Reinsurance + Fronting Arrangement
(Overviewing the Basics)
Reinsurance Fronting Arrangement
Involves the use of "another" insurer to issue a contract on behalf of a self insured organization or captive insurer, with or without accepting risk, or some portion of it. Risk of loss is retained by the self-insured or captive insurer via indemnity or reinsurance agreements. However, the fronting company assumes credit risk, as it will be required to honor the obligations imposed by the policy contract even though a self-insurer or captive failed to indemnify it.
Fronting arrangement allows captives and self-insurers to meet specific jurisdictional compliance criteria. And, may also be used in business contracts with other organizations, whether leases or construction contracts, where evidence of admitted insurance is also required by the agreement.
Captive Insurer Management / Reinsurance
Captives often supply insurance for unique or specific risk that might not otherwise be transferable.
There are some 5,500+ captives operating worldwide. Nearly half of all major U.S. corporations, and some of your most astute competitors, participate in one or more captives. GM, Ford, Coca-Cola, UPS, and Verizon are just a few examples of American companies utilizing this unique method for insuring all or a portion of their business risk. Some 90% of Fortune 1000 companies and many successful middle market businesses have captives. And, over half of all property and casualty premium is written through captives.
When utilized appropriately, captive insurance is capable of being quite an advantageous tool, offering superlative risk management, asset protection, and distinct financial advantages.
Operating and managing a captive insurer can be thought-provoking, and quite time consuming, with the need to address complex issues on a continual basis. Such issues will range from regulation to tax, to actuarial assessment and pricing - and from risks to claims, litigation, and reinsurance recoveries.
NorthStar works with client companies, affinity groups, and professional associations toward captive creation. And, we advise with respect to decisions involving key pieces, from captive type to administration of a working organization. With the uncertainties involved, e.g. availability and cost of insurance - whether health care related and/or in business insurance - the economics of captive formation and application have become quite interesting, and will become even more appealing as we head into the near future.
We understand RISK
and can help you manage it.