The US fronting market, where specialised carriers offer their financial strength rating, licensing, among other services primarily to MGAs, has increased dramatically throughout the past several years.
From a premium size of around $4 billion in 2018, leading investment management firm Conning, estimates the market to now exceed $12 billion.
Fronting companies act as issuing carriers, and in turn cede the majority of the premium and risk to reinsurers. This growth has been a function of several factors including growth in the underlying MGA market, strong rate trends and greater acceptance of MGAs utilizing the fronting model.
The reinsurers who support these carriers have been “attracted” to the access to large volumes of premiums provided by this distribution channel.
Data from a new report released by Conning shows that the fronting market is at an inflection point.
According to Conning, reinsurers are currently facing pressure with inflation, a tighter reinsurance market and reduced access to capital.
Conning expects the rapid recent growth will not continue and that consolidation among the over 20 fronting markets will occur.
“The fronting market has seen significant activity over the past 18-months, and we expect this is just the beginning of further change to come in this evolving market,” said Steve Webersen, a Managing Director of Insurance Research at Conning.
