS 5.5.16R(1) a broker may only draw commission from a client bank account once the client has paid the premium and only if that is consistent with its terms of business with both the client and the insurer. A client agreement that says one thing and an insurer agreement that says another is a common reason for audit findings. Our guide to preparing for the CASS 5 audit covers what auditors ask to see.

Where risk transfer money is held

Money held as agent of an insurer is the insurer's money, not client money. CASS 5.2.4G and CASS 5.5.17G(2) say it must not be kept in a client bank account unless the insurer has agreed otherwise under CASS 5.1.5AR. That rule allows the broker to treat money it receives as agent as client money, but only if the insurer's agreement is in writing and shows that the insurer accepts its interests under the trust rank behind the interests of the broker's other clients.

This gives a broker two workable structures. It can hold risk transfer money in separate insurer money accounts, outside the client money trust. Or it can obtain each insurer's written agreement under CASS 5.1.5AR and hold everything in client bank accounts, in which case all of that money is treated as client money and counts in the calculation. The FCA's client money questions for the retail mediation return confirm the second point: where mixing is allowed under such an agreement, all the money is treated as client money under CASS 5. CASS 5.2.7G also allows a broker to use agency for some clients and a client money trust for others, provided its systems keep the two apart.

Keeping a register of agreements

The rules require a broker to keep each agreement and to know which money it covers. In practice that means a register: one line per insurer legal entity, showing what the agreement says. Without it, nobody can decide whether a given receipt is client money, and the calculation cannot be done accurately.

The register should be reviewed whenever an agreement is signed, amended or ended, and whenever the broker starts placing business with a new entity in an insurer's group. Each line should link to the bank account the money flows through, so the register, the money flows and the reconciliation all tell the same story.

Worked example: how agreements change the client money requirement

A commercial lines broker receives £2,460,000.00 in a month across three insurers. Insurer A's agreement covers premiums, claims and refunds. Insurer B's agreement covers premiums only. Insurer C has no agency agreement. None of the three has agreed to client money treatment under CASS 5.1.5AR, so agency money is held in separate insurer money accounts.

Only the money not covered by an express agency is client money. Of the £2,460,000.00 received, £1,725,000.00 is held as agent of an insurer and £735,000.00 is client money that must be in a client bank account and in the calculation. The £180,000.00 of claims money from Insurer B is the item most often missed, because the broker has an agreement with that insurer and wrongly assumes it covers everything.

When risk transfer fails

Risk transfer only works if every condition in CASS 5.2.3R is met. Under CASS 5.1.5R(1)(b), money received as agent of an insurer is excluded from client money only where the firm acts in accordance with CASS 5.2. An agreement that was never signed, names a different entity in the insurer's group, has expired, or does not expressly cover claims does not meet those conditions. The money is then client money, and if it has not been held in a client bank account the broker has a segregation breach as well as a gap in its calculation.

The consequences are clearest when a broker fails. In a judgment of 14 April 2026 ([2026] EWHC 829 (Ch)), the High Court approved a distribution scheme for a London Market broker in administration whose records could not show who was owed what. The approved scheme presumed that money was held for non-insurer clients wherever a risk transfer arrangement could not be established, unless there was evidence to the contrary. In other words, an insurer that cannot prove its agreement ends up behind the clients.

Common mistakes and how to avoid them

The recurring problems are predictable: agreements signed with one group company while business is placed with another, agreements that grant agency for premiums only while the broker treats claims as covered, sub-agents and appointed representatives collecting money the insurer never agreed to cover, and client terms that do not mention the agency at all. Each one turns money the broker thought was outside the rules into client money.

The controls are simple. Keep the register current and tie it to bank accounts. Check every new insurer relationship against the register before the first premium is collected. Treat any receipt not clearly covered by an express agency as client money until proved otherwise, and post it to a client bank account. Record and investigate any money found in the wrong account, following the method in our guide to reconciliation break management. For how client money is then segregated and calculated, see insurance premium segregation and reconciliation.

Safeheld reconciles client money every day for regulated firms, works every difference to its cause and keeps the record auditors ask for, and is extending that work to CASS 5. If your firm holds client money under CASS 5, talk to us about CASS 5.

Frequently asked questions

What is a risk transfer agreement in insurance?

A written agreement under which an insurer appoints a broker as its agent to receive premiums and, if it expressly says so, to hold claims money and premium refunds. A premium paid to the broker then counts as paid to the insurer.

Is money held under risk transfer client money?

Generally not. Money held as agent of an insurer under CASS 5.2 is the insurer's money, unless the insurer agrees in writing under CASS 5.1.5AR that it may be treated as client money, with its interests ranking behind other clients.

Does a risk transfer agreement cover claims money?

Only if it expressly says so. CASS 5.2.3R(1)(f)(ii) requires express agency for receiving and holding claims money and premium refunds; an agreement covering premiums only leaves claims and refunds as client money.

Do I need a client money permission if I only use risk transfer?

The FCA's guidance on the retail mediation return says a firm holding money only as agent of insurers under CASS 5.2 does not need a client money permission. It must still meet every condition in CASS 5.2.3R.

How long must a broker keep risk transfer agreements?

At least six years from the date each agreement ends, under CASS 5.2.3R(2).

Can risk transfer money be kept in a client bank account?

Only if the insurer has agreed in writing under CASS 5.1.5AR that it may be treated as client money. Otherwise it must be kept out of client bank accounts.

References

• FCA Handbook, CASS 5.1 Application and general provisions
• FCA Handbook, CASS 5.2 Holding money as agent of an insurance undertaking
• FCA Handbook, CASS 5.5 Segregation of client money
• FCA, RMA-C: Client money and assets FAQs
• High Court, [2026] EWHC 829 (Ch), judgment of 14 April 2026
• International Underwriting Association, Terms of Business Agreements

About Safeheld

Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.

This article is for general information and does not constitute legal or regulatory advice.