A new AM Best report has disclosed that additional credit risk is finding its way into the U.S. property and casualty (P&C) fronting segment through the involvement of unrated and unauthorised reinsurers, even as fronting arrangements by insurers continued to advance at a healthy rate in 2025.
As a reminder, fronting refers to the use of a licensed insurer to issue an insurance policy for an unlicensed entity to meet regulatory requirements.
According to AM Best’s new report, fronting was historically used primarily by captives and self-insured organisations to comply with financial responsibility laws in many states that required evidence of coverage written by an admitted insurer.
The rating agency explained that fronting has since expanded to include a much broader set of entities, including managing general agents (MGAs).
“Over the last decade, there has been a resurgence in fronting due to the hard market conditions and the growth of MGA-originated business,” AM Best said.
The firm’s report suggested that as of year-end 2025, market estimates suggest upwards of $30 billion of U.S. P&C insurance industry premium is fronted.
AM Best continued, “MGAs are attracted to fronting companies for reinsurance efficiency and optionality. Multi-year capacity stability, faster product launches and distribution, and access to reinsurance and capital markets are all selling points. From the perspective of reinsurers, the MGA and fronting segment provide access to a different kind of risk than reinsurers typically write through treaty agreements with traditional carriers.
“Much of the program business ceded to reinsurers through fronting companies tends to be small-to-medium-size business in specialty classes, which serves as a diversification play for reinsurance companies.”
The rating agency stated that in the early stages of the recent fronting company boom, the majority of premiums were ceded to authorised and/or rated reinsurers.
However, over time, there has been a gradual movement towards unauthorised, lower, or unrated reinsurers and collateralised reinsurers.
“This shift to using unrated reinsurers is attributable to increased competition, pricing considerations, reduction of capacity for MGA business by large traditional balance sheets, and traditional reinsurers’ requirements for fronts to take on additional net retentions,” AM Best said.
At the same time, reinsurers have been demanding that fronting companies retain more risk to ensure a greater alignment of interests.
AM Best noted that this is especially true for MGAs with specialised programs, where reinsurers prefer that the fronting carrier have more “skin in the game,” which offers greater reassurance that MGA binding, underwriting, and claim handling decisions will be made with the bottom-line profitability of the program foremost in mind.
“By requiring higher retentions, reinsurers are striving to ensure underwriting discipline as fronting companies execute risk selection decisions,” said Greg Williams, managing director, AM Best.
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