BestWeek: Some Captives Find Fronting Terms on Reinsurance Restrictive.

OLDWICK, N.J. -- Fronting companies are increasingly requiring captive insurers to do business with a so-called list of preferred reinsurers, a practice that, particularly in a softening market, some find restrictive and not in the best interest of the captive, according to an exclusive story in BestWeek U.S./Canada.

Given their high level of leverage and small scope of operations, captives often utilize fronts, established traditional insurers who back them with highly rated commercial paper. The fronting company, which allows the use of its name and credit for the issuance of certificates of insurance, might also assume some of the captive's risk or more frequently place that risk into their facultative or treaty reinsurance.

More recently, however, fronting companies have been insisting on their preferred reinsurers as a condition of doing business with captives, several experts said.

Michael Maglaras, the president of risk management consulting firm Michael Maglaras & Co., said "what fronting companies are essentially saying is 'I'm a fronting company, and I want you to consider me to be a package that includes capacity, my A-rating, my ability to manage certain aspects of claims, and by the way, I as a fronter, have developed multiple-year reinsurance arrangements with the following list of carriers that we've been doing business with, and we strongly advocate, encourage and, in fact, may demand you to access.'" But Peter Willits, president of Bermuda-based Liberty Mutual Management, said there's a natural reticence on the part of fronting companies to take a credit risk on a reinsurer. "The fronting company's paper is out there, so to the extent they reinsure to a captive, and the captive reinsures to a reinsurer who is not on their credit list, it means that if that company doesn't perform, the front company actually ends up paying," Willits said.

Also in BestWeek Europe: Animal Friends Insurance Services Ltd. has launched a life insurance policy that gives a 6% discount to vegetarians and fish eaters.

Also in BestWeek U.S./Canada: As Colony Collapse Disorder continues to threaten honeybee populations, crop insurers are gearing up to offer beekeepers insurance protection for the first time.

And in both editions of BestWeek: The Best's Global Insurance Composite Index finished the week of Aug. 20 up 9.20% from a year ago. The composite index reflects the performance of 176 insurance stocks. The week's top performers were LIG Insurance, China Insurance International Holdings, Amlin, Dongbu Insurance, and NYMagic.

The bottom five performers were SCPIE, Progressive, Kansas City Life Insurance, KMG America, and CastlePoint Holdings.

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