Fronting is an arrangement in which a locally licensed insurer (the fronting carrier) issues policies and cedes most or all of the risk to a reinsurer. It provides regulatory admittance and local paper while the economic risk sits with the reinsurer.
A fronting structure: admitted paper is issued locally; the risk is ceded to the reinsurer for a fronting fee.
Why it matters in LATAM
Fronting enables participation in markets where a reinsurer is not directly licensed, and supports specialty programs (for example SME cyber) built with an admitted carrier, an MGA and a reinsurer.
Worked example
A fronting carrier issues a program and cedes 90% to Power Re for a fronting fee of, say, 5% of premium, retaining 10% net to keep incentives aligned. Power Re controls underwriting authority and claims within agreed limits.
Power Re's role
Power Re participates as the reinsurer within disciplined fronting structures, applying technical underwriting and clear limits while the fronting carrier provides admitted paper.
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