The fronting carrier must require collateral commensurate with the risk and pricing.
The collateral can be in the form of a trust agreement funded by the captive's investment securities, a letter of credit issued on behalf of the captive by a bank, or captive funds withheld by the fronting company.
8% of respondents state that they provide collateral as part of the fronting arrangement.
In 1993, time National Association of Insurance Commissioners adopted a model bill addressing fronting activities after urging by state insurance regulators.
The captive fronting arena represents a time-honored tradition of creative, alternative risk solutions.
To support the future viability of the alternative risk transfer market, all members of the captive fronting community need to do their part.