The presentation relates to the use of an authorized and authorized insurer to issue an insurance policy on behalf of a self-insured organization or a captive insurer without the intention of transferring any of the risks. The main purpose of initial insurance is to allow the captive company or organization to issue policies in states where it is not licensed. The other purposes are to comply with insurance regulations and to give captives access to other services, such as claims management and the ability to transfer excessive risks, in a cost-effective manner. Fronting is most often understood as when a transferor company (insurance company) underwrites a policy and transfers all risk to a reinsurer.
A captive insurer is an insurance company that is wholly owned and controlled by its policyholders; its main purpose is to insure the risks of its owners and its policyholders benefit from the underwriting profits of the captive insurer.