The ratings reflect Obsidian’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The very strong balance sheet assessment is based on the initial financing structure that provides supportive risk-adjusted capital across the initial start-up period. The company intends to provide fronting services for a diverse mix of managing general agents (MGAs) while retaining a strategic portion of selected programs. By nature of the business model and the substantial amount of ceded premiums, the company is subject to significant counterparty credit risk. This is compounded by general risk exposures that commonly impact start-up entities such as key operational and execution risks. Recognition is given to management’s planned implementation of measures to mitigate contractual, credit and underwriting risk.
Additional consideration was given to management’s projected business profile, operating structure, the availability of additional capital and a competitive market for providers of fronting services.
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