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2008 Fronting Survey
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Comprehensive Information,
Updated Annually
Since 2001, CICA has annually conducted an industry survey to gauge the fronting/risk-sharing market. This survey, done in conjunction with a number of prominent domicile associations, has provided valuable insight into the use of fronting.
In addition to concentrating on fronting issues, the scope of the survey has been expanded in recent years to include reinsurance issues, employee benefits in captives, and comparative financial information about captives.
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FULL ACCESS FOR MEMBERS
CICA members have access the full survey results. Log-in
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Take a look at these highlights from the 2008 survey (released March 2008)…
| Fronting: |
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59% of respondents reported fronting costs as 5% or less of annual premium, compared to 44% last year. 26% reported fronting costs as 6-10% of annual premium, and only 2% reported fronting costs as 11-15% of annual premium. |
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92% of respondents listed admitted paper as one of their primary reasons for using a fronting carrier, with regulatory compliance as the next highest reason at 51%. 86% of respondents rated the overall level of importance that fronting represents to their captive as either “very important” or “important.” |
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Respondents reported using the following fronting carriers:
- AIG – 41%
- Old Republic – 18%
- Zurich – 15%
- Ace – 12%
- All other fronting carriers were cited by less than 10% of respondents, but many respondents used more than one fronting carrier.
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64% of respondents characterized the price of fronting as “reasonable,” with the remainder split almost evenly between “expensive” and “inexpensive.” |
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57% of respondents reported no change in the cost of fronting from the prior year, while 24% reported a decrease in costs and 19% reported an increase in costs, most of which was less than a 5% increase. |
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In response to a question about the kind of collateral required (with 81% of respondents reporting that collateral was required), letters of credit were named by 78% of respondents, with trust accounts named by 31%, and cash by 14% of respondents. |
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| Reinsurance: |
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Respondents were evenly split 50/50% on whether they buy reinsurance. |
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85% of respondents reported that they considered the price/value relationship of their reinsurance to be reasonable. |
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44% of respondents reported that their reinsurance costs are the same as the prior year, with 46% reporting a decrease. Only 10% of respondents reported an increase. |
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| Biggest Challenge About Owning a Captive: |
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While fronting and reinsurance have dropped significantly as challenges to owning a captive, service concerns grew dramatically from approximately 12% on last year’s survey to 36% in 2008. Other challenges listed were 22% for tax concerns, 13% for reinsurance, and 9% for fronting. |
CICA’s next Fronting Survey will occur in late 2008. To be involved with the next fronting survey, become a CICA member or contact CICA.
Domicile associations are encouraged to get their members involved in this valuable survey. For more information, contact CICA.
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