Fronting

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Fronting is when the ceding company (insurer) underwrites a policy and transfers the entire risk to a reinsurer. The company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer. Since the ceding company originally issued the policy it appears to be the insurer, however, the reinsurer is now responsible for ensuring all claims are paid against the policy.

Apart from both underwriting and ceding the original policy, the ceding company’s only function is to make sure that the reinsurer can play its obligations, although the insurer itself does not pay any of the claims.

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