Fronting

Fronting is an arrangement by which an insurer licensed in a given territory, called the fronting insurer, issues an insurance policy and formally assumes responsibility for it toward the insured, while ceding most, or even all, of the risk to a reinsurer or to the captive of a group that lacks the license required to operate directly in that market. The fronting insurer thus acts as a regulatory interface, lending its license and signature in return for a remuneration called a fronting fee. This device meets concrete needs, allowing a group to place its risks in its own captive while complying with local insurance obligations, or a reinsurer to access a market without being directly licensed there. It carries, however, an essential credit risk, because the fronting insurer remains legally responsible toward the insured, and must therefore indemnify the loss even if the reinsurer to which it ceded the risk were to default. The solvency of the reinsurer and the quality of the security taken by the fronting insurer are therefore at the heart of the arrangement's safety, which makes it a subject of vigilance for regulators.

An industrial group wishes to insure its foreign subsidiaries through its captive, which is not licensed in all the countries concerned. It calls on local insurers for fronting, which issue the policies and then cede the risk to the captive in return for a fee.

fronting, assureur de façade, fronteur, commission de fronting