By Mia MacGregor

June 26 - (The Insurer) - Fronting gross premium volume continued its upward trend in 2024, with the market recording growth of 26% to $19.6 billion, newly compiled data from Conning shows.

In a new report, Conning said that 2024 “proved once again to be highly eventful in the fronting world”.

As it highlighted, the 22 fronting carriers whose data was analysed for the study collectively increased their premiums by 26% to $19.6 billion on a gross basis and $18.8 billion on a direct basis in 2024, a level of expansion that was similar to the growth rate seen in 2023.

The report includes figures from 22 fronting companies operating in the U.S.: State National, PrimeOne, Gateway, Emerald Bay, Hadron, Concert, Everspan, Palomar, Southlake, Core Specialty, Falls Lake, Incline, Obsidian, Spinnaker, Home State, Redpoint, Accredited, Sutton, Accelerant, Trisura, Clear Blue and Transverse. 

Part of the reason for the fronting market’s continued growth is the strong support the sector receives from reinsurers. As Conning noted, appetite for fronting business remains strong across a diverse group of reinsurers.

Indeed, fronting carriers accounted for approximately $16 billion in reinsurance premiums in 2024.

Drilling down into the fronting market’s premium volume growth figures, Conning noted that non-admitted fronting premium volume growth increased 30% in 2024, while admitted premium rose by 23%.

“Growth was more concentrated among a small number of companies and some large programs,” said Conning.

The fronting market represented over 20% of total MGA produced premiums in 2024. Considering just the non-affiliated MGA sector (i.e. excluding those owned by an insurer and crop-related business), 44% of premiums were written through fronting companies.

The growth of the fronting market, and in particular the amount of non-admitted business that now flows through such carriers, is highlighted in that it now accounts for over 10% of 2024’s total E&S market premium volume of $93 billion, a figure that Conning said was a record high.

According to Conning, the fronting market’s combined ratio deteriorated by almost a single percentage point in 2024. That came after an increase in its expense ratio of a full 2 points to 24.5% more than offset an improvement in its direct loss ratio which improved by almost two points to 73.7% in 2024.

Going deeper into that, the E&S-only fronting loss ratio improved by 60 basis points to 65.1% in 2024.

As Conning explained, the E&S market has maintained a loss ratio advantage over the admitted market that has averaged 17 percentage points over the past two years.

“This huge differential highlights the benefits and rationale for companies’ preferences to write on an E&S basis,” said Conning.

“However, this advantage is almost entirely attributed to property-related business, and there was virtually no similar loss ratio advantage for casualty lines such as other liability and commercial auto,” it added.

While Conning was broadly bullish on the fronting market, it also cautioned on several ongoing challenges such as concentration concerns, rising expenses for operational expansion, and the impact of discontinued business.

According to Conning’s study, the amount of property business that fronting carriers wrote increased slightly, driven by dislocations in property markets and improved reinsurance capacity availability. 

Going forward, Conning said it anticipates further increases in property submissions and a greater share of fronted business, offering diversification.

Discontinued business is also having a growing negative impact, with several fronting carriers reporting program terminations, which are impacting their premium growth trajectories and possibly profitability, Conning stated.

Alongside these challenges, Conning said it continues to see a stratification of the market, evidenced through a growing size disparity, shifts in underwriting and line-of-business appetite, and approach to managing balance sheet risk.

“There is no question that the business model has changed, and the fronting market is adapting,” Conning wrote.

“With more than 20 fronts, we continue to believe the market will be rationalized and the shakeout is already underway,” Conning said.

To obtain a copy of Conning’s new fronting report, click here.