August 05, 2014
Response by John Salisbury, CPCU, ARM & ARe

A captive can receive a number of benefits from the fronting carrier:

  1. use of the admitted policy form and rate filing of the fronting carrier;
  2. underwriting and rating services and/or expertise;
  3. claims services and/or expertise;
  4. reinsurance capacity, etc.

The cost of fronting for a captive varies, depending upon scope of services.

The fronting carrier may get ceding commissions from its retrocessionaire where the fronting carrier is purchasing quota share reinsurance. Those ceding commissions will vary in size depending upon volume of reinsurance and reinsurance loss experience.