Rating Agency Reports Growth in Size of Fronting Insurance Market

The number of fronting insurers and the amount of premium flowing through fronting arrangements has increased due to changing market conditions and growing interest from managing general agents (MGAs) and capital providers, according to A.M. Best.

In a recent report, Best said that direct written premium written on an aggregated group-wide basis by A.M. Best-rated fronting insurers increased 43 percent year over year to $10.6 billion in 2022. Fronting companies in the surplus lines/specialty commercial marketplace, particularly hybrid fronting companies, are also growing in number, the rating agency said.

Traditionally, fronting insurers have borne little, if any, underwriting risk while ceding most risk and premium to reinsurers, Best said. Recently, however, several fronting companies have been formed to take advantage of favorable market conditions and to build premium revenue, the rating agency said, a development that comes as reinsurers grow more selective in choosing business lines and primary insurer partners.

"The market is ripe with opportunities for companies offering hybrid fronting arrangements to demonstrate their value and gain greater acceptance," David Blades, associate director at A.M. Best, said in a statement.

Mr. Blades noted, however, that reinsurers' bottom-line results depend on fronting insurers' effectiveness in executing risk selection, underwriting, pricing, and making claims settlement decisions. Those fronting arrangements can require more frequent communication, Best said, with the effectiveness of the communication between fronting insurers and reinsurers, along with the scrutiny to ensure that any business written meets the profile and standards established by both, critical to the long-term success of such partnerships.