MS&AD’s interest in Transverse shows importance of being a connector

This weekend it was reported that Japanese insurance group MS&AD Holdings, through its Mitsui Sumitomo Insurance unit, has made an at least $400 million bid to acquire hybrid P&C program, fronting and risk transformation company Transverse Insurance Group.

Reported yesterday by our sister publication Reinsurance News, after the Nikkei broke the news, the details available suggest a $400 million price tag for the acquisition, with an additional up to $150 million that could be paid depending on Transverse’s results after an agreement has been reached.

It’s a healthy price tag for Transverse Insurance Group, which was launched in late 2018 by co-founders Erik Matson and David Paulsson, and is headquartered in New Jersey, USA.

Transverse takes a hybrid approach to operating a program P&C business, also providing fronting and risk transformation services.

The company works with sources of reinsurance capital including alternative markets, such as insurance-linked securities (ILS) specialists and has always pitched itself as an underwriting platform with risk capital access, helping to connect underwriters to capacity and capacity, or investors, to risk.

Transverse has always had a stated aim to help facilitate access to risk for insurance-linked securities (ILS) funds and investors, as well as for traditional reinsurance capital sources.

When the news of the potential acquisition of Transverse by Japanese insurance giant Mitsui Sumitomo was broken by the Nikkei, it reported Transverse as being a “reinsurance broker”.

Which is not the case, of course, as Transverse is a program carrier business that provides fronting and risk transformation services, while connecting risks to capital more efficiently.

But that does make Transverse a connector, in the insurance risk to reinsurance capital value-chain, which is an increasingly important role.

The Nikkei said that Mitsui Sumitomo wants to acquire Transverse to enhance its own understanding of reinsurance markets.

The Nikkei also reported that Mitsui Sumitomo wants to expand its business in areas such as cyber risk underwriting and recognises the importance of access to reinsurance capital to achieve this.

So it appears that Mitsui Sumitomo sees Transverse as a potential fit for helping its understanding of reinsurance, as well as how reinsurance capital access and efficient matching of risk to capital can help it build out its specialty P&C business lines.

Suggesting the Japanese insurance giant recognises the importance of the “connector” role in the insurance risk to reinsurance capital value-chain, so ownership of a specialist in that space could bring synergies to its business.

Mitsui Sumitomo parent MS&AD Holdings acknowledged the Nikkei report, saying, “Today, there was a news report about a business investment by Mitsui Sumitomo Insurance Co., Ltd., a subsidiary of the Company. However, it is not an announcement made by the Company or its subsidiaries.

“It is true that we are currently considering various business investment opportunities, including those reported in the media.”

While it said there was no fact to the Nikkei report, it said should any deal be struck it will announce it, suggesting there must be some veracity to it.

Whether a deal is struck or not, the interest of a Japanese insurance giant in Transverse is a clear vote of confidence for its business, as well as for the business model of being a “connector” in the insurance-risk-to-reinsurance-capital value-chain.

Not only does this business model give you visibility of underwriting terms, pricing and practices, it also provides the deep insight into reinsurance market appetites, capital availability, investor attitudes to risk, as well as the insights needed to be able to match portfolios of insurance business with reinsurance capital, in a connected and more direct way.

Which to us suggests that the MS&AD interest in a program, fronting and transformation specialist, like Transverse Insurance Group, shows the importance of efficiency, access to capital and the ability to connect underwriting with capital effectively, are only going to continue getting more important in the marketplace.

Having visibility of reinsurance capital flows and understanding how to develop the risk transfer infrastructure to make them more efficient is a critical trait and something lacking at some major carriers, that have always relied on their brokers for this service.

Owning a connecting piece of the value-chain can be a great way to gain ownership of those insights, benefiting a re/insurance business significantly.

The MGA model has benefited from investor attention in recent years. But, going forwards, it could be platforms that enable portfolios and programs of risk to be matched with capital more effectively that prove to be the next area of focus for large acquirers and private equity investors.

Which we see as positive for investors in insurance-linked strategies, as this focus on efficient matching of risk and capital can only result in more use of the capital markets and alternative capital to effect that in the most efficient manner.