Hybrid program fronting start-up Obsidian has secured an A- financial strength rating for its new E&S carrier as it targets a fast-hardening segment of the market that is seeing a significant increase in MGA activity.

Craig Rappaport and Bill Jewett – Obsidian and AM Best

The new platform – Obsidian Specialty Insurance Company (OSIC) – was established in Delaware as a domestic surplus lines carrier and received its certificate of authority in September.

It has been capitalised with a $30mn contribution from Obsidian Insurance Holdings as well as 100 percent of the capital stock of admitted carrier Obsidian Insurance Company (OIC).

In a statement, Obsidian said the launch of OSIC strengthens its position as a leading program fronting carrier serving MGAs, MGUs and program managers, adding that the new platform plans to operate on a countrywide basis.

The AM Best rating for the new carrier brings together OIC’s rating with OSIC on a pooled basis, with the consolidated group entering into administrative services, tax sharing and pooled reinsurance agreements.

The arrangement means that the group’s pooled capital of $85mn is effectively shared between the two insurance companies.

AM Best’s ratings reflect the consolidated group’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

Obsidian said that hardening rates in the E&S market and the increase in overall MGA activity in the segment had driven the decision to establish OSIC.

The Genstar-backed group’s CEO Bill Jewett told The Insurer that Obsidian had been working on the strategic initiative to form OSIC for a number of months.

“It is an important milestone towards the achievement of our goal of becoming a world-class hybrid program carrier that can offer a full array of capabilities to our MGAs, program managers, and reinsurer partners.

“The surplus lines marketplace is obviously very dynamic and our timing positions us very well. We have already developed a robust pipeline of opportunities,” he revealed.

Obsidian was launched earlier this year by Jewett and his management team in partnership with private equity firm Genstar Capital, in a move first revealed by this publication.

Its admitted platform received its A- financial strength rating from AM Best in March.

The carrier will retain up to 10 percent of the risk on a program, ceding the rest to reinsurers.

Commenting on the move to add the E&S platform, Obsidian CFO and COO Craig Rappaport said: “We are very excited that we have added full surplus lines capabilities. We have made tremendous progress building out our underwriting, operational, and servicing capabilities and are confident that our expansion into this evolving market segment will significantly contribute to our future success.”

Obsidian has already been active in putting programs on its books, including providing its capacity to Cowbell Cyber’s new program, backed by a panel of global reinsurers.

As well as traditional program business the start-up is targeting opportunities with retail and wholesale risk aggregators.