Suliman Mulhem

July 9, 2020

Regulators have remained responsive despite the Covid-19 pandemic, according to the Obsidian CEO.

Fronting start-up Obsidian is progressing toward regulatory approval to conduct business in the US in both the admitted and surplus markets, despite the ongoing pandemic, CEO William Jewett has told Trading Risk.

The company’s pursuit of a licence has been unhindered, as state regulatory bodies have remained responsive throughout the Covid-19 outbreak, he said.

“Although Obsidian is still in its formative stages, we have accomplished a lot,” Jewett noted, adding that the company was working remotely prior to lockdown, so was spared from having to adapt as others did.

In December 2019, Obsidian purchased an admitted P&C shell company with licenses in 33 states.

It is currently in the process of obtaining a complementary admi ed shell for most other US states, and is creating a surplus lines company that Jewe  expects to have full capabilities by early Q4.

Jewett stressed that Obsidian would not expose its balance sheet to a material amount of property catastrophe risk, either on a proportional or tail-risk basis.

“We can be part of the solution for property catastrophe risk, but not the ultimate solution, meaning we will not be the ultimate risk-taker for this exposure,” he explained.

The firm differs from many fronting companies, Jewett said.

“At our foundation, we are an underwriting company and we have the ability/capability to take a net retention of up to 10 percent of a portfolio/programme,” he added, noting that the retentions do not apply to catastrophe risk.

Private equity firm Genstar backed the fronting start-up with a $100mn fundraise earlier this year, with Obsidian’s senior management also contributing modest amounts.

Obsidian has an AM Best financial strength rating of A- and $85mn of capital on its balance sheet.

The company will be targeting the ILS market in addition to the traditional MGA market, with a focus on the US property, casualty and specialty market, including commercial lines, personal lines, professional liability, excess liability and other lines.

“We will have both an admitted company capabilities as well as a surplus lines capabilities. We expect to have full surplus lines capabilities by October of this year,” Jewett said.

In some ways, Covid has proven less of a distraction to the start-up than for incumbent peers, but it has nevertheless presented challenges, Jewett explained.

“We do not have to deal with existing business/portfolios of business or a large employee base, and don’t have to worry about Covid-related BI claims,” he added.

Jewett acknowledged that being a new firm unable to travel makes business more difficult, but those factors have not significantly impacted the company as the team has long-term existing relationships in the market, he said.

Applying technology – particularly Zoom, Microsoft Teams and other videoconferencing programmes – has also minimised the effect of not meeting face-to-face, he added.