Is the fronting juggernaut stalling?

Newly released figures from U.S. fronting carriers suggest a sector in rude health. Look a little closer, and the outlook does not look quite so rosy.

Fronting carriers serving the burgeoning U.S. MGA market have, to date, been among the fastest growing insurance businesses of the 21st century. Results for 2024 suggest no let-up in the pace of premium growth, with direct written premium at the top 22 fronting groups rising 28% to $20.8 billion. Incremental premium written in 2024 – at $4.5 billion –exceeded the incremental premium written in 2023 ($3.6 billion).

But the growth last year relied on heavy lifts from just four entities – MS Transverse, Markel, Sutton National and Accelerant. (Most of Markel’s fronting business was handled by its dedicated front State National, but a growing proportion was fronted by other Markel companies into Nephila, the group’s ILS manager.) These organisations together accounted for 77.1% of the fronting sector’s premium growth in 2024. By contrast, in 2023 the growth was far more widely spread, with the top four fronting groups accounting for just 40.5% of incremental premium written.

A growing number of fronting companies also shed premium in 2024 – although the total volume, at $234.6 million, was still modest.

MEGA-DEALS DRIVE GROWTH

Zoom in further and it becomes clear that the market’s growth last year relied heavily on a small number of mega-deals between fronting companies and MGAs. Among the largest of these was AmRisc’s $325 million sidecar, Trouvaille Re, which was backed by collateralised capital from a diverse group of investors and fronted by MS Transverse. All told, AmRisc wrote almost half a billion dollars ($488 million) more through MS Transverse in 2024 than it did in 2023.

State National, the grandfather of the U.S. fronting sector that was founded in 1973, also grew impressively last year, by 24.8% to $3.66 billion. This too was juiced by substantial gains in a small number of accounts, most notably Tesla Insurance Services, which ranked as the fourth largest fronted MGA in 2024, generating $654 million in premium for State National – up from $387 million the previous year.

Further premium growth from this source is far from assured. Tesla has been retaining a growing proportion of its insurance business, writing $211 million in premium through its two insurance companies in 2024, almost twice what it wrote in 2023. That said, if the business routed through State National has been performing in line with Tesla’s own retained business, some shrinkage may not be regretted. Tesla’s carriers chalked up combined ratios of 122.9% and 115.8% last year.

Dislocated markets are another substantial source of business for MGAs, and some of last’s year’s fronted premium growth reflected this. Bamboo, an MGA focused on California homeowners’ business, has seen premium almost quintuple – to $484 million – in just two years. With the support of its longstanding fronting partner Sutton National, Bamboo has this year been tapping the capital markets for additional reinsurance capacity, raising $100 million through a catastrophe bond issue and $70 million through a sidecar. This month it unveiled a new partnership with another fronting company, Incline, to expand its capacity for California homeowners’ business still further.

SUPPLY-SIDE CONSTRAINTS

Strong investor appetite for unrated reinsurance opportunities may help the U.S. fronting market support the growth of its existing MGAs. But in their quest for new business, U.S. fronts may at last be pushing up against a long-predicted constraint – a limited supply of high-quality MGAs capable of delivering underwriting returns that are attractive to their capacity providers.

Some are already feeling the pinch. “Curating the portfolio” is how Trisura CEO David Clare described the severing of eight MGA relationships accounting for more than $100 million in premium, largely in the transportation and commercial property lines, in 2024. Trisura’s net decline in premium from US fronting was more modest at $48 million, or just 3% of the portfolio, because many of its continuing relationships grew robustly.

At Clear Blue, the book was more substantially re-underwritten to refocus on a small number of large-scale relationships, resulting in a 6% decline in direct premium. A host of small (sub-$10 million) accounts that had previously represented around a third of the group’s total premium fell away.

GROWTH VERSUS PROFITABILITY

Fronting companies may be reluctant to acknowledge that, for them, the supply of attractive deals may be thinning. “There is no shortage of potential programs for Spinnaker to work with,” wrote Richard McCathron, the CEO of Spinnaker’s parent company Hippo, in the company’s annual shareholder letter for 2024. “We reviewed more than 100 opportunities in 2024 – but we do not think we need to compromise on quality to achieve compelling financial results.”

In underwriting, of course, there is frequently a need to compromise between growth and profitability. Spinnaker recorded a 39% net loss ratio on the business it underwrote last year, but growth slowed materially. Direct written premium, which had risen $89 million in 2023, rose by only a third as much ($31 million) in 2024. On a conference call with investors last month, McCathron acknowledged that Spinnaker’s “very full” pipeline “reduces as you start thinking about the quality of the various MGAs that we’re starting to see.”

For the smallest fronts, however, growth is more of a pre-requisite for profitability than a threat to it. Everspan, one of the smaller fronting groups, attributes its improving combined ratio in 2024, which fell by almost 5 percentage points, to its greater scale and diversification. Premiums rose by 41% over the year.

In building a diversified book quickly, it helps to have supportive relationships with related organisations. This was illustrated last year by the fronting market’s two new entrants. Both were well funded by their private equity backers, Bain Capital in the case of Emerald Bay and Altamont Capital in the case of Hadron. But Hadron wrote $180 million in direct premium while Emerald Bay wrote only $40 million. The difference was that Hadron was supported by Accelerant, another Altamont portfolio company. Almost all of Hadron’s premium last year came from Accelerant Underwriting Managers, which operates as an affiliated MGA within the Accelerant group. According to Hadron CEO Sam Reeder, the company is now expanding its horizons to target unaffiliated MGA business, including in Europe.

WHY CONSOLIDATION HASN'T HAPPENED

Given the rapid proliferation of fronting carriers, some consolidation has been widely anticipated. Clear Blue CEO Jerome Breslin thinks he knows why this has yet to occur. “[It’s] the old joke of ‘why buy the cow if you can get the milk for free,’” he said on a Program Manager webinar earlier this month. Instead of paying a multiple to acquire a fronting carrier that was struggling to grow, other fronts can simply lure away that carrier’s best accounts, he argued. “Why am I going to pay a multiple for the carrier and for business that I may not want that’s in that book?”

Of course, the milk to which Breslin refers may not currently belong to fronting companies. Despite the explosive growth of the sector, traditional insurance companies and Lloyd’s syndicates still support, in aggregate, a larger share of U.S. MGA business than fronting companies do.

Historically, the largest writer of unaffiliated MGA business in the U.S. has been Nationwide, which wrote $3.2 billion in MGA-sourced premium through its Scottsdale subsidiaries in 2024. This was down 2.5% from the previous year, and down 18% from 2022. Over the same two-year period, State National saw premiums rise 35% to $3.7 billion. In 2022, America’s largest front was $1.2 billion behind the country’s largest program carrier in premium terms; by last year, State National was $450 million ahead.

Given this hesitancy on the part of many traditional program carriers, there may still be growth opportunities for fronts to tap in the United States. And new companies continue to be formed, the latest being Adlaur, announced on March 2. Led by former Spinnaker and Core Specialty executives Adam Tyburski and Laurence Bunin, Adlaur will target short-tail business spanning property, casualty and specialty lines with backing from Fortegra.

LOOKING NORTH AND EAST

For fronting companies discouraged by the intensity of competition in the U.S. market, growth opportunities may beckon further afield. Insurance revenue at Trisura’s Canadian fronting business grew 24% in 2024 to C$407.7 million, or roughly a quarter of the fronting premium generated in the United States. And Accelerant Insurance Europe, established in 2021, has built a substantial book of MGA-sourced business worth 848.5 million euros in gross premium in 2024. Three other fronts – Accredited, London-based Bridgehaven and Hadron – also have their sights on Europe, though only Accredited has built a European business of comparable scale to Accelerant’s.

Growth rates for fronting businesses in Europe may not yet be comparable to recent dizzying growth in the United States. Accelerant’s European premium grew by just 9% in 2024. But Europe’s MGA markets are – with the notable exception of the Netherlands – far less mature. If fronting companies can access capacity from far flung reinsurance markets to back enterprising teams, they may help to turbocharge MGA growth in Europe as they have done in the United States.

Paragraphs 2 and 3 and the first chart in this article have been updated to reflect corrected figures for Sutton National. The growth figure for Accelerant was also corrected to 9% from 7% in the final paragraph.