Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products, is the latest carrier to want to offer its paper to risk capital, reinsurance and underwriting teams, with the launch of an insurance fronting business named PLMR-FRONT.
Palomar highlighted its A.M. Best rating of “A-IX”, as the specialty insurer said it has entered the fronting sector of the United States insurance market.
Its new fronting business, known as PLMR-FRONT, will partner with reinsurance capital providers, insurance carriers and managing general agents, to enable the design and operation of customised insurance programs.
PLMR-FRONT will offer fronting partners access to paper on both an admitted and non-admitted basis, through its Palomar Specialty Insurance Company and Palomar Excess and Surplus Insurance Company, respectively.
Partly, this seems to come from a desire to diversify further, as well as a recognition of a need to diversify, but also a desire to expand its footprint alongside partners that are seeking access to broad insurance risks to put their capital behind it.
The insurance-linked securities (ILS) market is a significant user of fronting services and likes to partner with companies it knows well.
Palomar, being a relatively heavy user of ILS and alternative capital within its own reinsurance program, already has strong relationships in the ILS market, so we’d imagine partnering on fronting with ILS funds or investors will be one of the targets for the new business.
Palomar said its fronting team will look for opportunities across multiple lines of business, “where traditional insurance is difficult to source.”
It will look at new product lines, including but are not limited to cyber, non-standard auto, trucking, warranty and workers compensation, the company said.
It also said the fronting business will enable Palomar to act “either as a non-risk bearing insurance entity with a pure fronting model or participate in risk through a hybrid model.”
For the ILS market, having a fronting partner that has the balance-sheet capabilities to take tail and attrition is often attractive, so Palomar could prove an appealing partner here.
“PLMR-FRONT is a logical extension of Palomar’s franchise in the specialty insurance market. It represents an entrance into a sector that will generate new income streams and compelling risk-adjusted returns for our shareholders. Our admitted and E&S platforms offer the requisite infrastructure to execute PLMR-FRONT and also allow us to participate alongside our partners where appropriate,” explained Mac Armstrong, Chairman and Chief Executive Officer. “Ultimately, the fronting sector represents another opportunity to capitalize on changing market dynamics and dislocations while adhering to our focus on sound underwriting and profitable growth.”
Fronting and program businesses work with originators and distributors, to connect them with the most appropriate reinsurance capital sources, traditional or alternative.
It is a key way to achieve greater efficiency in the market, as well as a more direct way for some capital providers to source risks from nearer the front of the market chain.
As a result, fronting is a way for primary risks to be more directly ceded to capital market backed sources of reinsurance, including ILS funds.