What is fronting risk in banking

A fronting policy is a risk management technique in which an insurer underwrites a policy to cover a specific risk, but then cedes the risk to a reinsurer. Fronting policies, which are a type of alternative risk transfer (ART), are most commonly used by large organizations.

What is fronting exposure?

Fronting Exposure means, at any time there is a Defaulting Lender, with respect to any Issuing Bank, such Defaulting Lender's Applicable Percentage of the Letter of Credit Usage other than Letter of Credit Usage as to which such Defaulting Lender's participation obligation has been reallocated to other Non-Defaulting ...

What is a fronting limit?

Fronting Limit means, with respect to the Fronting Lender, the maximum Outstanding Principal of Letters of Credit for which such Lender is obligated to be the Fronting Lender hereunder, which limit is set out in Schedule "A" hereto, as such Schedule may hereafter be amended from time to time.

What is letter of credit meaning?

A letter of credit is essentially a financial contract between a bank, a bank's customer and a beneficiary. Generally issued by an importer's bank, the letter of credit guarantees the beneficiary will be paid once the conditions of the letter of credit have been met.