Fronting Fee
Calculate fronting fees and collateral costs as a share of premium.
Description
A fronting fee model applies a percentage subject to a minimum, then adds collateral cost.
A fronting fee model applies a percentage subject to a minimum, then adds collateral cost. Effective cost uses written premium as its denominator.1
Calculate fronting fees and collateral costs as a share of premium.
When to use Fronting Fee
Use this tool to calculate fronting fees and collateral costs as a share of premium.
Prepare the supplied policy terms, dates, assumptions or recorded indicators requested. Keep monetary amounts on one currency basis and select the applicable thresholds separately.
How to use Fronting Fee and understand its results
- Prepare the supplied policy terms, dates, assumptions or recorded indicators requested. Keep monetary amounts on one currency basis and select the applicable thresholds separately.
- Enter writtenPremium, frontingFeePercent, minimumFee, collateralCost using the field table and calculation rules, then run the tool.
- Read percentageFee, frontingFee, totalArrangementCost, effectiveCostPercent. The explanation below defines the units, signs, ordering and any flags or placeholder values.
- If the tool reports an input issue, correct the values and run it again. Apply the stated assumptions when interpreting a successfully returned result.
| Input field | Meaning | Value type; see rules below | Requirement |
|---|---|---|---|
| writtenPremium | Written premium | number; minimum: 0 | Required |
| frontingFeePercent | Fronting fee rate (%) | number; minimum: 0 | Required |
| minimumFee | Minimum fee | number; minimum: 0 | Required |
| collateralCost | Collateral cost | number; minimum: 0 | Required |
Enter positive written premium and nonnegative rate/minimum/collateral. Return percentage fee, applied fee, total arrangement cost and effective percent.
fee=max(premium×rate/100,minimum); cost%=100(fee+collateral)/premium Units, indexing, boundary conditions and exceptional cases are defined in the calculation rules above.
| Output field | Meaning | Value type |
|---|---|---|
| percentageFee | Percentage-based fronting fee | number; minimum: 0 |
| frontingFee | Applied fronting fee | number; minimum: 0 |
| totalArrangementCost | Total arrangement cost | number; minimum: 0 |
| effectiveCostPercent | Effective cost (%) | number; minimum: 0 |
{
"input": {
"writtenPremium": 1000000,
"frontingFeePercent": 5,
"minimumFee": 40000,
"collateralCost": 10000
},
"output": {
"percentageFee": 50000,
"frontingFee": 50000,
"totalArrangementCost": 60000,
"effectiveCostPercent": 6
}
}Limitations and assumptions
No fronting agreement, collateral funding, credit risk or actual fee quote is assessed.
Numeric inputs must be finite. Follow the calculation-specific rules for overflow, underflow and exceptional cases. Missing required fields, extra fields, wrong value types and violations of the calculation rules are input errors.
Alternative or Complementary methods
Use Surplus Lines Tax: Calculate surplus-lines tax and fees from caller-supplied jurisdictional rates. For a complementary task, use Retrocession Waterfall: Apply retrocession attachments and limits to a gross ceded loss.
References
-
Fronting Fee — tool.io
Similar or alternative tools
- Surplus Lines Tax
Calculate surplus-lines tax and fees from caller-supplied jurisdictional rates.
- Retrocession Waterfall
Apply retrocession attachments and limits to a gross ceded loss.