Fronting Arrangement Structure
A fronting arrangement uses a licensed carrier (the fronting carrier) to issue the stop-loss policy. The fronting carrier then reinsures the risk to the employer's captive. The captive retains the stop-loss premium and pays claims — building surplus over time. The fronting carrier provides the regulatory compliance and financial strength required for stop-loss policies.
Captive Integration Benefits
- Premium retention: Stop-loss premiums flow to the captive rather than a commercial carrier
- Surplus building: Favorable claims experience builds surplus in the captive
- Dividend potential: Surplus can be distributed to the employer as dividends
- Pricing stability: Captive pricing is based on the employer's own experience, not market cycles
- Data access: Captive provides full access to claims data for analytics
Implementation Requirements
IQ Insight
Stop-loss captive integration requires: (1) a licensed fronting carrier willing to front the stop-loss policy; (2) a captive domicile (Vermont, Cayman, etc.); (3) adequate captive capital to support the reinsurance arrangement; (4) actuarial certification of loss reserves; and (5) legal counsel review of the fronting arrangement. This is a complex structure that requires specialized expertise.