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What Is a Fronting Arrangement and Why Do Captive Insurers Use Them?

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An insurance pundit once observed that "fronting" is the same as "backing." That seemingly oxymoronic comment is not far off the mark in describing the relationship between a captive insurer and a fronting arrangement. Fronting companies provide financial backing and other forms of support that enable many captive insurers to meet their objectives. So it is not far off the mark to say that fronting is the same as backing. Fronting has been defined as the use of a licensed, admitted insurer to issue an insurance policy on behalf of a self-insured organization or captive insurer without the intention of transferring any risk. The risk of loss is retained by the self-insured or captive insurer through an indemnity or reinsurance agreement. However, the fronting company (insurer) would be required to honor the obligations imposed by the policy if the self-insurer or captive failed to indemnify it. Therefore, the fronting company is subject to credit risk as a result of the arrangement, and

What Is a Fronting Arrangement and Why Do Captive Insurers Use Them? Home Captives 101 What Is a Fronting Arrangement and Why Do Captive Insurers Use Them? What Is a Fronting Arrangement and Why Do Captive Insurers Use Them? An insurance pundit once observed that "fronting" is the same as "backing." That seemingly oxymoronic comment is not far off the mark in describing the relationship between a captive insurer and a fronting arrangement. Fronting companies provide financial backing and other forms of support that enable many captive insurers to meet their objectives. So it is not far off the

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