Industry veteran Bill Jewett explains why his new company Obsidian is indeed cutting-edge.
By Garry Booth, Contributing Editor, Reactions
The COVID-19 pandemic didn’t keep industry veteran Bill Jewett from presenting a new-generation carrier to the U.S. commercial insurance market in March. Backed by $100m of capital from San Francisco PE firm Genstar Capital, Obsidian Insurance Company is a fronting carrier that will source, underwrite, and manage a diverse portfolio of P&C and specialty insurance programmes, and reinsure the majority of the business out to a panel of reinsurers.
Obsidian, which received a financial strength rating of A- from AM Best, joins a number of other insurance platforms in the Genstar portfolio, including Palomar, a provider of catastrophe insurance for residential and commercial property, which completed an IPO in April 2019.
Obsidian is an interesting start-up because focussing on issuing policies underwritten by MGAs, MGUs, and programme managers is a relatively rare business model right now. Jewett tells Reactions it’s a response to the growing market share and influence of MGAs.
He says there’s been an evolution that favours wholesalers, risk aggregators, and MGAs as they’re the ones that control the data.
“There’s also a continued trend and movement to transferring risks in the most cost efficient way possible. Expenses compression is becoming real, and those entities throughout the continuum that can serve identical or even similar roles more efficiently will have an advantage,” he explains.
Jewett, who most recently served as president of Bermudabased carrier Endurance Specialty, reckons that Obsidian is designed to avoid any operational and distribution channel conflicts that can arise between carriers and both MGAs and reinsurers.
“We see MGAs and risk aggregators dealing with issues such as channel conflict where they have a programme and they want to use a carrier that’s already established in this space. The carrier sometimes takes the view that it doesn’t want to compete with itself and/or cannibalise their existing portfolio,” he says.
There’s also a diversification element: “MGAs depend on the issuing carrier for their lifeblood, and naturally they’re aware of concentration risk. Some are saying to us that they like their traditional carrier, they’re doing a good job, but they’d like to diversify their partners and have alternatives, rather than ‘put all my eggs in one basket.’”
Jewett adds that there is a “pull factor” from reinsurers who want to support profitable MGA business but don’t want to be a competitor with the primary carriers they’re supporting as a reinsurer. “We provide reinsurers who have this sentiment profitable business that they otherwise would not see, especially since a lot of the better business is kept net by the larger traditional programme carriers,” says Jewett.
“A platform like ours is positioned very well to succeed in this environment, especially since we are not encumbered or distracted by legacy systems, issues, or ways of doing business,” he adds. Obsidian Insurance Company will initially be an admitted carrier in over 30 states, and Jewett also sees opportunity in surplus (non-admitted) lines with Obsidian Specialty; he plans to expand licensing to enable that side of the business in Q3.
Obsidian will enter GL, umbrella, professional liability, small commercial, and commercial auto as well as other lines, Jewett says.
“What will distinguish us from some other markets is our capability to take a modest amount net on our own balance sheet,” he notes. “That will increase opportunities with both reinsurance panellists and also MGAs. Many now focus on the economic alignment between MGA, insurer and reinsurer, and we see ourselves as an underwriting company first, not a ‘credit pass-through company.’ We want all our relationships to be sustainable, and it is obviously much easier to accomplish that if the business is profitable and all parties involved are making money.”
Despite the pandemic, Obsidian is still on track to open for business in the summer. “On a practical level, because we haven’t had an office, a small group of us including our banker, Piper Sandler and our subadviser, BMS, have been accustomed to working remotely over the last months as a core group,” says Jewett. “So COVID-19 hasn’t disrupted us in the same way as if we had been going into an office every day and having a lot of ‘in-person’ protocols. We have been able to communicate fairly well with clients, brokers, prospective vendors and others using video calls.”
Jewett’s team includes Chief Operating Officer Craig Rappaport, most recently COO of Specialty P&C at the Hanover Insurance Group, and Chief Legal Counsel Emily Canelo, who previously served as Chief Counsel for Reinsurance and Insurance at Endurance.
Jewett says he has been laying a lot of groundwork over the last 18 months, talking to MGAs but also to reinsurance brokers, who are frequently involved in sourcing business and working on Obsidian’s behalf to place the reinsurance.
“We have agreements on a number of programmes, and we’re confident that we’ll hit the ground running and bind those programmes over the next few months,” he adds.