What is the definition of fronting in insurance?

Fronting in insurance refers to an arrangement where an insurer issues an insurance policy on behalf of another entity, often to meet regulatory requirements. This typically occurs when the reinsurer or primary insurer does not have the necessary licenses to operate in a specific jurisdiction or to write certain types of coverage. The fronting insurer provides a policy that technically fulfills the legal obligations, while the risk is usually transferred to another insurer, often through a reinsurance agreement.

This arrangement is beneficial because it allows the reinsurer to cut through the regulatory complexities and access markets that would otherwise be unavailable to them. By using a licensed insurer as a front, the parties can adhere to local laws while effectively managing risk exposure. As such, understanding the nuances of fronting is crucial for underwriters who navigate different regulatory environments in the London insurance market.