Captive managers are always welcome to use a fronting carrier or a reinsurer to underwrite risks, but those services don't come cheap, according to a recent survey.
The 2007 Fronting Survey by the Captive Insurance Companies Association revealed increases in the percentage of managers spending more than $500,000.
A total of 19.8 percent of the respondents said they paid between $500,000 and $1 million in fronting fees, up from 14.1 percent in the previous survey. For managers paying more than $1 million in fees, the contrast was even starker. This year's survey found 18.2 percent of the respondents paid more than $1 million, up from 10.3 percent.
The percentage of captive managers who said they paid fewer fees dropped as well.
Mike Mead, chairman of CICA's Fronting Survey Committee, said the results showed respondents believe that fronting's still worth the price.
The survey revealed that 61 percent of the respondents said they consider fronting "very important" to their captive. Another 28 percent said they consider fronting "important."
American International Group Inc. and Ace lead the pack, though fewer captive managers reported using these companies. Zurich, Liberty Mutual and Travelers saw gains.
"Are there more fronting carriers, the short answer is, 'No,' " said Mead. "But there are carriers focusing more on fronting and doing a better job of it than five or six years ago."
Insurance lines most likely underwritten by a captive include medical malpractice, general liability and workers' compensation.
On the reinsurance side, there was also a similar increase.
The 2007 survey found that 20.3 percent of the respondents said they paid between $500,000 and $1 million annually for reinsurance, up from 11.5 percent previously. About 60.9 percent of this year's respondents paid more than $1 million in reinsurance costs, up from 47.4 percent in the 2006 survey.
Lloyd's and Swiss Re were the two likeliest reinsurers to be used by the respondents, the survey found.
Beyond costs, the survey also found that fronting overtook reinsurance as the biggest challenge in risk sharing.
"Last year reinsurance was way up there and has fallen off this year," said Mead. "Fronting is back up above reinsurance."
The survey included 143 respondents. Munich Re America helped pay for the survey.
May 1, 2007
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