Insurance premium trust accounting in Canada

What is a premium trust account?

A premium trust account is a separate bank account where an insurance brokerage holds money it collects on behalf of clients and insurers, kept apart from the operating account that runs the business.

When a client pays a premium, that money is not the brokerage’s to spend. Three different claims sit inside a single deposit:

• Most of it belongs to the insurer until it is remitted.
• Part of it is the brokerage’s commission, and only once that commission is earned.
• Some may be client funds: return premiums, deposits taken before a policy binds, or unearned amounts on a cancelled policy.

Until those amounts are paid out, the brokerage is holding the money in trust on behalf of others. Canadian brokerages are generally expected to maintain a segregated premium trust account, keep proper records, and reconcile it. The specific thresholds, deadlines, and reporting differ by province, so confirm the precise rules with your provincial broker regulator.

This only applies to money that actually flows through you. On agency bill you invoice and collect, so trust is live. On direct bill the insurer collects and the premium never touches your account, so the trust question mostly does not arise.

Why trust money has to be segregated

Segregation protects money that is not yours. If premium sits in the same account as operating cash, it gets spent on payroll, rent, and overhead, usually without anyone deciding to do so. Nobody sets out to spend insurer money. It happens because the bank balance looked healthy on the 15th and payroll ran on the 15th.

Segregation also makes the trust position knowable. Because the account holds only trust money, its balance can be compared directly against what the brokerage owes out of trust. That comparison is the whole of trust accounting. Mix the accounts and the comparison becomes impossible to make honestly, which is exactly why regulators require the split.

Two practical rules follow from segregation, and both show up in provincial requirements in some form:

• Deposit promptly. Premium received should reach the trust account quickly, not sit in a drawer or a general account first. RIBO’s Principal Broker Handbook, for example, sets a deadline measured in banking days after receipt. Confirm the current number with the handbook.
• Name the account clearly. The account should be identified in the financial institution’s records as a trust account in the brokerage’s registered legal name, so there is no question about whose money it holds.

Trust assets vs trust liabilities

There are two sides to the trust position.

Trust assets are what supports the trust obligation:

• Cash in the trust bank account.
• Premium receivable from clients on agency-bill business already invoiced.
• Any trust investments held in permitted instruments.

Trust liabilities are what you owe out of trust:

• Premiums payable to insurers, net of your commission.
• Return premiums and refunds owed to clients.
• Premium taxes and levies collected but not yet remitted, where applicable.
• Client deposits held on business not yet bound.

A healthy trust position means trust assets are at least equal to trust liabilities. That single relationship is the most important number in brokerage accounting, and a principal should be able to state it from memory within a few thousand dollars on any given day.

Cash above liabilities is a surplus, which is normal and often deliberate: many firms park a buffer of their own funds in trust so the account never dips below what is owed. Assets below liabilities is a shortfall, meaning trust money has effectively funded something it should not have, even accidentally.

Worked example: a monthly trust position

The numbers below are illustrative only. They show the shape of the calculation, not a benchmark.

Line	Amount
Trust bank balance at month end	$412,600
Premium receivable, agency bill, current	$88,400
Total trust assets	$501,000
Premiums payable to insurers	$431,200
Return premiums owed to clients	$12,900
Unbound client deposits held	$6,500
Total trust liabilities	$450,600
Trust surplus (assets less liabilities)	$50,400

This brokerage is in surplus by $50,400, which is the owner’s own buffer sitting in trust plus commission earned but not yet swept. The follow-up questions are the useful part:

• How much of the $88,400 premium receivable is over 90 days? Aged premium receivable is still counted as a trust asset in many presentations, but it is the weakest asset in the stack. If $40,000 of it is 120 days old on policies that already cancelled, the real position is much tighter than $50,400 suggests.
• How much of the $50,400 surplus is the brokerage’s own money versus earned commission that should have been transferred to operating already? A surplus made of stale commission is a bookkeeping backlog, not a cushion.

Run the same table with premium receivable over 90 days excluded. If that version goes negative, you have a problem the headline number hides.

How often should a brokerage reconcile its trust account?

How often a brokerage must reconcile is set by its provincial broker regulator, and the requirement varies across Canada. Confirm the required frequency with your own regulator rather than assuming a single national rule.

As a working standard, reconcile monthly, on the same calendar every month. A monthly reconciliation confirms three things agree:

1. The trust bank statement balance.
2. The trust ledger in your broker management system.
3. The trust liability, meaning what you owe insurers and clients out of trust.

Monthly matters because trust drift compounds. A difference caused by a cancellation, an endorsement, a posting error, or a remittance applied to the wrong carrier is small and explainable in the month it happens. Six months later the staff member who processed it has left, the carrier has re-issued the statement, and the same difference costs a day to unpick.

In Ontario, RIBO’s Principal Broker Handbook describes a monthly internal Form 1 that ties the bank reconciliation, the premium receivable listing, and the insurer payable sub-listing back to the corresponding general ledger balances, along with a listing of receivables over 90 days. Separately, brokerages file position reports with RIBO semi-annually plus a year-end filing. The monthly internal work is what makes the periodic filing a formality instead of a scramble.

How to run a monthly trust reconciliation

The sequence below is the one that produces a defensible file rather than a number that happens to agree.

1. Cut off cleanly. Stop posting to the month before you start. Late receipts and remittances posted mid-reconciliation are the most common reason a reconciliation will not tie twice in a row.
2. Reconcile the trust bank. Bank balance, plus deposits in transit, less outstanding cheques and unpresented EFTs, equals the trust cash in the general ledger. Investigate anything outstanding more than 30 days.
3. Age the premium receivable. Pull the agency-bill receivable by client and by age. Anything over 90 days needs a name beside it and an action.
4. Prove the insurer payable. Pull premiums payable to insurers by carrier and tie the total to the general ledger. This is the same schedule your carrier statement reconciliation produces, so the two processes should agree by construction.
5. List other trust liabilities. Return premiums owed, unbound deposits, levies collected.
6. Compute the position. Total trust assets less total trust liabilities. Record the result and the date.
7. Explain the movement. Compare this month’s surplus to last month’s. If the surplus moved materially, know why before you sign it off.
8. Sweep earned commission deliberately. Transfer commission out of trust only for items where the related insurer payable has been settled or is fully funded, and document the transfer.
9. Have someone else review it. The person who posts the receipts should not be the only person who signs the reconciliation.

Where the trust position lives in Applied Epic

Applied Epic, the broker management system from Applied Systems, carries the operational side of the trust position. The trust bank is set up as its own bank account with its own GL mapping. Agency-bill receipts are applied to invoices and route to that trust bank. The premiums payable balance is built by the agency-bill transactions themselves, and it is reported by carrier so it can be aged. Direct-bill items should not be building trust balances at all, and if they are, the billing setup is wrong.

Three configuration points cause most of the trouble:

• Bank mapping. If a receipt can be applied to a trust invoice but deposited to the operating bank, staff will eventually do it. Restrict which banks are selectable for which transaction types.
• GL account mapping. Premiums payable, commission income, and trust cash must map to distinct accounts. When commission income and premiums payable share a control account, the trust liability cannot be proven.
• Commission sweeps. Model the sweep as an explicit transfer between the trust and operating banks, tied to specific items. A round-number transfer with no supporting detail is how surpluses turn into shortfalls over a couple of quarters.

For the wider system setup, see our guide to Applied Epic accounting for Canadian brokerages.

Common failure modes and how to fix them

Failure mode	What you see	Fix
Commission swept before the payable settles	Surplus shrinks month over month with no explanation	Sweep only against settled or fully funded items; document each transfer
Client has not paid but the insurer was remitted	Trust cash drops while premium receivable climbs	Age the receivable weekly; do not remit ahead of collection without a funding decision
Cancellations never reversed	Old credits sitting on the payable schedule	Clear the cancellation in the same month the endorsement is processed
Remittance applied to the wrong carrier	Two carriers off by the same amount, opposite signs	Reconcile payables by carrier, not just in total
Direct bill posting to trust	Trust balances that no client or carrier explains	Check the billing type on the policy and the GL mapping behind it
Reconciliation done but never reviewed	Reconciliation ties, position is still wrong	Second-person review, with the trust position stated in dollars
Personal or operating expenses paid from trust	Trust cheques to non-carrier payees	Stop immediately, restore the funds, and get advice on your reporting obligations

The last one is different in kind from the others. Bookkeeping errors are correctable in the ordinary course. Paying operating costs out of trust is the thing regulators discipline brokerages for, and it usually needs to be dealt with as a compliance matter, not just an accounting one.

How the provincial regimes differ

The principle is consistent across Canada: hold client and insurer money separately, keep records that prove the position, and do not run a shortfall. The mechanics differ.

Regulator	Scope	Where to check
RIBO (Ontario)	Registered brokerages and Principal Brokers; Form 1 position reporting and detailed trust requirements in the Principal Broker Handbook	Principal Broker Handbook, Broker Standards
Insurance Council of BC	Licensed agencies and their nominee; trust handling addressed in the Council Rules and Code of Conduct	Council Rules and Code of Conduct
Alberta Insurance Council	Licensed agencies and designated representatives	AIC licensing and resources pages
AMF (Quebec)	Firms registered in damage insurance brokerage, with separate account and disclosure obligations under Quebec legislation	AMF professionals section

Reporting cadence, permitted trust investments, the deposit deadline, what counts as a trust asset, and whether aged premium receivable can be counted all vary. Treat the framework in this guide as the operating model and confirm each specific rule with your own regulator. For Ontario specifically, see RIBO trust account requirements, and for the records side see brokerage record keeping in Canada.

A monthly trust checklist for owners

Print this and ask for it every month. If your bookkeeper cannot produce it, that is the finding.

• Trust bank reconciliation completed, with outstanding items listed and dated
• Trust cash per bank reconciliation agrees to the general ledger
• Premium receivable listing agrees to the general ledger, aged, with over-90-day items named
• Premiums payable by carrier agrees to the general ledger and to carrier statements
• Return premiums and client deposits listed
• Trust assets less trust liabilities stated as a dollar figure
• Same figure recalculated excluding premium receivable over 90 days
• Movement in the surplus since last month explained in one sentence
• Commission sweeps for the month listed with supporting items
• Reconciliation reviewed and signed by someone other than the preparer

Working with BrokerLedger on trust

Our premium trust reconciliation service does this work every month inside Applied Epic: reconciling the trust bank, aging premium receivable and premiums payable, stating the trust position in dollars, and telling you what moved and why. If you are cleaning up after a period without reconciliation, we rebuild the payable schedule carrier by carrier first, because the trust position cannot be proven until the liability side is real.