Fronting Sector More Complex Than Meets the Eye: 2024 Focus Series
Numerous factors are influencing the fronting sector, both positively and adversely. The fronts have largely shaken off the Vesttoo fallout from a year ago and have continued with rapid premium growth. Conning’s “reported” fronting premiums were just over $15 billion in 2023, a growth of 27%. The actual size of the fronting market is greater than our reported amount, as several participants do not disclose their fronted premiums. The growth is supported by underlying MGA trends, demand for capacity, and strong E&S growth.
Likewise, the fronting market enjoys strong support from more than 200 reinsurers. The relationship between the two is a symbiotic one, with reinsurers providing the lifeblood to the fronts, while the fronting market has grown in importance to reinsurers. The fronting sector ceded more than $11 billion in premiums to nonaffiliated reinsurers in 2023 and is on track to cede significantly more in 2024.
Further, this business is attractive to reinsurers as it largely consists of specialty SME (small to medium-sized enterprises) premium that is difficult to source elsewhere and does not have meaningful catastrophe exposure.
The fronting business model has also shifted, with premium retentions generally moving up as reinsurers demand greater alignment. As a result, retention strategies have become more complex with the use of affiliated captive and offshore vehicles, as well as retrocessional programs sitting behind the front companies’ retention.
The overall health of the fronting market exhibits mixed messages. Most of the fronts continue to generate improved profitability and are growing into their capital bases while reducing program concentration. Leverage also is increasing, intentionally, as is premium retention. With so much of the premium being “new business,” loss experience is still relatively green.
Table of Contents:
1. Introduction
2. No Slowdown in Sight
3. Inactivity in Transactions
4. Assessing the Health of the Fronts
5. A Closer Look at Reinsurance
6. Fronting Retentions - To Retain or not to Retain?
7. Summary
8. Appendix