With a fronted program, the insurance policy is issued to the insured by an admitted “fronting” carrier. That carrier then reinsures all or a portion of the risk to the captive.
This provides the insured the ability realize underwriting profit while still having admitted, “A” rated coverage thru the policy issued by the front.
- Compliance: Many states require companies to provide evidence that they are covered by an admitted insurer for things like workers’ compensation insurance and auto liability. By using a fronting carrier, a captive insurer can comply with these requirements.
- Financial strength: Fronting carriers typically have a high financial strength rating and/or admitted status that will comply with lenders, clients and vendor’s insurance requirements.
- Access to reinsurance: In some cases, a captive insurer can serve as the fronting company and issue a policy directly to the insured parent company. The risk is then fully reinsured to one or more domestic or foreign reinsurers, and the fronting captive does not retain any of the risks. This can provide the parent company with access to the reinsurance market.