Usually done in conjunction with a broader Managing General Agent (MGA) program, forming a reinsurer allows a company to take on risk regarding the insurance business produced by the MGA. This method requires the use of a third-party fronting carrier to write the policies produced by the MGA in the United States, which could then be reinsured by the reinsurer affiliated with the MGA.


  • Depending on the reinsurer’s domiciliary jurisdiction and business entity type:
    • The reinsurer may be subject to less stringent regulatory requirements than a direct insurance carrier, which generally means fewer operational costs.
    • Capital requirements for establishing and operating a reinsurer may be lower than those for establishing and operating a US insurance carrier.


  • Engagement with a third-party fronting carrier to write the insurance policies is required. Note that:
    • Finding an insurance carrier that is willing to support the program may be relatively challenging, depending on the program type.
    • The insurance carrier will keep a portion of the program’s profits as its fee for acting as the insurer under the program.
  • Setup costs are involved with forming and licensing the reinsurer.

Key considerations:

  • Formation of the Reinsurer: Decisions must be made on (1) the form of the reinsurer (e.g., captive reinsurer, segregated cell company, traditional reinsurer) and (2) the reinsurer’s domestic jurisdiction (whether a US reinsurer or an offshore reinsurer). The specific requirements of a program will help inform these decisions.
  • Capital Requirements: Although typically less onerous than the capital requirements applicable to a US direct insurance carrier, there are capital requirements that the reinsurer will have to satisfy. These requirements will vary by jurisdiction and the form of the reinsurer.
  • Fronting Carrier: The reinsurer will need establish a relationship with a fronting carrier that will issue the policies reinsured by the reinsurer. In vetting and selecting a fronting carrier to partner with, the reinsurer should consider:
    • The experience of the fronting carrier with the products that the reinsurer would want the carrier to front.
    • State licensing status and existing product/rate/form filing status by state for the products that the reinsurer would want the carrier to front so the reinsurer can evaluate whether the fronting carrier currently matches up to the reinsurer’s desired states/rollout plans.
    • Operations and administrative services that the carrier can provide and the associated costs.
    • The commission/fee structure and pricing.
    • The fronting carrier’s reinsurance requirements, if any.
  • Credit for Reinsurance: A fronting carrier will generally require that it be able to take regulatory credit for the reinsurance provided by the reinsurer. Unless the reinsurer is licensed in the fronting carrier’s state of domicile or has special status (e.g., accredited reinsurer, certified reinsurer (for reduced collateral requirements), reciprocal jurisdiction reinsurer), the reinsurer will have to post collateral to cover 100% of its obligations under the reinsurance agreement with the fronting carrier. This collateral can be in the form of funds withheld, a letter of credit and/or a reinsurance trust.
  • Outsourcing: A new reinsurer will often need to seek out third-party service providers to fill operational gaps initially or permanently. Services that could be provided by third parties in this fashion include, for example, claims handling and adjustment, administrative support services, customer service operations and systems and information technology services. A reinsurer should vet any third-party service providers it intends to use and carefully review commercial agreements with these service providers.
  • Retrocession Coverage: Unless the reinsurer is willing and able to take on 100% of the risk under the reinsurance policies that it issues, it will likely need to look for retrocession coverage to get additional capacity. If so, the reinsurer’s operations may be influenced by its retrocessionaires’ requirements. For example, the reinsurer will have to comply with underwriting guidelines negotiated with each of the retrocessionaires to ensure retrocession coverage for the risks assumed by the reinsurer. In addition, this coverage for a new reinsurer may be more costly than that for an established reinsurer.