State National’s Case: Fronting capacity tops $10bn amid healthy market for new programs and renewals

State National’s Daniel Case has highlighted the rapid growth of the fronting sector, revealing capacity in the market has surged north of $10bn having more than tripled in the past few years.

Amid what he described as “enormous growth” in the sector, Case, who serves as EVP of program services at State National, told The Insurer TV there remains a very healthy market for new programs and renewals.

State National still largely operates on a pure fronting basis, whereby it charges a 5 percent fee for its services but does not retain any risk on the programs it fronts for reinsurers.

Having been acquired by Markel in 2017, the Virginia-based carrier selectively participates on State National programs in cases where reinsurers look for an alignment of interest.

Case paid tribute to Markel as a “phenomenal partner and great owner”.

“We’ve recently focused on trying to find ways to add value to each other. Markel has a wonderful culture and enormous respect and great trading relationships in the market.

“We have a toolkit that's useful to them, and they have a toolkit that's extremely useful to us,” he said.

Case highlighted two factors as critical to the role of fronting carriers – maintaining regulatory and compliance infrastructure, and maintaining a credit rating. These two factors bring security to the policyholder and stability to the program, he explained.

“Our focus is on structuring to a tight standard so that we are reliable, which means people stick around for a very long period of time. Switching carriers is an enormous distraction.

“The type of partners we want are those willing to have a longer-term view on what they want out of their carrier, as opposed to perhaps chasing the shiny penny of the moment.”

While he said the prevailing wisdom during the hard market is that capital is clearly more expensive, Case highlighted that “all of the constituents in this financial ecosystem are “eating off the same plate”.

“This is almost exclusively a quota share proportional market. This is not a zero-sum where anything that a reinsurer takes comes out of my pocket or an MGA’s pocket or someone else's. We are all sharing this together.”

Watch the 10-minute interview with State National’s Daniel Case to hear his thoughts on:

  • The evolution of the fronting sector into a $10bn+ market
  • The role of ILS capital in the fronting space
  • What fronting carriers could learn from past cycles
  • Key takeaways from the recent Program Manager conference in New York