Fronting Arrangement
What this clause says
The Company issues this Policy as a fronting insurer and one hundred percent of the risk hereunder is ceded to the Reinsurer pursuant to a reinsurance agreement, subject to collateral securing the Reinsurer obligations.
What this actually means
A fronting arrangement is where a licensed carrier issues the policy and then cedes the risk, usually to your own captive. The front provides the paper that a state, a lender or a landlord requires; the economics sit with the captive behind it.
What it means for an operator
Operators reach for a front because a captive cannot issue admitted paper and cannot satisfy a certificate requirement on its own. The front charges a fronting fee, usually expressed as a percentage of premium, and requires collateral securing the ceded obligations, which is the same balance sheet cost that a large retention creates. Two things to confirm before committing. Whether the front will issue certificates naming the parties your leases and loan documents require, since that was the point. And what happens if the captive cannot pay, because the front remains liable to the claimant and will pursue you and the collateral, which means a fronted structure does not transfer the underlying risk at all.
Why the Policy Checker does not score this
This term is worth understanding and cannot be checked from a declarations page. There is no single field that would answer it, and scoring it from an assumption would produce a confident wrong finding, which is the one thing a tool like this must never do. It is defined here and left out of the check.
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