Sometimes a company needs a policy issued by a licensed insurer even though another party will bear most of the risk. Fronting is an arrangement in which a licensed insurer issues a policy to the insured and then cedes most or all of the risk to a reinsurer, often an affiliate or captive of the insured.

The fronting insurer remains legally responsible to the policyholder and must be satisfied that the reinsurer will perform. Fees for the fronting service compensate the licensed carrier for use of its paper, licensing, and administrative functions. Regulators scrutinize fronting to ensure genuine risk transfer and adequate capitalization.

Fronting is common in captive programs and in jurisdictions where the desired risk-bearer is not licensed. Clear contractual terms, collateral, and claims-handling protocols protect all parties. Poorly structured fronting can leave the licensed insurer exposed if the reinsurer fails.

• Licensed insurer issues policy and cedes most risk
• Used when the risk-bearer is unlicensed or a captive
• Fronting insurer remains liable to the insured
• Subject to regulatory scrutiny of risk transfer