Fronting In Life Insurance: What You Need To Know

Fronting is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then cedes the risk to a reinsurer. This allows insurance companies to explore new areas of business without taking on the typical risks of doing so. The company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer. Fronting has become a common practice in the insurance-linked securities (ILS) market, where investors and ILS funds work with fronting insurers to access risk more efficiently.

Fronting policies are a type of alternative risk transfer (ART)

Fronting has become a common practice in the insurance-linked securities (ILS) market, where investors and ILS funds work with fronting insurers to access risk more efficiently. Fronting can be beneficial to organisations that require evidence of locally licensed insurance, yet are looking to reduce the cost of risk by increasing self-insured retentions. It allows insurance companies to dabble in new areas of business without taking on the typical risks of doing so.

Large organisations that operate in multiple states often use fronting policies.

Fronting is a common practice in the insurance-linked securities (ILS) market

A fronting policy is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then cedes the risk to a reinsurer. The company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer. The reinsurer is now responsible for ensuring all claims are paid against the policy.

Fronting policies are most often used by large organisations that operate in multiple states. They allow insurance companies to dabble in new areas of business, without taking in the typical risks of doing so. The insurance company’s only function, other than underwriting and ceding the original policy, is to make sure that the reinsurer is in a fiscal position to pay off any claims that may come its way.

A key driver of increased interest in fronting today is the challenging economic environment.

Fronting is beneficial to organisations that require evidence of locally licensed insurance

Fronting is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then cedes the risk to a reinsurer. Fronting policies are a type of alternative risk transfer (ART) and are most commonly used by large organisations that operate in multiple states.

The practice of fronting has become common in the insurance-linked securities (ILS) market, where investors and ILS funds work with fronting insurers to access risk more efficiently. Fronting policies allow insurance companies to explore new areas of business without taking on the typical risks of doing so.

The company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer. The reinsurer is responsible for ensuring all claims are paid against the policy. The fronting company's only function, other than underwriting and ceding the original policy, is to make sure that the reinsurer can fulfil its obligations.

The fronting company receives a portion of the premium

Fronting is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then cedes the risk to a reinsurer. The company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer.

The fronting company is the insurance company that underwrites the original policy. This entity receives a percentage of the premium despite ceding all of the risks to the reinsurer, which is responsible for all claims made against the policy it now effectively controls. The fronting company's only function, other than underwriting and ceding the original policy, is to make sure that the reinsurer is in a fiscal position to pay off any claims that may come its way.

The practice of fronting has become common in the insurance-linked securities (ILS) market, where investors and ILS funds work with fronting insurers in order to access risk more efficiently. Fronting can also be beneficial to organisations that require evidence of locally licensed insurance, yet are looking to reduce the cost of risk by increasing self-insured retentions.

The reinsurer is responsible for ensuring all claims are paid against the policy

Fronting is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then cedes the risk to a reinsurer. This is a type of alternative risk transfer (ART) and is most commonly used by large organisations that operate in multiple states.

In a fronting policy, the reinsurer takes on the entire policy risk and maintains complete control over the claims process. The reinsurer is responsible for ensuring all claims are paid against the policy. The ceding company (insurer) underwrites the initial policy and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer. The reinsurer is now responsible for ensuring all claims are paid against the policy.

The ceding company's only function is to make sure that the reinsurer can play its obligations, although the insurer itself does not pay any of the claims. The fronting company is used to ensure the policy is issued by a locally licensed insurer with a good credit rating. This is beneficial to organisations that require evidence of locally licensed insurance, yet are looking to reduce the cost of risk by increasing self-insured retentions.

Frequently asked questions