From start-up to $3bn premium in just seven years. The stunning rise of MS Transverse

How does a start-up take just seven years to transform into a $3bn plus premium company? 

MS Transverse Insurance Group founder Dave Paulsson gives the answer in this Voice of Insurance podcast, describing his entrepreneurial quest to establish MS Transverse as a ‘hero’s journey’. Paulsson’s company has ridden the wave of fronting, a fast-growing area of insurance where fronters provide support to capacity-hungry insurance companies.

Paulson’s journey

Paulsson wasn’t by background an insurance man.

Paulsson’s career began in finance – hedge funds, private equity – for 15 years, before shifting to insurance. He had invested in everything from windfarms to movies, before starting to dabble in insurance. He quickly realised it was an industry with great potential.

He observes: “It’s such a massive industry. It’s so ubiquitous in our everyday life. It’s so integral to economic development and to society, and yet it’s basically under the radar of those outside of the industry for a whole bunch of reasons.”

Spotting the growing strength of MGAs, Paulsson and partner Erik Matson aimed to create an ideal carrier partner for the space. This vision involved a blank slate – no legacy systems, and catering precisely to the needs of delegated authority arrangements.

Hybrid fronting

The duo latched onto the idea of hybrid fronting.

Normally, the fronter would hand capacity to a managing general agent keen to grow its specialist business with customers. The fronter takes on no risk, walking away from deals to enjoy a tidy fee as the middle-man, ensuring the capacity is provided by another insurance firm, typically a reinsurer. 

But in a hybrid relationship, the fronter keeps a minority slice of the risk. This is attractive to capacity providers, such as a reinsurer, because it means everyone has to keep an eye on underwriting profits. 

“In the 90s, there were a couple high profile failures in the fronting space, and while there are certainly specifics to them, you can basically summarise it as – in a traditional front theoretically, you don’t have to care about the underwriting performance, because all that is being passed through to the reinsurers,” Paulsson says. “That is the biggest mistake you can ever make.”

Acquisition 

Transverse success caught the eye of MS Mitsui Sumitomo Insurance, which moved to acquire the group in 2022.

While MS brings all the support of one of the largest insurance companies in the world, Transverse supplies unique qualities for the Japanese giant. Paulsson reflects: “One of our ongoing conversations, something that I have with the senior staff in Japan, is all around showing them what current state of the art, best practices look like.

“And we think that that’s really in the MGA space, in the US, if you want to see whether it’s technology, whether it’s product innovation, whether it’s talent, or it’s structural innovation, all of that you can see most actively in the US MGA space. “So giving that access to the home office, we think, is a huge value added as well.”

Paulsson emphasises that Transverse is not just using the Japanese giant’s balance sheet in deals.

He points out: “We can bring our own balance sheet and other balance sheets within the organisation to bear. But we are not an in-house programs group like maybe some other carriers might be.

“Our entire model is around working with reinsurers. We’re so pleased to be the only fronting carrier, or hybrid fronting carrier, to partner with a number of the largest A-plus rated reinsurers in the world.”

The power of AI

Artificial intelligence is a huge part of MS Transverse potential for success. MGAs are investing in AI, and as the capacity provider with a watch on underwriting profits, MS Transverse can reap the dividends of improved MGA combined operating ratios.

“We’re also benefiting from all of the infrastructure spend, including technology spend of these leading players.

“So, the $50 million that one of our partners spent last year on it, including heavy investment in machine learning and AI, we get to benefit from here at transverse.”

MS Transverse is also partnering with software technology firms to boost efficiency and productivity. However, Paulsson notes that AI also brings reporting requirements to regulators in the US, while also ensuring committees internally have oversight.

E&S market potential 

Looking to the future, Paulsson is excited about the excess and surplus lines market.

Paulsson thinks that the Excess and Surplus (E&S) insurance market is growing strongly. He also believes that unlike in the past, this market probably won’t shrink during the cycles which have dictated the ebb and flow of E&S premium. People no longer see E&S as a last resort, and they like that it allows for more flexible pricing and policy terms.

He observes: “There’s a lot of risks in the market today, where E&S is just a better solution than what’s currently available, at least in the admitted market.”