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Carrier appetite varies as more captives seek 100% fronting

  • Mixed appetite amongst carriers for offering 100% fronting
  • Demand for unbundled fronting increasing though not exponentially
  • Strategy often deployed when no market appetite for the risk

There is an increasing number of captives requesting unbundled fronting services where the fronting carrier takes no risk with the client reinsuring 100% to the captive.

Unbundled fronting is unlike the more traditional fronting arrangements where the risk is shared between a captive and the fronting insurer, with the fronter frequently being the lead carrier for the captive’s policies.

When a captive enters into an unbundled fronting agreement with a carrier, they are essentially paying a fee to use a carrier’s licences and rated paper without transferring any risk to the commercial insurer.

There is mixed appetite from carriers when it comes to 100% fronting with some seeing it as an important part of their proposition, while others are more reticent to offer a fronting service without taking a share of the risk.

“We’re targeting those companies that are looking for unbundled fronting services,” Brian McNamara, head of captive solutions & multinational North America at Allianz Commercial, told Captive Intelligence.

McNamara said the unbundled approach can work on regional or global programmes, and its ART team can provide structured reinsurance behind the captive.

“We can implement them together or separately,” he added.

Even when Allianz is only fronting the programme, McNamara said the carrier still plays an important role when it comes policy wordings.

“Most of our programmes are based on manuscript wordings,” he explained. “As one can imagine, implementing a manuscript wording in 80 or 90 countries given the various regulations, is a formidable task and we need a reasonable ‘lead in time’ to implement the programme.

“The ART team is very heavily involved in the process with the policy issuing offices.”

Speaking at the Airmic conference in Edinburgh in June, Salil Bhalla, global captive fronting manager at Allianz Commercial, said offering unbundled fronting allows the carrier to work with clients in a different way, and be involved in risks the carrier might not otherwise cover.

“We are seeing a demand for this but not an overwhelming one because only a certain type of client would actually want this,” he said.


Companies writing specific risks are much more likely to request unbundled fronting from a carrier.

“It might be a client who’s in financial professional services where claims might be for things such as crime or professional indemnity,” Bhalla said.

“These risks might be so sensitive that they cannot find risk transfer capacity from the ground up or an easy attachment point.”

Unbundled fronting is sometimes requested by companies with very a large captive and healthy reserves who feel comfortable reinsuring all the risk into the captive.

“We’re a well-established fronting insurer with a market leading multinational proposition, so it is something we get asked about,” Esme Gould, head of captives at Zurich commercial UK, told Captive Intelligence.

“These requests tend to come from larger captives who feel comfortable reinsuring all the risk into the captive, or where customers are using their captives as a vehicle to insure new risks that there may not be market appetite for.

“At Zurich, we view captives as integral to comprehensive risk management solutions. We collaborate closely with our captive customers, offering access to Zurich’s extensive resources in underwriting, claims, and risk engineering.

“With regards to 100% cessions, our expertise, licensing and digital infrastructure help facilitate streamlined international programmes for our customers.”

McNamara said companies that take very substantial retentions in the captive are in a much better position to go down the unbundled route, “and in fact, many of them actually do”.

“The large natural resources companies who have had captives for many years have gone the unbundled route for a long time, and they’re not tied to any one reinsurer on their panel,” he said.

Oliver Davies, director of distribution and marketing at HDI Global SE & HDI Global Specialty SE, UK and Ireland, noted that the carrier has a strong clinical trial offering where it offers unbundled fronting to those clients.

“We offer that through our network which allows for that capability, and we don’t require risk transfer in relation to that,” he told Captive Intelligence.

Speaking on the Global Captive Podcast Kacey Kalian, VP of risk management at Extra Space Storage,explained how the company uses a fronting partner and reinsures 100% of its risk back to the captive, with the captive providing tenant insurance to Extra Space customers.

Extra Space is a publicly listed real estate investment trust that has 3,700 storage properties across 42 states.

“It’s in our own best interest to make sure that we invest in good loss control practices, that our tenants’ goods are always safe and protected because ultimately, we are paying out 100% of those claims,” Kalian said.

“If we have a big hurricane or if we have a big fire, that’s money that’s coming directly out of our pockets via the captive.”

Increasing popularity

Owen Williams, AXA XL’s global programmes and captives regional director for the UK, Nordics & Ireland, told Captive Intelligence the carrier does see some unbundled fronting requests, but not a particular increase recently.

“There’s always been some clients who want to place their programmes that way, and we’ve seen those, and we continue to see them, but from my perspective they are very much still a minority,” Williams told Captive Intelligence.

“In terms of how we approach it, we value a long-term partnership with our clients, and we really believe in the whole principle of alignment of interest on risk, as well as both parties having skin in the game which we think builds for a more stable, long-term relationship.”

Williams said AXA XL wants to share risk with clients because it creates a mutually aligned interest between the two parties.

“We believe that’s the best way to get that long term sustainable partnership, which is what we are looking for and where we want to be,” he said.

Although there is not an overwhelming demand for unbundled fronting, as captive utilisation proliferates, it is a service that more captives are asking about.

“It’s a topic of conversation that comes up more and more,” said HDI’s Davies.

“But from our perspective, we’re always keen to have some skin in the game with the client.”

Davies said that HDI Global’s preference is always to include some risk transfer when fronting risk for a captive.

“We believe that if a client has gone through the process of setting up a captive, going through all the feasibility, and understanding their risk profile, then why wouldn’t you as an insurer want to put some capacity against that to try and support them?” he said.

“However, in some circumstances, we know that clients, for whatever their reasons, just need a front and we’re happy to have that conversation.”

McNamara said he is intrigued that some carriers will not commit to unbundled fronting, particularly those that have global franchises.

“It’s possibly a philosophical issue for them and they may look on it as facilitating their competition,” he said.

“We approach this as a business, with fee for service. Captives are now mainstream, the concept has been around for more than 50 years.

“I expect that more of the larger captives will embrace the unbundled concept given the fact that most reinsures on their retrocession panel will not have global capabilities.”