12 February 2021
Early 2021 programs added by Obsidian Insurance Group highlight the hybrid fronting start-up’s two-pillared strategy focused on retail and wholesale aggregators as well as more traditional MGAs, as it concluded deals with Hub International’s SafeHerb and Platinum Specialty’s WestPro.
The newly launched cannabis and hemp program fronted by Genstar-backed Obsidian’s A- rated paper is being written through the SafeHerb MGA, which is part of Hub’s Specialty Program Group (SPG) unit. Similar to its parent, Chris Treanor-led SPG is an aggregator of businesses, and has been building out its platform in recent years through a series of acquisitions. Platinum Specialty and its parent XPT are relatively new on the scene, with XPT launched in 2017 by Tom Ruggieri, Jeff Heath and Mark Smith with backing from UK-listed insurance investment firm BP Marsh.
“In addition to simply providing front capacity they also provided resources and creativity. Most importantly though the fact that they participated in the risk created a different level of alignment that expanded our ability to secure top quality reinsurance support”
Specialty Program Group President and CEO Chris Treanor
The group is also an aggregator or consolidator of businesses – in its case with a strong wholesale focus – and has been actively acquiring to expand its platform and capabilities.
The new bars, taverns and restaurants program from Platinum Specialty’s WestPro MGU is also written on the E&S paper of Obsidian. Both programs are backed by a series of unnamed reinsurers that sit behind the hybrid program fronting start-up.
Alignment of interest
Speaking to The Insurer, SPG president and CEO Treanor said he is an advocate of the Obsidian model.
“In addition to simply providing front capacity they also provided resources and creativity. Most importantly though the fact that they participated in the risk created a different level of alignment that expanded our ability to secure top-quality reinsurance support,” he commented.
XPT Specialty CEO Ruggieri highlighted the strategic value in forging relationships with hybrid fronting carriers to gain broader access to reinsurance capacity.
“We support the hybrid fronting model. It’s good for the fronting company to take risk and you don’t want to be partnering with a company that’s just a mail box, because that’s a recipe for disaster”
XPT Specialty CEO Tom Ruggieri
He also welcomed the recent evolution of the model that has seen fronting carriers participate on the risks they provide their paper for.
“We support the hybrid fronting model. It’s good for the fronting company to take risk and you don’t want to be partnering with a company that’s just a mailbox, because that’s a recipe for disaster.
“If you are interested in long-term durability in the insurance business then everybody needs to be watching the details. And it makes sense to have deeper relationships and multiple programs with a few of these players, building trust and getting their full attention,” he explained.
Also speaking to this publication, Obsidian CEO Bill Jewett said the SafeHerb deal is a prime example of the program carrier getting closer to aggregators outside of the traditional program and MGU space.
“This is consistent with one pillar of our strategy, which is to increase our footprint with the risk aggregators in this rapidly changing industry,” he commented.
Jewett said both programs fitted the profile of the kind of business Obsidian is looking to put on its books, as it deploys its strategy of retaining up to 10 percent of the risk on individual programs, ceding the remainder to its reinsurance partners.
“They are both great underwriting companies, they have unique distribution plays, and are part of that aggregation trend,” he added.
“We really like what they have built and they have spent a lot of time focusing on their operational capabilities, as well as well as their underwriting and analytical capabilities. We worked very closely with them and reinsurers to get the deals done. Stacy Armstrong, our chief client officer, did a fantastic job.”
Jewett highlighted the challenges of finding capacity for cannabis-related programs, with only a limited pool of reinsurers currently willing to write the business.
The former Endurance Specialty president also pointed to the importance of having a track record and relationships with reinsurers as a differentiator for the hybrid fronting carrier in a competitive marketplace.
“We approach reinsurers with an informed perspective on the critical inputs to their decisionmaking process and having a good understanding of what they want to see. We believe they put a lot of value in that, and it is reinforced by economically aligning with them by taking a portion of the business net.
“We’re built as an underwriting company and built to take risk, rather than as a fronting company that’s taking some risk,” he suggested.
Obsidian CFO and COO Craig Rappaport said that while the carrier’s percentage retentions are consistent with the fronting market, its actions are more like a traditional program insurance carrier in terms of value-added services and oversight.
“What differentiates us from traditional program carriers is that the reinsurers know that we’ll always seek reinsurance partners and that we won’t take all the risk net even if we really like it,” the former Hanover executive added.
“We view ourselves as means for reinsurers to access profitable portfolios of risk that they might not otherwise be able to access via traditional carriers.”
Strong 2021 pipeline
Jewett said that Obsidian has a strong pipeline of deals for 2021 as it looks to execute on both sides of its strategy.
“We have a strategy to work with larger risk aggregators – control of the data and the risks means control of the business – especially if they’re expanding rapidly through acquisitions as well as organically,” he added.
“But we equally have a focus on the independent MGA space. Particularly when they are looking at ways to grow. They’re looking for partners like us where they might have concentration risk with one market or channel conflict risk with existing traditional carriers, or legacy systems issues,” said the executive.
Jewett revealed that the company has a number of programs being implemented and that it is working through various channels to add new programs, including reinsurance brokers and directly.
Rappaport commented that the pipeline also included reverse flow opportunities, where reinsurers were bringing opportunities to Obsidian as a partner with whom they feel comfortable.
Rappaport explained that adding non-admitted capabilities had helped open Obsidian up to a broader set of attractive opportunities. He pointed to excess casualty, specialty niche liability and auto opportunities as some interesting avenues for the start-up.