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Abstract
Fronting is a type of reinsurance by virtue of which an insurer does not insure any risk on its own or if it does, then it’s minimal and therefore the re-insurer controls both the process of subscription and the claim itself. It’s a much de- bated topic both at the insurance industry level and at the regulatory level and it is not without risks. There’s no doubt as to the legal validity of fronting as it is a true re-insurance policy and the lack of or low retention on the part of the subject that is re-insured does not affect the legal nature of the re-insurance policy and it does not result in a direct relationship between insured and re-insured either. Fronting and cut through clauses are about allowing the in- sured entity to demand from the re-insurer the payment of the policy due to the occurrence of a risk that is or may be covered in accordance to the terms of the original policy. As to the validity of cut through clauses, Reinsurance Working Questionnaire No. 6 informs that most of the countries do not recognize validity to cut through clauses when the insurer is already subjected to liquidation pro- ceedings as it may be seen as a fraudulent detriment against the rest of credi- tors. But if that’s not the case, the direct payment from the re-insurer to the insured may be covered by means of an assignment of credits. Finally: the main feature of the re-insurance policy is that even though it is a contract regulated by law, its treatment is not an exhaustive one. As to that reality, the free will of the parties to agree on the terms that are to regulate their reciprocal relationship gets to be more important with all the restrictions imposed by mandatory norms, good faith, customs and public order as well as the limitations both legal theory and jurisprudence indicate to keep the contractual balance that must pre- vail in any contract.
Key words author: fronting, risks, reinsurance, cut through, validity, free will.
Key words plus: insurance policies, contracts of reinsurances, market of the reinsurance.
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