Breslin: Clear Blue eyeing fronting consolidation opportunity

Clear Blue is continuing to seek growth capital to support its trajectory as it eyes potential M&A in a fronting sector that is ripe for consolidation, according to founding CEO Jerome Breslin.

Speaking to Program Manager and The Insurer TV at the Target Markets Mid-Year Meeting in Tampa, Florida last week, the executive confirmed reports by this publication that his company is actively pursuing capital raising opportunities.

Growth capital is necessary for Clear Blue to execute its expansion strategy while staying within its leverage ratios and BCAR score with AM Best, as well as to target potential M&A in a fronting sector that has grown to north of 25 players in recent years.

“I think there’s going to be some consolidation within the program carrier, or the hybrid fronting space … we want to be there to take advantage of that, we think we’re going to be in a really good spot to be that consolidator, so we’re looking for a capital partner who’s got the same vision,” Breslin said.

The executive said he doesn’t anticipate any slowdown in the programs segment, which has been “growing rapidly”.

“There’s a lot of room for everybody – but it’s only going to tolerate operators that can perform and even outperform, especially when the chips are down,” he continued.

The executive suggested that there are a number of hybrid fronting carriers that launched during Covid that haven’t achieved scale at the pace that might have been expected, with operations that “aren’t as sophisticated”.

“I just think naturally those folks may end up being acquired for the business that they have … they’re not all going to be a success. They’re limited by their appetite, they’re limited by their capital structure, they’re limited by their operational capabilities,” he commented.

In looking at potential M&A opportunities, Clear Blue would first look at the portfolio of business, for desirability and whether it fits its risk appetite, or would need additional reinsurance.

“We want to continue to grow the number of carriers we have in our stable, that helps us do more diverse business. So we’re looking at picking up the carriers as well. And talent is hard to come by, so taking the best talent that these other companies have … when you’re putting them in one organisation, I think it’s just a fantastic way to grow your business,” Breslin added.

He suggested that it has become clear that fronting is not a risk-free business, that it is challenging and requires “really good people” to execute.

“I think there was a period of time when people thought with a smart management team and a few processing people, you could really have a big fee income business and there was very little risk involved in it. That’s simply not true.

“I think that’s what’s going to cause the consolidation. I think capital providers, in some instances, may be frustrated at the lack of growth of some of these new folks that came in around 2020, and I think they’ll be looking to exit and try to get some of their money back,” said Breslin.

Our sister publication Program Manager revealed in January this year that Clear Blue was expected to begin work on a growth capital raise that would contemplate options including a minority stake sale and surplus note issue.

The carrier – which is backed by Pine Brook – ended 2023 at $1.75bn in gross written premium and expects relatively conservative organic growth this year that would take it to $1.85bn or $1.9bn.

Also in this wide-ranging interview, hear Clear Blue’s Jerome Breslin talk about: