Fronting is an arrangement in which a licensed insurer issues a policy and then passes most or all of the risk to another party, such as a reinsurer or a captive, through reinsurance. The insurer that issues the policy is called the fronting insurer or fronting carrier, and it is paid a fronting fee for the use of its licence, its policy paper and, where it has one, its credit rating.
This entry explains who the parties are, how premium and claims move between them, why fronting is used, how the fronting fee and retention work, the credit risk that stays with the fronting insurer and what regulators in the UK, the EU and the US have said about it. It covers fronting as a commercial insurance structure. In UK motor insurance the same word describes a form of fraud, in which someone claims to be the main driver on a car insurance policy when they are not;1 that meaning is covered in the questions at the end.
Fronting in numbers
The US fronting market tracked by Conning, 2025
Conning, an investment management and insurance research firm, reported in its 2026 study that the US fronting market it tracks grew 17% in 2025 to more than $22 billion in gross premiums, compared with 5% growth for the commercial insurance industry, and that growth had slowed from 26% in 2024.2 Other liability was the fastest growing major line, at 32%, and represented 29% of direct fronted premiums; together with commercial auto, the two lines accounted for 46% of fronted premium.2 The figures come from Conning's press release; the full study, which is sold, was not reviewed for this entry.
Alan Dobbins, a director of Conning Insurance Research, said in the release that fronting has become essential infrastructure for the MGA market.2 Gallagher Re, a reinsurance broker, estimated, on its latest projections, that the North American MGA market grew 24% in 2023, from $71 billion to $88 billion, representing approximately 11% of the overall property and casualty market.3
Who is involved in a fronting arrangement
At its simplest, fronting has three parties: the policyholder, the fronting insurer that issues the policy, and the reinsurer or captive that takes on the risk. Programme business adds an MGA or programme administrator, and arrangements with reinsurers that are not licensed where the risk sits add a bank or trustee holding collateral.
| Party | Role | What it receives | What it carries |
|---|---|---|---|
| Policyholder | Buys the policy and pays the premium | A policy issued by a licensed insurer | A claim against the insurer named on the policy |
| Fronting insurer | Issues the policy under its licence and cedes most or all of the risk | The fronting fee, and the premium for any share of the risk it keeps | Liability to the policyholder and credit risk on the reinsurer |
| Reinsurer or captive | Takes on the risk through a reinsurance agreement with the fronting insurer | The ceded premium, less the fronting fee | Its share of claims, owed to the fronting insurer |
| MGA or programme administrator, where used | Sources, underwrites and administers business under authority from the fronting insurer | Commission | Usually no share of the underwriting risk unless it takes a retention or profit-related commission; the NAIC handbook notes that an intermediary paid on volume bears no financial risk for poor underwriting4 |
| Bank or trustee, where used | Holds assets in trust or issues a letter of credit to secure the reinsurer's obligations | Fees for the facility | Its obligations under the trust or letter of credit5 |
The policyholder's contract is with the fronting insurer. The reinsurance agreement is between the fronting insurer and the reinsurer, and the policyholder is not a party to it; the policyholder's rights against a reinsurer, if any, depend on the terms of the contracts.
How premium and claims move
How premium moves in a fronted programme
How a claim is paid under a fronted policy
Claims can be handled by the fronting insurer itself, by the MGA under delegated claims authority or by a third-party administrator. Premium, claims and recoveries are reported between the parties on bordereaux.
Why fronting is used
Licensing is the first reason. The NAIC's Financial Analysis Handbook explains that an insurance company must first be licensed in a US state to sell insurance directly to the public, while a reinsurer may assume reinsurance without a licence in that state; through a fronting arrangement, a company not licensed in a state may reinsure all or nearly all of the liabilities for policies that it cannot directly write.4 Lloyd's states that the writing of local risks in a territory is subject to locally prescribed regulatory requirements.6
Captives are the second. The Prudential Regulation Authority describes an organisation buying policies from UK insurers with a view to reinsuring some or all of the underlying risks using its captive as a fronting arrangement.7 The Bermuda Monetary Authority's 2021 captive report describes a rent-a-captive as a company that rents its capital, surplus and licence to policyholders and usually provides administrative services or reinsurance, or is an admitted fronting company.8
Ratings and MGA capacity are the third. Conning's press release says that, as competition changes, underwriting oversight, reinsurance credit management, claims capabilities, data, technology, service and institutional capital support may become more important differentiators than access to rated paper alone.2
| Use | What the risk carrier lacks | What the fronting insurer provides |
|---|---|---|
| Licensing4 | A licence to write direct business where the risk is located | Its licence and policy paper; the unlicensed company reinsures all or nearly all of the liabilities |
| Captive insurance7 | Permission to write a class directly (under the PRA's proposals, UK captives could write compulsory lines only as reinsurers) | A policy from an authorised insurer, with the captive taking some or all of the risk as reinsurer |
| Rent-a-captive8 | Its own captive | Access to a captive facility's capital, surplus and licence, which may include an admitted fronting company |
| MGA and programme business2 | An insurer's balance sheet and rating | Rated paper and oversight, with reinsurers taking most of the risk |
Pure and hybrid fronting
In pure fronting the insurer cedes all or nearly all of the risk and earns a fee. In hybrid fronting it keeps a share of the risk as well, so it earns underwriting profit or loss on that share. Trisura, a specialty insurance group with Canadian and US insurance subsidiaries, describes its US Programs platform as a hybrid fronting entity in the non-admitted markets and a highly reinsured program insurer with a fee-based business model.9 It reports a target quota share retention range of 5.0% to 15.0% across all programs, and a retention rate of 9.2% over the last twelve months to 30 September 2026, measuring net premiums written as a share of gross premiums written.10
Gallagher Re found that for the 13 core fronting carriers in its analysis whose business model is solely levered to third-party MGAs with no direct business, the average retained premium was 10% in 2021, 6% in 2022 and 19% in 2023, which it said was likely due to reinsurance market conditions and business decisions related to certain collateralised reinsurers.3 It also reported that many reinsurers were requiring at least a 10% retention from the carrier or the MGA.3
| Source | Measure | Figure |
|---|---|---|
| Gallagher Re3 | Average retained premium, 13 core fronting carriers, 2021 | 10% |
| Gallagher Re3 | Average retained premium, 13 core fronting carriers, 2022 | 6% |
| Gallagher Re3 | Average retained premium, 13 core fronting carriers, 2023 | 19% |
| Trisura10 | Target quota share retention range, US Programs | 5.0% to 15.0% |
| Trisura10 | Retention rate, US Programs, last twelve months to 30 September 2026 | 9.2% |
| EIOPA, 201711 | Indicative minimum retention a supervisor could envisage for an undertaking relocating from the UK | 10% of the business written |
The fronting fee
In general terms, the fronting fee is the fronting insurer's charge for issuing policies on its licence and for the work it does on the programme. It is separate from any premium the insurer keeps for a share of the risk it retains, and the base on which it is charged is set in each agreement.
Trisura is one fronting insurer that publishes a fee measure. It defines its fee income as fees received from reinsurers in exchange for fronting services, and reports that in its US Programs business fees were 4.8% of ceded premium, a non-IFRS ratio, in the first nine months of both 2026 and 2025.10 In Canada it describes its fronting business as permitting its licensed status to be used by other licensed or unlicensed insurance companies to issue insurance policies in exchange for a fronting fee; Canadian Fronting accounted for approximately 14.0% of its net insurance revenue in 2025, against 15.8% in 2024.9 These are one company's figures and are not a market rate.
The table below follows the money on a hybrid programme. The figures are invented to show the arithmetic: a 20% MGA commission, a 10% retention by the fronting insurer and a fronting fee of 5% charged on the ceded share of gross written premium.
| Step | Amount |
|---|---|
| Gross written premium paid by policyholders | £1,000,000 |
| MGA commission at 20%, kept by the MGA | £200,000 |
| Premium received by the fronting insurer | £800,000 |
| Fronting insurer's retained share, 10% of £800,000 | £80,000 |
| Ceded share before the fee, 90% of £800,000 | £720,000 |
| Fronting fee, 5% of the ceded share of gross written premium (90% of £1,000,000 = £900,000) | £45,000 |
| Paid to the reinsurer, £720,000 less £45,000 | £675,000 |
| Kept by the fronting insurer, £80,000 plus £45,000 | £125,000 |
| A claim of £100,000, paid to the policyholder by the fronting insurer | £100,000 |
| Recovered from the reinsurer, 90% | £90,000 |
| Net claim cost to the fronting insurer | £10,000 |
| Net claim cost if the reinsurer does not pay and no collateral is held | £100,000 |
The last two rows show why the fee and the retention are not the whole of the fronting insurer's exposure. On the £100,000 claim its own share costs £10,000, but if the reinsurer fails to pay and there is no collateral the whole claim falls on it, because its liability to the policyholder does not depend on the recovery.
Credit risk and collateral
Because the fronting insurer cedes most of the premium, it can carry large reinsurance recoverables; EIOPA's 2017 opinion said that where risk is transferred on that scale the reinsurance recoverable can be expected to be a very significant asset.11 Conning reported that fronting companies ceded nearly $19 billion to nonaffiliated reinsurers in 2025, increasing the importance and complexity of reinsurance credit, collateral and counterparty management.2 Gallagher Re reported that gross leverage on capital for its composite of fronting carriers rose from 1.6 in 2021 to over 3.6 in 2023, with full financials not yet reported for several companies, and said the small share of underwriting risk retained by many program carriers counts for little against the credit risk on some balance sheets.3
In the US, a ceding insurer can take credit for reinsurance in its accounts only on set conditions, and where a reinsurer meets none of them the credit depends on security such as collateral. The NAIC's Credit for Reinsurance Model Law sets out the routes; each state adopts its own version, so the model is a template rather than the law of any one state.5
| Route | Condition, in summary |
|---|---|
| Licensed reinsurer | Licensed to transact insurance or reinsurance in the state |
| Accredited reinsurer | Accredited by the commissioner, including submitting to the state's jurisdiction and its authority to examine |
| Reinsurer from a state with similar standards | Domiciled in a state with credit for reinsurance standards substantially similar to the model law |
| Trust fund | Maintains a trust fund in a qualified US financial institution for the payment of the valid claims of its US ceding insurers |
| Certified reinsurer | Certified by the commissioner and secures its obligations as the model law requires |
| Reciprocal jurisdiction | Has its head office or domicile, and is licensed, in a reciprocal jurisdiction, and meets the other conditions |
| None of the above | A reduction from liability equal to the security held (cash, listed securities, clean irrevocable unconditional letters of credit or another form the commissioner accepts), up to the liabilities carried |
What regulators have said
None of the documents below prohibits fronting. They set out what concerns each regulator about it, about insurers that cede most of what they write and about the collateral behind reinsurance.
| Regulator and document | Stated concern | What it asks for |
|---|---|---|
| NAIC, Financial Analysis Handbook4 | Fronting commissions that exceed the insurer's costs of selling policies give it an incentive to write more business; it may underwrite poor risks at underpriced rates believing it will not pay all the resulting losses, lack details of the business its representatives write, or use fronting to circumvent state licensing | Analysts determine whether reinsurance is used for fronting, check state fronting disclosure requirements, review the reinsurance and products involved and evaluate collectability |
| EIOPA, 2017 opinion on relocations from the UK11 | Reinsurance levels that undermine an undertaking's responsibility or capacity to manage its risks | A minimum retention, as an indication 10% of the business written; an assessment of counterparty and currency risk, asset composition, how far recoverables are collateralised and the strength of the reinsurer |
| EIOPA, 2024 statement on third-country reinsurance12 | Legal risk from reinsurers in non-equivalent third countries, including whether pledged collateral can be enforced in insolvency | An assessment of the reinsurer's bankruptcy law and how the risks it creates may be mitigated |
| PRA, CP11/26 on UK captives7 | A captive's failure could impose costs on its policyholders, which could include fronting insurers; reinsurance contracts are not protected by the FSCS | Proposed: risk information on reinsurance or fronting arrangements, including the agreements, in a captive's application |
The EIOPA opinion was addressed in 2017 to the national competent authorities of EU member states, for undertakings moving business from the UK as it left the EU; it does not use the word fronting, and its 10% figure is an indication that could be envisaged, not a rule.11 The PRA's captive proposals were out for consultation until 14 October 2026 and are not yet rules.7
Fronting compared with related arrangements
| Term | What it describes | Who carries the risk |
|---|---|---|
| Fronting | A licensed insurer issues the policy and cedes most or all of the risk to another party for a fee | The reinsurer or captive, with the fronting insurer still liable to the policyholder |
| Conventional reinsurance | An insurer passes part of its own risk to a reinsurer to limit its exposure | Shared between the insurer and the reinsurer |
| Binding authority | An insurer delegates authority to bind cover to a coverholder or MGA | The insurer that grants the authority |
| Delegated underwriting | Underwriting carried out by a third party for an insurer; the PRA lists it among examples of what may be non-outsourcing third party arrangements13 | The insurer |
| Captive | An insurer whose purpose is to cover the risks of the organisations to which it belongs7 | The captive, and so its owner |
| Fronting in motor insurance | Naming a more experienced driver, often a parent or guardian, as the main policyholder when the new driver uses the vehicle most of the time14 | Not a risk transfer: a misrepresentation to the insurer |
A fronted programme can use several of these at once. An MGA can hold a binding authority from the fronting insurer, under the wider rules on delegated authority, while reinsurers carry the risk. In the London Market, MGAs can also obtain capacity from Lloyd's syndicates as a coverholder. The Prudential Regulation Authority has said that delegated authority business looks set to grow across the London Market.15
Show References Hide References
- Report Fraud. Fronting. A to Z of cyber crime and fraud. Read 10 November 2026.
- Conning. Conning Releases 2026 Fronting Study: Fronting Sector Confronts a Softening Market. Press release, 27 August 2026.
- Gallagher Re. North America MGA Market: Fronting Carrier Counterparties, Year-End 2023 Financials. 2024. Analysis of carriers' annual statements as disclosed to S&P Capital IQ.
- National Association of Insurance Commissioners. Financial Analysis Handbook, 2023 Annual / 2024 Quarterly, Part 3. Copy published by the Indiana Department of Insurance.
- National Association of Insurance Commissioners. Credit for Reinsurance Model Law (#785). NAIC Model Laws, Regulations, Guidelines and Other Resources, Summer 2019.
- Lloyd's. Lloyd's as a counterparty. Read 10 November 2026.
- Prudential Regulation Authority. CP11/26: A tailored regime for captive insurance. Consultation paper, 14 July 2026.
- Bermuda Monetary Authority. BMA Captive Report 2021. Published November 2022.
- Trisura Group Ltd. Annual Information Form. 12 February 2026.
- Trisura Group Ltd. Management's Discussion and Analysis for the quarter ended September 30, 2026. November 2026.
- European Insurance and Occupational Pensions Authority. Opinion on supervisory convergence in light of the United Kingdom withdrawing from the European Union (EIOPA-BoS-17/141). 11 July 2017.
- European Insurance and Occupational Pensions Authority. Supervisory statement on the supervision of reinsurance concluded with third country insurance and reinsurance undertakings (EIOPA-BoS-24-075). 4 April 2024.
- Prudential Regulation Authority. SS2/21: Outsourcing and third party risk management, Chapter 2. Version of 31 March 2022.
- Motor Insurers' Bureau. Fronting. Read 10 November 2026.
- Prudential Regulation Authority. Insurance Supervision: 2026 priorities. Letter, 15 January 2026.
Frequently Asked Questions
Is fronting on car insurance illegal?
The Motor Insurers' Bureau explains why naming the wrong main driver matters: the price of motor insurance is based on the risk of the individual, so the insurer must know who the main driver is for the policy to be valid. Misrepresenting this is illegal, breaks the policy's terms and conditions and leaves the named driver without valid insurance.
The consequences can be serious for both people on the policy. According to Report Fraud, a driver found to be fronting may have all or part of a claim refused, may have the policy cancelled and could face prosecution for fraud, which can lead to a criminal record, as well as difficulty getting insurance again. The MIB adds that someone whose insurance is invalid faces the same consequences as any other uninsured driver, may be liable for all costs if they cause a collision and can be added to the Insurance Fraud Register, which is shared among insurers. It says over 50 people are added to that register every week for misrepresenting themselves or withholding key information on a personal motor insurance application, and that figures show 35% of adults have heard of fronting. The questions it suggests police officers ask are how long the person has been driving, what the vehicle is used for and what other vehicles the policyholder owns.
Do UK captives need a fronting insurer?
For some classes, under the Prudential Regulation Authority's proposals, yes. In CP11/26 the PRA proposes that UK captives could write compulsory lines, such as employer's liability and motor third-party liability, on a reinsurance basis only. It says this keeps a primary insurer, subject to the standard UK regime, responsible for the claims of the third parties those lines protect, and prevents circumvention of the statutory insurance requirement through intra-group captive arrangements. For those classes a group with a UK captive would buy the policy from an authorised insurer, which would then reinsure the risk to the captive. The PRA expects implementation in mid-2027, when it publishes its final rules, with protected cell companies to follow once the necessary legislation is in place.
The PRA cites Guernsey Finance as saying that more than 40% of UK FTSE 100 companies have captives domiciled in Guernsey. The PRA expects that organisations redomiciling captives to the UK may benefit from closer proximity to reinsurers and fronting partners based in the UK. It has also asked whether there is material interest in UK captives reinsuring customer risks related to the group's products via fronting arrangements, and whether its proposed capital requirements and 10% cap on non-group exposure would suit them.
What happens if a reinsurer does not pay a fronted claim?
Trisura's annual information form records that on 28 February 2023 the company announced a one-time write down of reinsurance recoverables in its US fronting business as at 31 December 2022, related to a disagreement over obligations under a quota share reinsurance contract for a single program. Its management's discussion and analysis for the third quarter of 2026 says it partners primarily with highly rated reinsurers and requires agreed-upon collateral from any counterparty rated below A- or unrated. These describe one company's experience and policy.
Under the NAIC Credit for Reinsurance Model Law, a trust fund for a single assuming insurer must hold funds of not less than its liabilities attributable to reinsurance ceded by US ceding insurers, plus a trusteed surplus of not less than $20,000,000, subject to exceptions in the model law. Letters of credit that met the issuer standards when issued remain acceptable as security until their expiration, extension, renewal, modification or amendment, even if the issuing institution later fails those standards. Each state adopts its own version of the model law.
How does Lloyd's Europe pass risk to Lloyd's syndicates?
Lloyd's Insurance Company S.A., known as Lloyd's Europe, is an authorised Belgian insurance company that Lloyd's established to provide coverage for risks with an EU risk location. According to Lloyd's, it is authorised by the National Bank of Belgium, regulated by both the National Bank of Belgium and the Financial Services and Markets Authority, maintains its own Solvency II capital and is wholly owned by the Society of Lloyd's. All business underwritten by Lloyd's Europe is 100% reinsured to Lloyd's syndicates through quota share reinsurance arrangements.
The structure has the same shape as fronting, although Lloyd's does not use that word for it on its counterparty page: a locally authorised company issues the policy and the risk is reinsured to the capital that carries it. Lloyd's says that, as a result, liabilities written by Lloyd's Europe benefit from the wider Lloyd's capital structure, including the Chain of Security and Central Fund, in addition to Lloyd's Europe's own capital resources. It says Lloyd's holds licences, permissions and trading rights that enable business to be written in more than 200 territories, including more than 80 where Lloyd's has a licence to write direct business. Our Lloyd's of London entry explains how the market and its Chain of Security work.
What oversight does a fronting insurer need over an MGA?
In the UK, the Prudential Regulation Authority treats delegated underwriting as a third party arrangement whose risks it expects firms to assess. Its supervisory statement SS2/21 says the PRA expects firms to assess the materiality and risks of all third party arrangements, irrespective of whether they fall within the definition of outsourcing. The PRA's 2026 priorities letter said delegated authority business raises additional risks of inadequate pricing and reserving across the sector if not properly managed or overseen, that firms' strategies for using such arrangements are not always clear, and that firms should ensure they have strong oversight arrangements to govern and monitor performance, including consideration of how they would exit unprofitable arrangements.
US regulators look at the same relationship from the solvency side. The NAIC Financial Analysis Handbook asks analysts to determine whether the requirements of the NAIC Managing General Agents Act (#225) have been met. It notes that an intermediary has an incentive to place reinsurance with sound reinsurers when its commission is tied to the success of the business, but that when commissions are based on volume, reinsurance placed through an intermediary may be subject to conflicts of interest and potential abuse, and that a managing general agent may cede business to reinsurers who later are unable or unwilling to pay losses. The handbook's concerns therefore reach both the business an MGA writes and the reinsurers it places that business with.
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