Japanese insurance group Mitsui Sumitomo has been reported to be on the verge of a $400 million acquisition of hybrid P&C program and fronting carrier specialist Transverse Insurance Group.
Japanese newspaper the Nikkei reported the news and said a deal for the rumoured roughly $400 million acquisition could be announced before the end of the month.
While the publisher also said that an additional up to $150 million could be paid by the Japanese insurance giant, depending on Transverse Insurance Group’s earnings after a deal has been struck.
Transverse Insurance Group was launched in late 2018 and is headquartered in New Jersey, USA.
The company has a hybrid approach to program P&C business, fronting and also risk transformation, working with sources of reinsurance capital including alternative markets, such as insurance-linked securities (ILS) specialists.
Typically, Transverse holds only a relatively small amount of the risk, with the majority ceded through to capital providers, or cedes it all on, partnering with reinsurers and alternative markets. The Nikkei reported that Transverse typically takes around 5% of premiums as fees in its hybrid program, fronting and risk transformation operations.
Transverse was launched by co-founders Erik Matson, as Chairman and CEO, an executive experienced in MGA and underwriting focused businesses, as well as David Paulsson, an investor with experience allocating to reinsurance sector start-ups, ILS vehicles, and Lloyd’s market access strategies.
Their company works with both admitted and non-admitted solutions and has had an excess and surplus (E&S) focus in many of its news announcements we’ve covered before.
Transverse raised $48 million of capital earlier in 2022 to help power growth of its hybrid fronting insurance operation. It also launched an insurtech investment arm this year.
The Nikkei reported that Transverse is a “reinsurance broker” and that Mitsui Sumitomo aims to buy the company so as to enhance its own understanding of reinsurance markets.
While Transverse is not a reinsurance broker, in the typical sense of the word, the company positions itself as a conduit to reinsurance capital for program business and other carriers, while also helping to match reinsurance capital and provide it fronted access to primary sources of insurance risk.
So it clearly has a key position in the risk-to-capital value-chain that could enhance Mitsui Sumitomo’s understanding of and access to reinsurance and capital markets, while also offering access to specialty lines of underwriting business.
The Nikkei said that Mitsui Sumitomo has an ambition to grow into areas such as cyber risks and understands the importance of reinsurance capital to achieve this, seeing Transverse as a potential fit for this kind of expansion as well.
MS&AD Holdings, the Japanese conglomerate and parent to Mitsui Sumitomo Insurance, acknowledged the Nikkei report in an announcement today.
“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,” MS&AD Holdings stated.
However, it added that currently there is no basis to the report, suggesting a deal is not yet guaranteed.
In the future, when matters requiring disclosure are decided on, MS&AD Holdings said it will announce them.
The news underscores how attractive insurance and reinsurance market strategies that bring together origination with capital, without the weight or drag of a risk-bearing balance-sheet, currently are.
This hybrid approach has become increasingly attractive to investors, including private equity specialists. This rumoured $400 million valuation (with the reported potential for $150m more) will likely heighten investors’ attraction to the program/fronting and hybrid risk-to-capital matching re/insurance approach.
Should a deal be announced (it’s important to remember there hasn’t been any confirmation of this deal, we have reached out but not heard from either party as of publishing), falling under the MS&AD stable could be a significant driver for global expansion for Transverse and allow the company to both, help the Japanese insurance giant access new risks and markets, as well as benefit from Mitsui Sumitomo’s access to global insurance risks.