Obsidian’s Jewett: “Profitability cures a lot of potential ills” as fronting boom continues

Obsidian CEO Bill Jewett has said that “success breeds success” in the fronting carrier space, with those companies that prove they can deliver on deals creating a flywheel effect that then attracts more business.

Speaking to The Insurer TV on the sidelines of this week’s Target Markets Mid-Year Meeting in Tampa, Florida, Jewett argued against “growth for the sake of growth”, which he described as a “Pyrrhic victory”.

The fronting segment has seen an explosion of entrants in recent years, while a number of capacity scandals over the past 18 months has seen heightened scrutiny around the market security of firms whose business model involves a significant reliance on reinsurance.

“Profitability leads to sustainability and relationships,” Jewett said, while highlighting his firm’s focus on “being a true partner throughout the continuum”.

He also heavily emphasised the importance of “economic alignment” between MGAs, Obsidian as the hybrid fronting carrier and reinsurers, as he noted that “almost all” of the MGAs his company supports “have what we call 'skin in the game'” by retaining some level of underwriting risk.

“So it's a win-win-win,” Jewett noted.

The Obsidian CEO also touted the importance of “operational excellence” and “get[ting] stuff done” with basic “blocking and tackling” in the business, along with the value his company places in its reinsurance relationships and “being good shepherds of capital”.

Jewett acknowledged that the fronting company operates with a “reinsurer-dependent model”, as he also noted that Obsidian writes business “in most segments of the market”, but is not much of a player in workers’ compensation.

“Profitability cures a lot of potential ills, not all. But our focus is really aligning [with] those MGAs and some of the larger risk aggregators, who place value on that and are looking for long-term partnerships,” he commented.

“Success breeds success”

Amid speculation that growth in the fronting market has been potentially excessive and undisciplined, Jewett said it was difficult to assess his competitors’ portfolios without knowing the specifics of the deals they are writing.

“Those who are built the right way, who can differentiate and make the right decisions – or more right decisions than anyone else is – I think, are going to thrive on a relative basis,” he commented.

Jewett acknowledged the importance of growth for fronting companies, but cautioned that such growth needs to be profitable, while arguing that successful deals tend to beget opportunities with MGAs to enter additional transactions.

“One of the underlying tenets of our business plan was ‘success breeds success’, meaning, if we do a transaction, a good deal, form a partnership with an entity, and we do it well and we deliver, the next time that entity has an opportunity to think of Obsidian,” he explained.

“And that's been one of the linchpins of our success. We have the capability to deliver,” he argued, while recognising that Obsidian isn’t necessarily an outlier in the fronting world in that regard.

“Growth for the sake of growth, it’s short term,” he commented.

“I think, in many cases, it would be a Pyrrhic victory,” he said, highlighting the drawbacks for all parties involved when profitability is sacrificed in the name of growth.

Mutually beneficial relationships

Jewett disclosed that Obsidian has written 33 programs during its four years of existence and that it has a robust pipeline with the ability to add more than three programs a year.

“We've obviously added people, so we continue to scale. It wasn't a 'build it and they will come' strategy, initially, so we're obviously cognisant of expenses, and integration with people and not going too fast and having to catch up,” he explained.

“But, at the same time, given the brand that we've developed, our capabilities and our ability to add good people continuously, we think we can certainly keep up with the opportunities that the market will present or that we'll originate ourselves,” Jewett added.

Obsidian, he said, trades with the major industry MGA platforms, or aggregators – which have developed capabilities comparable to full carriers – but also smaller, independent MGAs.

“We have very strong relationships with, call them, smaller, independent MGAs, some of whom are start-ups, some who are mature, have a significant market position [and] have grown well over the years,” he commented.

Obsidian’s main focus is on establishing mutually beneficial relationships, regardless of an MGA’s scale, though Jewett said its business plan does not include taking underwriters out of carriers for the purpose of standing up a program or MGA.

Explosion of mid-year attendees

Jewett was among a number of attendees who commented on the explosion in attendees at the Target Markets mid-year event.

“It's amazing how this conference has grown,” he said.

“I think I spoke at it probably 20 years ago, somewhere in Maryland, I believe it was, and now, I don't know how many people are here, but over a thousand? It's really incredible to be a part of that,” he continued.

“It's great to be here and just spending time with people is our journey accomplished, and the rest will take care of itself,” he concluded.

Watch the full interview with Obsidian’s Bill Jewett to hear more about: