KBRA Affirms Ratings of Obsidian Insurance Holdings and Insurance Subsidiaries
25 Jul 2023 | New York
KBRA affirms the BBB- issuer rating of Obsidian Insurance Holdings, Inc. (OIH) and the BBB- senior unsecured debt rating on OIH’s debt due 2025. Additionally, KBRA affirms the A- insurance financial strength (IFSR) ratings on OIH’s subsidiaries Obsidian Specialty Insurance Company (OSIC), Obsidian Insurance Company (OIC), and Obsidian Pacific Insurance Company (OPIC). The Outlook for all ratings is Stable.
OIH is a US-based holding company that – through its U.S. insurance carrier subsidiaries – facilitates and supports specialty insurance programs underwritten by Managing General Agents, Managing General Underwriters, and program managers. It has two admitted carriers (OIC and OPIC) and one surplus lines carrier (OSIC). Each program is supported by an individualized panel of reinsurers, and Obsidian will consider retaining up to 10% of certain programs. It was formed in 2020 in partnership with Genstar Capital.
Key Credit Considerations
Obsidian’s ratings reflect an experienced management team with extensive relationships across the industry, an attractive market opportunity in a fee-based business, a conservative investment portfolio, and an expectation that over time it will maintain sound capitalization and operating and financial metrics, and that risk management will continue to mature. Obsidian is owned by Genstar Capital, a financial sponsor with significant experience in the insurance and insurance-related space that provides capital as well as consultative advice and industry relationships.
Offsetting these credit strengths are the execution risk inherent in any start-up operation, key executive risk, untested risk management, and extensive reliance on reinsurance, which generates counterparty credit exposure and the challenge of consistently securing appropriate and cost-effective reinsurance.
Factors that could positively impact the ratings include sustained growth in earnings and capital, prudent management of premium leverage and risk exposures, demonstrated progress toward having robust ordinary dividend capacity, or evidence of a strong and solidifying market position.
Factors that could negatively impact the ratings include an inability to generally execute on its business plan, a material and unexpected increase in risk profile, departure of key personnel, lack of risk management maturation, or a material increase in risk in the investment portfolio.
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