Reinsurance Tops Fronting As Captive Concern

Michael Mead, head of the fronting survey committee and a member of the CICA board, told National Underwriter that, "fronting as an issue has diminished. Reinsurance is a big issue, and security more than fronting. And that was quite a surprise."

Mr. Mead, president of M.R. Mead & Company in Chicago, said that there is more stability in the marketplace because "fewer carriers are disappearing."

He continued that reinsurers are more of an issue because they sometimes shy away from captives. "I was surprised by the strong response of people whose fronting company did not reinsure," he said adding that he was not sure what to attribute this to.

Mr. Mead noted that there are more captives in the statistics because there are more domiciles and regulators.

One of the reasons fronting may be less of an issue, he added, is that some of those with fronting concerns have formed risk retention groups. "But we still encounter people who are able to persuade lenders and others that they don't need a front. This is particularly true in health care, but we're seeing it in construction."

This is partly due to the better quality of captives being considered and more sophistication of insurance buyers and risk managers. "I think that the collapse of companies leaving the [fronting] business has caused a lot of people to consider alternative ways of getting what they need."

The survey identified the American International Group as the company used most for fronting. Number two was ACE, followed by Old Republic, Zurich, Liberty Mutual, Discover Re, Chubb, Hartford, Artis and Travelers