KBRA Releases Research – What Could Possibly Go Wrong? Fronting Market Changes Overnight
10 Aug 2023 | New York
KBRA releases research that examines recent events in the fronting market, as well as what the future may hold for the sector.
The insurance fronting space was a fairly stable and predictable sector for over a decade, characterized by an attractive market opportunity, plenty of capital to start up businesses, demand for well-rated carriers to provide fronting services, and growth in aggregate managing general agent (MGA) premiums as well as a rising proportion of MGA volume that flowed through fronting carriers. But two recent major events completely changed the fronting market: Alleged claims of potentially fraudulent letters of credit (LOC) collateral from a single non-U.S. bank related to transactions facilitated by Vesttoo, and an $81.5 million pretax write-down of a reinsurance recoverable by fronting carrier Trisura.
Key Takeaways
- The reputation of those in the insurance value chain is likely to suffer short-term damage as various fronting insurers, reinsurers, cedants, brokers, and MGAs assess the full financial and operational impacts of recent events.
- KBRA notes that recent negative events underscore the critical importance of effective enterprise risk management and could be positive catalysts for change.
- Some broader mergers and acquisitions opportunities may emerge due to the sector’s structure, while some are already underway due to evolving strategies.
- KBRA believes the sector is well positioned to apply the lessons learned and potentially emerge as a stronger and more robust participant in the overall insurance market.
Click here to view the report.